Mckinsey Global Energy Perspective 2021

Global Energy
Perspective 2021
January 2021
Editor’s note
We publish this long-term energy outlook at the start of 2021, after a year that has brought Reflecting on the work for our Global Energy Perspective and discussions with many experts, we
extraordinary challenges. Economies worldwide have experienced profound effects of the global identified some common themes that stand out in this year’s edition:
health crisis, triggered by widespread public-health responses aiming to control the virus.
A As the world rapidly exhausts its carbon budget, there is growing momentum toward
Energy markets have reflected the uncertainty and shown exceptional movements. At the decarbonization of the global economy. Policy makers, business leaders, investors, and
beginning of the crisis, plunging fuel demand in many key markets was reflected by prices: by the end consumers are showing increasing levels of ambition to reshape energy systems. Yet the CO2
of March 2020, the price of gas hit a 30-year low, whereas the price of oil, also affected by supply emissions projected in our Reference Case and even in our Accelerated Transition case remain far
shocks, showed the largest single-day decline in the past 22 years. As economies have reopened, from the 1.5°C Pathway. This shows that to further reduce emissions, significant additional action is
energy commodities have shown a partial rebound: for example, by the end of third quarter 2020, oil needed, and more ambitious initiatives and policy measures must be specified and implemented.
demand in China was back at pre-COVID-19 levels, and 50 percent of the decline was recovered in
Europe and North America. B Fundamental trends shaping the energy transition in the coming decade remain in place and
appear resilient to the COVID-19 crisis. Renewable resources continue to decline in cost. When
In this volatile environment, long-term scenarios are more important than ever. To address combined with battery technology, they become cost competitive with fossil-fuel-based power
the various pathways for the energy transition, our Global Energy Perspective presents generation in many parts of the world. Similarly, electric vehicles (EVs) are likely to become the
four energy scenarios, which are based on contributions from hundreds of McKinsey expert most economic choice in the next five years in many parts of the world. In the case of hydrogen, a
practitioners worldwide. further acceleration in ramp-up plans and commitments is likely.

• The Reference Case is a forward-leaning “continuation of existing trends” outlook. This C Fossil fuels continue to play an important role in the energy system in our Reference Case.
scenario reflects our expectations of how current technologies will evolve and incorporates Fossil fuels will remain relevant despite a peak in oil demand in the late 2020s and a peak in gas
current policies and an extrapolation of key policy trends. demand in the mid-2030s. Yet even if oil and gas demand returns to pre-COVID-19 levels in a few
years, it will not return to its pre-COVID-19 growth path.
• The Accelerated Transition case assesses ten conceivable shifts that could happen at an
accelerated pace. D This year’s report includes several new elements and deep dives. Specifically, we have
dedicated full chapters to hydrogen, the demand outlook for coal and its role in the power sector, a
• The McKinsey 1.5°C Pathway offers a view on the shifts required to limit global warming to
perspective on the 1.5°C Pathway, and an outlook for energy investments and value pools.
1.5°C in hopes of stabilizing the climate.
• The Delayed Transition case mirrors the Accelerated Transition case and assumes that at This report is structured into five parts: Part one provides a perspective on the development of
a global scale, COVID-19 recovery measures fail to go hand in hand with green policies to fundamental drivers for the global energy system. Part two provides an outlook for power systems,
stimulate the energy transition. addressing the development of power demand as well as the evolution of power supply. Part three
presents outlooks per energy type and carrier, including natural gas, oil, coal, and hydrogen. Part four
The introductory chapter describes these four energy scenarios in further detail. In addition, we discusses carbon emissions and offers a detailed perspective on the McKinsey 1.5°C Pathway. And
detail two economic scenarios that reflect the uncertainty of economic recovery. the final part reflects on implications for business leaders and policy makers, including a view on value
pools and an energy-investment outlook.
We use these scenario outlooks—and the underlying models—to support hundreds of clients
around the world and across a broad range of sectors, helping leaders navigate the transitions in We hope this report is an interesting read that helps shape your thinking on the energy transition.
energy systems.
Global Energy Perspective 2021 2

Key insights from the Global Energy Perspective Reference Case
1 2 3 4 5
Long-term demand Power wins and Peaks in fossil-fuel Change is too Investment flows
impact of COVID-19 hydrogen changes the demand continue to slow to reach the remain stable over the
is modest landscape occur earlier 1.5°C Pathway next 15 years
Energy demand Electricity demand Peaks in demand for Despite rapid shifts in Renewables in the
rebounds quickly grows significantly hydrocarbons occur the Reference Case, energy-investment
post-COVID-19, through direct earlier than projected global greenhouse mix grow at the expense
and the impacts of electrification and (oil peaks in 2029 and gas (GHG) emissions of conventional
behavioral changes the uptake of green gas in 2037) decline by only around power generation, but
due to the crisis are hydrogen 25 percent by 2050, fossil fuels maintain a
small compared with Yet fossil fuels continue implying a 3.5°C pathway large share
fundamental shifts such Renewables quickly to play a major role
as electrification ramp up and account for in the energy system Moving to the 1.5°C Several tipping points
half of power generation by 2050, driven by Pathway requires lie ahead in the energy
Stimulus packages by 2035 growth in areas such as stronger ambitions transition; tracking
shape energy systems in chemicals and aviation and accelerated signposts will help
the decades to come implementation at a business leaders assess
global scale the direction and pace
of change in the years
to come
Source: McKinsey Energy Insights Global Energy Perspective 2021, December 2020

Executive summary
1
After a decade of rapid technological and policy shifts packages, the focus of the stimulus measures plays These shifts accelerate in the coming years, as
in energy sectors, 2020 has brought unprecedented a key role in shaping energy systems in the decades decarbonization and climate change are increasingly
disruption across the energy landscape. In our to come. important on the agendas of global policy makers
Reference Case, a rebound to pre-COVID-19 demand and business leaders, and as the consequences of
levels takes one to four years for power and oil In the longer term, fundamental shifts in the energy climate change play out and prompt greater action.
Long-term demand impact
and gas, whereas coal demand does not return to system continue, and the coming decades will see As the speed and magnitude of these shifts remain
of COVID-19 is modest
2019 levels. a rapidly changing landscape. In our Reference uncertain, this report covers four long-term scenarios
Case, demand for fossil fuels peaks in 2027, as for the decades to come: the Reference Case, the
As a result of COVID-19, government policies are electrification increases and the role of renewables in Accelerated and Delayed Transition cases, and the
more important in the energy transition. Given power systems grows rapidly. McKinsey 1.5°C Pathway.
the unparalleled size of many economic-recovery
2
Power consumption doubles as energy demand most regions before 2030. By 2036, half of the demand growth from 2035 to 2050, primarily in
electrifies, increasing its share of final energy global power supply comes from intermittent industry and transport.
consumption from 19 to 30 percent in 2050. renewable sources.
COVID-19 has limited impact on long-term power- To enable this shift to intermittent resources, both
demand growth. As green hydrogen becomes cost competitive in traditional capacity and new, flexible capacity are
Power wins and hydrogen
the 2030s, “indirect” power demand for electrolysis needed to ensure system security. Batteries play an
changes the landscape
At the same time, low-cost renewables dominate accounts for approximately 40 percent of electricity important role, but gas peakers also remain relevant
power markets, outcompeting existing fossil assets in to cover longer spells of low output for renewables.
3
Oil-demand growth slows in the current decade Gas demand continues to grow until the late 2030s. show net growth driven by economic growth in India and
and peaks in the late 2020s, driven by the decline Sectors with the largest growth include chemicals, the Association of Southeast Asian Nations (ASEAN)¹
in road transport and the impact of COVID-19. other industry, and buildings in non-OECD Asia and
Demand in major markets, such as the United the Americas. Following the peak, declining demand Despite the long-term decline in demand for all three
States and the European Union, has already for gas is driven by the power sector, as gas shifts its fossil fuels, each continues to play a key role in the
Peaks in fossil-fuel demand peaked and shown gradual decline for more than role from baseload provider to flexibility provider. global energy landscape in the Reference Case. Without
continue to occur earlier a decade. Continued demand growth is driven by further decarbonization policies, more than half of all
chemicals and aviation, as well as by emerging Coal continues its decline. In the power sector, global energy demand comes from fossil fuels by 2050.
economies. Despite significant decline, new oil gas and, increasingly, renewables are more
supply is still needed in the foreseeable future. economical alternatives. Until 2035, heavy industry, In the Accelerated Transition case, both coal and oil
particularly iron and steel and cement, is expected to demand will be 22 percent lower compared with the
Reference Case in 2050 (and 52 and 27 percent lower
versus 2019, respectively).
¹ Includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.

4
The projected CO2 emissions in the Reference decade is particularly crucial, requiring a decline in as a sign that additional ambitious initiatives and
Case are far from pathways that would limit global global emissions of more than 50 percent by 2030. policy measures are needed to move closer to
warming to 1.5°C. In addition, global energy-related This requires substantial and rapid changes in how the 1.5°C Pathway. In other words, not enough is
emissions in the Reference Case remain flat societies around the globe fuel their economies. being done.
until 2030, followed by a gradual, approximately
Change is too slow to
25 percent decline until 2050. Despite the increased momentum toward
reach the 1.5°C Pathway
decarbonization, many governments still need to
By contrast, CO2 emissions need to reach net zero translate ambitious targets into specific policies.
by 2050 to move to the 1.5°C Pathway. The coming Furthermore, the Reference Case can be interpreted
5
Following recovery from the COVID-19 shock, In the Reference Case, oil and gas still represent the growing attention of governments, investors,
investments in the energy system steadily grow 50 percent of energy investments by 2035. and customers to the energy transition, the
toward 2035. Despite some fundamental shifts Investments in power-generation assets remain profitability of all energy segments continues to vary
in underlying drivers, such as the rapid growth in nearly flat, as strong growth in installed capacity is significantly among countries and through cycles.
renewables and peaking oil demand, the energy- matched by a strong decline in capital expenditures
Investment flows remain
investment mix remains remarkably stable, as shifts for renewable technologies. Oil and gas investments Thus, in light of these substantial shifts, business
stable over the next 15 years
in volumes are offset by further declines in the cost grow by an average of 3 percent a year through leaders and investors face important strategic
of renewables and increasingly expensive oil and 2030 versus 2020 lows, despite slowing demand questions. To navigate the transition, they must
gas supply. growth driven by increasingly expensive projects identify and track key signposts that indicate the
to replace depleting existing production. Given direction and speed of change.

Our Global Energy Perspective offers a detailed demand outlook across
key dimensions.
Our perspective is based on a detailed demand outlook across key dimensions.
Our report assesses energy systems across countries, sectors, and energy products
GEP builds on more than 20 state-of-the-art
Illustrative examples McKinsey assets, including:
30 sectors McKinsey Hydrogen Model

Transport Industry
Combines energy- and hydrogen-demand
• Road transport (including • Iron and steel
buses, trucks, and cars) projections with country-specific supply-cost
• Chemicals
• Rail dynamics. Models detail cost outlooks for
• Manufacturing
• Aviation • Construction underlying technologies such as electrolyzers;
• Marine steam methane reforming; renewables cost
Sectors
• Mining
• Other transport • Agriculture decline; and carbon capture, utilization, and
• Refining storage (CCUS)
Buildings • Other industry
• Residential buildings
McKinsey Power Model
• Commercial buildings Power Projects capacity additions in the power sector
• Electricity
Heat and simulates dispatching decisions based on
generation
• Hydrogen system-cost optimization. Captures more than
production ies 80 percent of global power demand at the
Ene
rgy p graph country and subcountry level and models at
rodu
cts Geo
hourly granularity
55 energy products 146 countries
• Natural gas • 45 in Asia McKinsey eTrucks TCO Model
• Coal • 43 in Europe Assesses future evolution of commercial car
• Electricity • 31 in Africa parks by country and vehicle class and projects
• Hydrogen • 27 in Americas powertrain-mix development based on total cost
• Oil products (including
of ownership. Incorporates views on the cost
gasoline, diesel, and HFO)
• Renewable resources decline of battery and hydrogen-fueled engines
(solar, wind, and hydro) for eTrucks and efficiency improvements of
internal-combustion-engine (ICE) trucks

Four energy scenarios aim to capture the uncertainty in
energy perspectives.
Our scenarios span a broad spectrum of outcomes, reflecting the different speeds at which the energy transition unfolds
1. 1.5ºC Pathway 2. Accelerated Transition (AT) 3. Reference Case (RC) 4. Delayed Transition (DT)
Description McKinsey’s view of a pathway that A progressive view that accounts for McKinsey’s consensus view on Post-COVID-19, the societal focus
limits global warming to 1.5ºC across government responses to COVID-19 our current path, combining more is on economic recovery; the energy
sectors and energy products, reflecting and “next normal” behavioral changes. progressive views on the one hand transition continues at a slower speed;
deep expertise to build technically This scenario assesses the impact of with views that question feasibility there are fewer incentives to invest in
viable decarbonization paths ten conceivable shifts happening at and actual realization on the other. decarbonization technologies; and low
an accelerated pace (such as faster Reflects the latest perspectives on fossil-fuel prices delay cost parity
uptake of EVs, recycling, renewables, the short-term impact of COVID-19
and hydrogen) and long-term macroeconomic
outlooks as well as expert views on
cost trajectories for existing and
novel technologies
Policy and regulatory Policy shift to put in place COVID-19 recovery measures focus Existing and announced policies, COVID-19 recovery measures
environment regulatory framework and on the “green stimulus” around the excluding high-level targets that around the globe prioritize jobs and
incentives needed to drive rapid globe, accelerating the development still need to be further specified in GDP growth in incumbent carbon-
decarbonization investments and uptake of decarbonization legislation; not in compliance with the heavy sectors
technologies Paris Agreement
Decarbonization Requires accelerated investment Accelerated cost parity and Proven technologies experience The cost decline of already-existing,
technology in and deployment of clean technological advancement of proven cost and technological improvement relevant technologies, such as solar
development technologies, including some that are technologies (such as floating offshore based on historical trajectory photovoltaics (PV) and wind, slows down
not applied at scale today (CCUS) wind turbines), triggered by increased
investments in low-carbon solutions
Changes in Shifts in specific areas, such as Society adopts a large number of the No significant shifts in consumer Most behavioral shifts witnessed during
consumer behavior travel patterns through increased next-normal behavioral shifts; many behavioral patterns compared lockdown fade out
ride sharing and diets to reduce lockdown habits, such as working with today
beef consumption remotely, become permanent

Contents
A shifting global energy landscape
Power demand and supply
Outlook per fuel type
Decarbonization challenges
Implications on energy value pools

Chapter summary
At the start of the 2020s, we look back at a decade of As energy systems recover from COVID-19, Climate change and decarbonization are increasingly
rapid technological and policy shifts in energy sectors; fundamental shifts continue and accelerate: the top of mind for CEOs and policy makers
in 2020, COVID-19 brought unprecedented disruptions coming decades see a rapidly changing landscape
• Recent developments suggest increased acceleration
• Although COVID-19 and the resulting health and • Global energy consumption shows flattening growth of shifts in energy systems in coming years; policy
economic crises disrupted the entire energy landscape, as the energy intensity of GDP further declines; announcements and technological development of
oil and coal demand were particularly affected electricity captures all growth as demand for fossil critical enablers point toward further shifts
fuels in final consumptions declines
• In the short term, a return to pre-COVID-19 levels takes • Governments, through substantial stimulus packages,
one to four years, depending on the recovery that • Economies around the world shift to renewables; will likely play a decisive role in shaping energy
unfolds; demand for electricity and gas rebounds more total energy needs decline in mature economies and systems in coming decades
quickly than oil demand, whereas coal does not recover plateau in China, whereas India, ASEAN, and Africa
show rapid growth
• In the longer term, the economic effects of COVID-19
have permanently changed energy-demand curves. • Despite a peak in 2027, fossil fuels continue to play
However, behavioral shifts triggered by COVID-19 an important role in energy systems in the Reference
are minor compared with “known” shifts: decreasing Case; demand for oil peaks in the late 2020s and gas
car ownership, growing fuel efficiencies, and uptake in the 2030s, whereas coal shows a steady decline
of EVs have three to nine times larger impact than
• Under the Accelerated Transition scenario, demand
a combination of remote working and reduced
for fossil fuels—oil and coal in particular—further
willingness to travel by airplane
declines; significantly greater shifts are required to
meet the requirements of the 1.5ºC Pathway
• The drop due to COVID-19 leads to a lower peak of

global CO2 emissions, but emissions remain far from a
1.5ºC Pathway; the world exhausts its carbon budget
for 2100 by the early 2030s

The past decade brought fundamental changes to the global
energy system.
The past decade has brought fundamental changes in the global energy system.
At the start of the 2020s, we look back at a decade of rapid technological and policy shifts in In the past decade, technological improvement, economies
energy sectors of scale, and supply-chain optimization lowered the cost
of solar PV (in $/kW) by 76 percent, resulting in a 13-fold
Examples of shifts in the global energy system
growth in installed capacity. At the same time, battery costs
declined by 78 percent and costs for wind power halved
Technology cost,1 2010 = 100 Total shale/tight oil and gas production,
MMB/D (gas in oil eq)
The shale revolution, through hydraulic fracturing and
30 horizontal drilling, increased the production of cheap
hydrocarbons eight times over since 2010, boosting
–46%
global liquefied natural gas (LNG) uptake to 480 billion
–76% –78% ~8x cubic meters (bcm) in 2019
As cities and countries move to meet carbon targets, an

increasing number have announced bans on ICE vehicles
4 by 2030
Wind Solar Battery 2010 2020
Increased global climate awareness and policy action
resulted in new carbon tax initiatives, which have
Announced 2030 ICE city access restrictions, National/regional carbon pricing initiatives, increased nearly threefold since 2010
millions of citizens affected globally number of initiatives
188 56
~2.5x ~3x
70 19
2017 2020 2010 2020
Numbers represent global average.

1

This year, the COVID-19 crisis caused unprecedented disruption
This year, the COVID-19 crisis caused unprecedented disruption in the
in the
energy energy landscape.
landscape.
In particular, oil demand was affected, as daily and international travel was significantly reduced Travel restrictions due to COVID-19 have reduced
monthly flight activity by up to 90 percent, as compared
Examples of COVID-19’s impact on different components of the energy value chain Actual Pre-COVID-19 projection
with the same time frame in 2019. Recovery to
Total passenger flight activity, trillion RPK1 per quarter Oil demand, MMB/D pre-COVID-19 levels is expected only when the virus
is under control
2020 Q2 actual down 90% 2020 Q2 actual down 20%
from pre-COVID-19 projection from pre-COVID-19 projection Reduced activity in transportation and industrial sectors
2.5 120 has caused oil demand to drop to 85 million barrels
per day (MMB/D) in 2020 Q2 and 94 MMB/D in Q3. As
a result, estimates for total demand in 2020 are around
9 MMB/D lower than pre-COVID-19 projections
Crude oil prices have experienced a drop of up to

80 percent due to imbalances in supply and demand
As a result of COVID-19, global energy investment

0 0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 in 2020 is expected to decrease by $400 billion
2018 2019 2020 2018 2019 2020 (20 percent) compared with 2019
Crude oil price, average $ per barrel² Global energy investment, billion $
90 2020 estimate
1,891 down 20% from
2020 Q2 2019 actual
down 80% 1,520
from 2020 Q1
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42 Q1 2019 2020 estimate
2018 2019 2020 2021
Revenue passenger kilometers.

1
As of November 17, 2020.

2
Source: McKinsey Energy Insights Global Energy Perspective 2021, December 2020; IATA air passenger monthly analysis, August 2020; International Energy
Agency (IEA); US Energy Information Administration (EIA); Argus Media

In the short term, a return to pre-COVID-19 levels takes one to
four years, depending on the recovery that unfolds.
In the short term, a return to pre-COVID-19 levels will take 1-4 years,
depending on the recovery that will unfold.
Electricity and gas recover more quickly than oil demand; coal does not recover The impacts of COVID-19 have permanently shifted
energy demand curves. Although demand rebounds to
2019 level Recovery to pre-COVID-19 level Virus contained Muted recovery
2019 levels in one to four years, it does not return to the
Electricity consumption, thousand terawatt-hours (TWh) Oil demand, million terajoules (TJ) previous growth path
30 200 Recent work by McKinsey on the effects of the COVID-19

crisis on economic growth is reflected in the Reference
Case. This work introduced a set of nine scenarios,
reflecting varying levels of:
• E
ffectiveness of the public health response to
COVID-19
• S
peed and strength of economic recovery,
depending on the impact of policy interventions
15 120
2010 ’21 ’23 2030 2010 ’22 ’24 2030
From these nine scenarios, two were selected as most
likely outcomes by a group of more than 2,000 global
executive respondents: “Virus contained; growth returns”
Natural gas demand, million TJ Coal demand, million TJ and “Muted recovery”
150 170 At the time of this report’s publication (January 2021),

the latest actual numbers show a trajectory that
comes closest to “Virus contained; growth returns.”
Consequently, this scenario underlies the projections in
our report
Coal has already

peaked in 2014
110 130
2010 ’21 ’23 2030 2010 2030

As energy systems recover from COVID-19, fundamental shifts
As energy systems recover from COVID-19, fundamental shifts are expected to
continue and accelerate.
continue and accelerate.
The coming decades will see a rapidly changing landscape As economies and energy markets recover from the
short-term impact of COVID-19, the long-term energy
Share of electricity grows gradually, Intermittent renewable sources¹ dominate the power mix, transition is primarily the result of “known” shifts.
share of electrification in energy mix, % share of intermittent sources in total installed capacity, % Examples include:
30 68
1. T
he world continues to electrify, with the share of
19 electricity in the energy mix growing from 19 percent
13
today to 30 percent by 2050. Intermittent renewable
17
sources dominate new capacity additions. By 2035,
0
more than half of globally produced power comes
1990 2019 2050 1990 2019 2050 from solar PV or wind
Energy efficiency continues to increase, Emerging economies² take increasing share of global energy, 2. E
nergy efficiency, particularly the results of
GDP energy intensity, TJ/$, indexed to 1990 = 100 energy consumption by region, million TJ (%)
technological advancements and fuel switching,
100 Emerging economies² Mature economies continues to increase, driving down the energy intensity
–34% –38% of global GDP. Emerging economies represent a
growing share of global energy needs, with particularly
strong growth in India, ASEAN, and Africa
262 420 500
3. F
ossil-fuel demand peaks in the next decade; oil
demand peaks before 2030, and coal demand has
1990 2019 2050 1990 2019 2050 already peaked. Yet fossil fuels continue to play a
significant role, and CO2 emissions remain somewhat
Fossil-fuel demand peaks in next decade, Energy-related emissions peak in 2023,
flat for the next decade
global fossil-fuel demand, million TJ CO2 emissions outlook, millions total CO2
500 2027 Fossil peak 35

 2023 Emissions peak
Gas
–23%
Oil
Coal
0 19
1990 2050 2020 2050
Intermittent technologies include solar and on- and offshore wind.

1
Emerging economies include India, ASEAN, Latin America, and Africa.

2

In the Reference Case, fossil fuels continue to play an important
role in energy systems.
In the Reference Case, fossil fuels continue to play an important role in
energy systems.
Oil demand peaks in the late 2020s and gas in the 2030s, whereas coal shows a steady decline In 2020, total energy demand drops by 7 percent due to
reduced (economic) activity as a result of COVID-19. It
Primary energy demand per fossil fuel, million TJ
takes until late 2021 to see energy demand return to pre-
COVID-19 levels
600
Gas continues to increase its share of global energy
2027 Fossil- Reference demand in the next ten to 15 years—the only fossil fuel
fuel peak Case 2020
500 to do so—and then peaks in the late 2030s. Still, gas

demand in 2050 is 5 percent higher versus today’s level
2037
Gas peak Oil-demand growth slows substantially, with a projected
400
2029 peak in the late 2020s followed by a 10 percent decline
Oil peak CAGR, % CAGR, % by 2050, mainly driven by slowing car-park growth,
 2017–35 2035–50
enhanced engine efficiency in road transport, and
300 Gas 0.7 –0.4 increased electrification
Coal demand decreases almost 40 percent from 2019 to

2050, driven mainly by the phaseout of coal plants in the
200
power sector across regions

2014
Coal peak Oil 0.1 –0.7
100
Coal –1.6 –1.6

0
1990 2000 2010 2020 2030 2040 2050

Global CO₂ emissions peak at around 33 GtCO₂ in 2030, but
the
remainstrajectory
far from the 1.5°Cremains
Pathway. far from the 1.5°C Pathway.
Global CO₂ emissions peak at around 33 GtCO₂ in 2030, but the trajectory
In the Reference Case, the global carbon budget for 1.5°C Pathway is exhausted by 2030 COVID-19 has triggered a drop in global CO2 emissions of
around 7 percent. In the Reference Case, energy-related
Global energy-related CO₂ emissions, GtCO₂ p.a.
CO2 emissions peak by 2023, followed by a steady
2030: 1.5°C carbon budget exceeded decline of approximately 25 percent until 2050
35 In the Accelerated Transition scenario, emissions by

2023: Emissions peak
2050 are 20 percent lower than in the Reference Case,
30 reflecting a more rapid shift to renewable sources for
Delayed Transition power generation as well as an accelerated uptake of
25 Reference Case new, lower-carbon technologies in end-use segments,
such as road transport and industry
–20%
20 Accelerated Transition However, Reference Case CO2 emissions, and even
Accelerated Transition emissions, remain far from the
15 1.5ºC Pathway. CO2 emissions by 2050 need to drop by
–90%
90 and 85 percent versus projected levels, respectively,
10 to comply with the requirements for the 1.5ºC Pathway.
In fact, CO2 emissions need to show an annual decrease
similar to the drop in 2020 for the next 30 years to reach
5
the target by 2050
1.5ºC Pathway
0
1990 2000 2010 2020 2030 2040 2050

Climate change and decarbonization are increasingly top of
mind
and policy for CEOs and policy makers.
Climate change and decarbonization are increasingly top of mind for CEOs
makers.
Growing momentum is triggered by multiple drivers reinforcing one another “Once climate change becomes a defining issue for
financial stability, it may already be too late.”
Corporate commitment Technological developments
Decarbonization commitments Rapid cost reductions for low-carbon —Mark Carney, Governor, Bank of England
of leading companies have an technologies trigger tipping points in
impact throughout entire which renewables, batteries, and “In the near future—and sooner than most anticipate—
supply chains hydrogen become competitive there will be a significant reallocation of capital.”
—Larry Fink, CEO, BlackRock
“ . . . climate change and related environmental issues

Physical risk Consumer engagement [ranked] as the top five risks in terms of likelihood—the
Harmful impacts of climate Shifts in consumer preferences first time in the survey’s history that one category has
change have come to the and the emergence of activist
forefront in recent years groups increase attention occupied all five of the top spots.”
—World Economic Forum, Global Risks Report 2020
Financial-sector shifts Increased regulations

Environmental, social, and Policy makers increase ambition
corporate governance (ESG) levels for climate policies and
performance of investments is define regulations to comply with
increasingly assessed; several Paris Agreement targets
large financial players aim to
reduce the carbon footprints
of their portfolios
Source: McKinsey Energy Insights Global Energy Perspective 2021, December 2020; Bank of England; BlackRock; World Economic Forum

Contents

Chapter summary
Power consumption more than doubles by 2050 as Low-cost renewables dominate power markets Both traditional capacity and new, flexible capacity are
energy demand electrifies, wealth increases, and green needed to ensure system security
• Renewables become cheaper than existing fossil
hydrogen picks up momentum
plants; new renewables are competitive with the • Power systems see strong growth in balancing needs;
• Power consumption more than doubles by 2050 in marginal cost of fossil power by 2030 growth is strongest beyond a 50 percent share of
all scenarios; in the Accelerated Transition and 1.5ºC solar and wind generation
• Renewables account for half of the power supply
Pathway scenarios, power consumption roughly triples
by 2035 in the Reference Case; in the 1.5ºC Pathway • Coal and gas utilization factors decrease; the uptake
• COVID-19’s impact on power consumption is largely scenario, more offshore wind and solar power of intermittent renewables pushes coal and gas into
constrained to the short term; renewable capacity are required providing backup power
additions continue to grow, driven by China and the
• By 2035, almost half of global capacity is from • Both traditional capacity and new, flexible capacity are
United States
solar and wind; global total installed capacity almost needed to ensure system security; yet new flexibility
• Power-demand growth is driven by increasing living doubles, mainly driven by China, India, and other sources account for around 60 percent of flexible
standards, electrification, and hydrogen; relative Asian countries capacity additions in 2031–35
growth is largest in the transport sector
• Power systems need to be resilient to prolonged
• In transport, electrification is driven by cost parity of low renewables output; extreme weather events
EVs with conventional-fuel vehicles; hydrogen becomes happen sporadically
competitive for long-haul trucks around 2030
• More firm capacity is needed to ensure system security
• In industry, additional electrification is limited; at-scale in extreme weather events; additional capacity acts as
electrification could be economical at electricity prices insurance against one-in-20-years events
below $25/megawatt-hour (MWh)
• In buildings, electricity consumption grows fastest in

non-OECD countries; appliances and space cooling
are the largest drivers

Power consumption more than doubles by 2050.
Power consumption more than doubles by 2050.
In the Accelerated Transition power consumption more then doubles and in the 1.5C Pathway even triples In the Reference Case, projected electricity consumption
more than doubles by 2050; it grows 2.4 percent p.a. in
Scenarios description Global electricity demand outlook by scenario, the following decades
thousand TWh
1.5ºC Pathway The 1.5ºC Pathway requires electricity consumption to be
Increased regulations and incentives to Reference Case 20201 approximately 50 percent higher than in the Reference
eliminate GHG emissions drive even starker 80
electrification across all sectors, including Case by 2050, but incremental demand is already
those that are hard to electrify today 73 increasing today. Significantly higher demand also
(high-heat industries) requires structural shifts in power-supply infrastructure
70
Accelerated Transition In the Accelerated Transition scenario, shifts lead to

Technological advancement of proven 61 3x² an approximately 25 percent increase in electricity
solutions accelerates cost parity and 60
triggers sooner and stronger electrification consumption in 2050 versus the Reference Case.
(such as heat-pump adoption or EVs). The Additional demand occurs only after 2030, mostly in
electrification trend is partially offset by the road-transport sector and mainly driven by stronger
50 49
efficiency gains
47 uptake of EVs and hydrogen long-haul trucks
45
Reference Case
Projected evolution of the electricity consumption in
Consensus view on the key drivers of 40
electricity consumption: increasing living the Delayed Transition is almost in line with our
2x²
standards and consumption per capita, Reference Case; by 2050, the Delayed Transition
electrification across all sectors and decreases by only 2,000 TWh
hydrogen uptake; EVs reach cost parity 30
with ICE vehicles in the next decade,
while hydrogen becomes competitive for
long-haul trucks around 2030
20
Delayed Transition
Slower than in the Reference Case, cost
decline of zero-emissions technologies and 10
lower fossil-fuel price outlooks limit the
fuel-switching trend. Still, the impact of
lower-efficiency gains offsets lower
electricity consumption from new sectors 0
1990 2000 2010 2020 2030 2040 2050
1
Reference Case 2020 does not incorporate a perspective on hydrogen demand and its impact on electricity consumption.
2
Versus 2019 values.
Source: McKinsey Energy Insights Global Energy Perspective 2021, December 2020; IEA

Power-demand growth is driven by increasing living standards,
electrification, and hydrogen.
Power-demand growth is driven by increasing living standards, electrification,
and hydrogen.
Relative growth is largest in the transport sector Electricity demand doubles by 2050. This is driven by:
Global power demand by sector, thousand TWh Power demand for green H₂ production
A. Transport: Electrification of energy consumption
grows from 1 percent in 2019 to 15 percent in 2050,
and hydrogen increases from 0 to 8 percent during
that period. This is driven by road transport, in which
passenger cars reach cost parity with EVs by mid-
+2.8% p.a. 2020 and hydrogen long-haul trucks reach cost parity
7.3 49.1 around 2030
9.5 Transport B. Industry: Electrification of energy consumption

4.9 remains almost flat at around 25 percent. Further
electrification in industry is limited, as electrification
+2.1% p.a. 4.4 of medium- and high-temperature heat requires low
electricity prices
1.8 32.5
2.9 2.2 C. Buildings: Electrification of energy consumption
4.4 19.8 Industry grows from approximately 30 percent to almost 50
+3.3% p.a.
percent in 2019–50. Higher living standards in non-
23.4 OECD countries support demand for space cooling
0.5 14.9 and appliances
Non-OECD Asia is responsible for around 60 percent of

11.9
electricity-demand growth in 2019–50
12.7
19.9 Buildings
15.5
11.0
2000 2019 2035 2050
CAGR, % 2 1 11 2 2 10
Renewables become cheaper than existing fossil plants in
most locations.
Renewables become cheaper than existing fossil plants in most locations.
New renewables can compete with the marginal cost of fossil power by 2030 Power from newly built renewable assets becomes cost
competitive with power generation from existing coal and
Reference case Coal Gas S Solar PV SS Solar PV + storage W Onshore wind
gas assets in the late 2020s in most countries. When
combining the renewable capacity with storage solutions,
Tipping points represent years when new solar or wind assets
this tipping point occurs ten years later
Share of coal and gas in first become cheaper than generating electricity from existing
Country power generation 2019, % coal or gas
Coal-generated power remains competitive longer than
Australia S S W SS W SS gas power in most regions, with exceptions for regions
with ample low-cost domestic gas resources, such as the
United States
Brazil S, W S SS W SS
Solar becomes economical first in all regions as a result
of lower levelized cost of electricity (LCOE)
China (North) S, W S, W SS
This view represents a stylized example of complex hourly

China (South) S, W S, W SS optimizations to understand shifts in marginal economics
Germany S W W SS
Saudi Arabia S SS
South Africa S S W SS SS W
Spain S W SS W SS
United States
S S W SS SS W
(California)
United States
S S
(Northwest)
0 50 100 2020 2025 2030 2035 2040
Source: McKinsey Energy Insights Global Energy Perspective 2021, December 2020; McKinsey Power Model

In the Reference Case, renewables account for half of the power
supply by 2035.
In the Reference Case, renewables will account for half of the power supply
by 2035.
In a 1.5ºC scenario, more offshore wind and solar are required Concurrent capacity optimization and dispatching
enables the capture of full variations in renewable output,
Global power generation, thousand TWh Nuclear Coal Gas Oil Hydro and supports projections for backup capacity
Wind offshore Wind onshore Solar Other²
While considering such real-world dynamics, renewables
Reference Case Scenarios³ (including hydro) are set to grow to 54 percent of the
generation mix by 2035. Meanwhile, generation plateaus
80 80 despite increasing power demand as it shifts to providing
flexibility over baseload
70 70
In the Reference Case, despite renewables uptake,
60 60 emissions decrease by just 55 percent in the power
sector by 2050. In a 1.5ºC scenario, more offshore wind
50 50 and solar are required
40 40 The Reference Case generation perspective is based on

the McKinsey Power Model,⁴ which optimizes capacity
30 30 additions and retirements based on economics and local
constraints while dispatching assets to meet demand on
20 20 an hourly basis
10 10
0 0
1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 DT AT 1.5ºC
Share of renewables,¹ % 28 54 76 76 83 94
2050
1
Includes solar, wind, hydro, biomass, geothermal, and marine and hydrogen gas turbines.
² Other includes bioenergy, geothermal, and marine and hydrogen gas turbines.
³ DT refers to the Delayed Transition; AT refers to the Accelerated Transition.
⁴ The McKinsey Power Model covers approximately 80% of today’s global power demand at a country level, or for some countries a more granular regional level.
The outlook for remaining countries (around 20% of global power demand) is interpolated using proxies based on modeled countries, as well as local expertise.

Power systems see significant growth in balancing needs.
Power systems see significant growth in balancing needs.
Growth is strongest beyond a 50 percent share of solar and wind generation As the share of intermittent renewable generation
increases, the growth in balancing needs rises. High
Lower and upper bound for selected countries Share in 2017 Share in 2050 shares of intermittent generation introduce new system
Global Australia China Germany India United States challenges:
Share of flexible capacity in total dispatchable capacity in selected countries,1,2 %

• Regional imbalances: managing the differences in
100 location between demand and supply
90
• Temporal imbalances: managing mismatched timing
80
of demand and renewables supply
70
60 • Ramping needs: increasing and decreasing
50 significant capacity within a few hours or minutes
40
• Response and reserve needs: managing frequency
30 at times with low levels of inertia from capacity with
20 spinning mass
10
• Extreme weather events: providing power even
0
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 during prolonged periods of low output from solar
and wind
Share of intermittent renewable generation, %
• Market design: providing the right operational and
1
Flexible capacity includes gas peakers, reservoir and pumped hydro, and new flexibility providers. Total dispatchable capacity is equal to total capacity,
excluding solar and wind. investment signals based on economics
2
Global data are representative of 32 countries, which account for ~80 percent of global power demand.

Contents
• Gas
• Oil
• Coal
• Hydrogen

Gas demand
Chapter summary
Gas-demand growth continues until around 2030, with • Gas-to-power peaking is driven by the shifting Almost all additional demand gas is supplied by
very little deviation across most scenarios; in the 1.5ºC role of gas generation from baseload to flexibility; liquefied natural gas (LNG), leading to a CAGR of around
Pathway, gas demand declines significantly to comply gas capacity remains stable, while generation 4 percent until 2035; by 2035, LNG demand reaches
with strict carbon budgets declines sharply approximately 20 percent of global gas demand
• In the Reference Case, gas demand grows by an • The sensitivity of gas demand in power to reduced Even with cheaper renewables and more recycling, gas
additional approximately 600 bcm by 2030 and then gas prices greatly depends on the local specifics; in demand remains resilient; under different renewables
remains around that level until 2050; gas demand Germany, lower gas prices only postpone renewables cost trajectories, gas demand in 2050 varies by only an
is expected to recover to pre-COVID-19 levels in uptake, but they outcompete coal generation in India additional 5 percent by 2050
around two years
• Gas prices of $5 to $6/million British thermal unit A transition to green hydrogen has a small impact on gas
• Looking at the various segments, industry is the key (MMBTU) and CO2 prices around $30 to $40 help demand in most scenarios; in buildings, for example, most
driver of growth, while gas in power starts to decline gas versus coal; at this price level, existing gas feasible substitutions reach 0.1 to 10.0 percent of demand
by 2025 outcompetes existing coal—and other thresholds
remain far away
• Power loses its role as the most significant gas-
demand growth driver over the past 20 years, while
chemicals accelerates; China and non-OECD Asia lead
the growth and offset decline in Europe

Gas-demand growth continues until about 2030, with very little
deviation between
Gas-demand growth Accelerated
continues until and
about 2030, with very
between Accelerated and Delayed Transition scenarios.
littleDelayed
deviation Transition scenarios.
In the 1.5ºC Pathway, gas demand declines significantly to comply with strict carbon budgets In the Reference Case, gas demand remains nearly flat,
increasing only by 8 percent compared with today’s
Scenario descriptions Global gas-demand outlook, bcm levels, with demand peaking in 2037
1.5ºC Pathway Reference Case 2020 Peak demand The reduction in natural-gas consumption required to
Increased regulations and incentives 5,000
achieve the 1.5ºC Pathway drives natural-gas demand to
to eliminate GHG emissions drive even
starker electrification and less gas 2037 shrink by 75 percent by 2050 across all sectors
demand across all sectors 4,500 2027
+2% Natural-gas demand remains resilient to the pace of the

Accelerated Transition 4,000 energy transition. In 2050, demand decreases by only
–5%
Favorable financing terms for low-carbon approximately 5 percent in the Accelerated Transition
generation and increased carbon prices 2019
scenario versus the Reference Case. Overall decline
drive faster electrification and 3,500
renewables uptake; additional hydrogen post-2035 is mainly driven by electrification, strong
uptake occurs in buildings due to renewables uptake, and green-hydrogen adoption in the
blending hydrogen into natural gas 3,000 power, buildings, and chemical sectors
Reference Case –75% Furthermore, there is only minimal additional gas demand
Consensus view on key drivers of gas 2,500
projected in the Delayed Transition scenario. In 2050,
demand: electrification, renewables
uptake, and green-hydrogen adoption; demand is only approximately 2 percent higher than in
sustained low gas prices drive 2,000 the Reference Case, as gas demand is resilient to key
significantly higher gas demand. delaying levers shaping the energy-transition landscape
However, the extent to which demand
increases greatly depends on the 1,500
regional/sector characteristics
1,000
Delayed Transition
Slower uptake of renewable
technologies due to frozen carbon prices 500
and limited funding of cheap renewable
projects
0
1990 2000 2010 2020 2030 2040 2050
Source: McKinsey Energy Insights Global Energy Perspective 2021, December 2020; International Energy Agency (IEA)

In the Reference Case, gas demand grows by an additional
approximately 600 bcm by 2030.
In the Reference Case, gas demand grows by an additional approximately
600 bcm by 2030.
Gas demand is expected to recover to pre-COVID-19 levels in around two years After stable growth of 2 to 3 percent p.a. over the past
few decades, gas demand slows down to approximately
Global gas-demand outlook 2019–50 by sector (gross), bcm Power Industry¹ Buildings Transport² 1 percent p.a. in the next decade and even lower from
2030 to 2040
CAGR, %
Total peak gas demand (2037) 2019– 2035–
4500 35 50 Overall gas demand peaks in 2037, reaching more
than 4,300 bcm, and then slowly declines by around
4000
+618 4.2 –2.4 0.7 percent every year
3500
0.8 –0.4
3000 Gas-demand growth in industrial sectors remains
strong in the coming decades, with growth rates of
2500 approximately 1.3 percent p.a., mainly driven by the
1.3 0.4 chemical and petrochemical sectors
2000
1500
Decline post-2035 is mainly driven by decline in
1000 power (1.4 percent p.a.), as renewables become more
–0.2 –1.4 competitive and gas shifts its role from baseload
500
generator to flexibility provider
0
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
CAGR, %
2.9
2.1 1.8
0.8
0.2
–0.7
1990–99 2000–09 2010–19 2020–29 2030–39 2040–49
Includes other energy sectors.

1
Does not include gas use for pipeline transport (approximately 75 bcm in 2019).
2

By sector, industry is the key driver of growth, while gas in
power starts to decline by 2025.
By sector, industry is the key driver of growth, while gas in power starts to
decline by 2025.
Power shows minimal decline by 2035, though it drives decline in the next three decades The chemical sector contributes nearly a third of
gas-demand growth until 2035 and together with other
Global gas-demand change 2019–50 by sector (gross), bcm Increasing Decreasing industrial sectors makes up approximately 75 percent
of the growth in this period
94
Industrial gas demand grows consistently post-2035,
4,327 30 given continuous economic growth and the difficulty
55 2 292
of decarbonizing many of the medium- and high-heat
112 processes by electrification
55
176 52 In fact, gas is seen as a major source of decarbonization
35 in some industrial sectors, where it replaces a large share
28 4,044
of coal in China or oil in chemicals
155 Gas-to-power demand remains nearly flat, mainly due to

3,885 two opposing forces: the coal-to-gas shift in the short
term and fast renewables uptake in the early 2030s.
The sharp decline afterward is driven by intermittent
Total Industry Buildings Refining Total Industry Buildings Refining Total
2019 2035 2050 renewables and storage solutions increasing their share
Chemicals Power Transport Chemicals Power Transport in the generation mix
38 19 –3 14 94 –2 11 45 28 –22 8 34 –42 4
2019–35 change, % 2019–50 change, %

Power loses its role as the primary driver of gas-demand growth
over
20 years;the past
chemicals 20 years; chemicals accelerates.
Power loses its role as the primary driver of gas-demand growth over the past
accelerates.
China and non-OECD Asian countries lead growth and offset decline in Europe Over the past two decades, the power and industry sectors
accounted for more than 80 percent of gas-demand
Global gas-demand change in 1997–2019 and 2019–35, bcm 1997–2019 2019–35 growth, but this trend comes to an end; industrials demand
<–15 –15–15 15–50 50–120 >120 continues to grow in the decades to come, while gas-to-
power demand peaks in the late 2020s
Other non- Middle Other non- OECD OECD OECD Asia–
China India OECD Asia East OECD Americas Europe Pacific Total
Chemicals is the fastest-growing sector, contributing
203 more than 35 percent of gas-demand growth in the next
Chemicals
155 15 years (out of a total of 75 percent when combined with
other industrial segments)
Other 355
industry 176 Gas-in-power demand grows mainly in China and other
812 non-OECD countries in Asia, driven by economic growth
Power and the shift from coal to gas
–55
178 The decline in gas-in-power demand is caused by
Buildings
112 increasing competitiveness of renewables and storage in
key gas markets, such as the Middle East, North America,
56
Transport and Europe
55
32
Refining
–2
295 39 136 369 270 308 121 98 1,636
Total
263 26 118 –13 104 31 –75 –12 442

Even with much cheaper renewables and more recycling, gas
demand remains resilient.
Even with much cheaper renewables and more recycling gas demand
remains resilient.
Under different renewables cost trajectories, gas demand in 2050 varies by only 5 percent In the short term, eight potential shifts increase or
decrease the speed of the energy transition and only
Reference Case Delayed Transition Accelerated Transition marginally affect gas demand
Global gas demand, bcm Delta, Lever assumptions, Reference Case and
Shift bcm (2050) Accelerated/Delayed Transition scenarios1 From 2025 to 2030, the difference between the
4,500 Accelerated Transition scenario and the Reference Case
Accelerated renewables cost decline
is a result of two offsetting drivers: increased gas use in
Solar LCOE Germany, $/MWh
the power sector (+46 bcm in 2029) and decreased gas
4,000 2020 57 use in the chemical sector (–20 bcm in 2029)
–197
2035 23 24
In the Accelerated Transition scenario, gas demand peaks
3,500 2050 14 17
in 2027 at approximately 4,330 bcm. From 2030 to
Power –96 2040, demand plateaus at around 4,270 bcm, after which
Higher carbon prices
CO₂ prices Germany, $/metric tons it starts declining sharply. In the Delayed Transition
3,000
scenario, gas demand continues to grow more rapidly,
2020 32
peaking in 2037 at around 4,360 bcm. Post-2040, gas
2035 31 39 demand starts declining at a lower pace compared with
2,500
2050 34 51 both the Virus Contained scenario and the Accelerated
Transition scenario
2,000 Plastic demand reduction
Plastic demand avoided, % The effects of an accelerated hydrogen uptake are
not reflected; the effect on overall gas demand depends
2020 20
1,500 heavily on assumptions about the hydrogen production
2035 23 35 61 route, such as steam methane reforming (SMR) versus
2050 24 49 89 electrolyzers
1,000
Chemicals –97
Increased plastic recycling
Plastic recycling rate, %
500
2020 0
2035 3 6
0
2017 2028 2039 2050 2050 7 14
Key shifts impacting gas demand include renewable cost competitiveness and reduction in chemical demand.
1

Contents
• Gas
• Oil
• Coal
• Hydrogen

Oil demand
Chapter summary
Of all energy carriers, oil is exposed to the wildest On a sector level, remaining growth is driven by Non-crude liquids mostly supply growth in oil demand
variations in demand across the scenarios chemicals and aviation, while the biggest decline through 2030
comes from road transport
• COVID-19 results in an unprecedented drop in oil • Growth in natural-gas liquids, biofuel, synfuel, and
demand of 30 percent across regions and suppresses • Chemicals’ crude demand grows by more than pyrolysis restrains demand for new crude liquids
whatever growth remains 60 percent to 22 MMB/D in 2050, despite increasing
• Biofuels demand is concentrated in road transport,
downward pressure; demand reduction, recycling,
• Post-COVID-19 projections are affected by slowing predominantly in five regions. Post-2025, growth in
and pyrolysis reduce net crude demand by 14 percent
short-term growth and car parks road transport slows down, while demand in aviation
in 2050
picks up
• Oil demand does not return to the old growth curve
• Oil demand in road transport nearly halves by 2050
post-COVID-19; post-crisis growth has historically In the Accelerated Transition scenario, the oil-demand
after peaking in the early 2020s; slowing growth for
always been lower than pre-crisis peak moves forward by five years to the early 2020s
car parks, increased efficiency, and accelerating EV
After a long period of growth, global liquids demand uptake break the continuation of historical trends • Shifts across sectors accelerate the energy transition
peaks in the late 2020s at around 104 MMB/D with an additional 24 MMB/D disruption by 2050;
• Globally, EVs dominate vehicle sales across segments
in the Accelerated Transition, oil demand drops to
• On a regional level, major oil markets such as the within 15 years; by 2050, half of all vehicles on the
approximately 64 MMB/D by 2050
United States and the European Union have already road globally are electric
peaked; fewer than 20 percent of today’s markets • Accelerated uptake of hydrogen displaces
Regional differences in the pace of transition are most
show continuous growth through 2050 10 MMB/D of liquids across different sector shifts;
apparent in chemicals and road transport
disruption is largest for trucking, maritime, and
• Chemicals grows in China and the United States; road aviation sectors
transport’s oil demand dynamics vary across regions
• In the foreseeable future, new oil supply is still
needed; by 2035, approximately 17 to 29 MMB/D
of new upstream projects are required to satisfy
demand in the Accelerated Transition and Reference
Case, respectively

Of all energy carriers, oil is exposed to the strongest variations
in demand across the scenarios.
Of all energy carriers, oil demand is exposed to the strongest variations in
demand across the scenarios.
Acceleration of the energy transition moves the oil-demand peak forward by five years In the Reference Case, oil demand peaks in 2029 and
drops to 94 MMB/D by 2050
Scenario descriptions Global gross liquids demand outlook by scenario, MMB/D
To comply with the 1.5ºC Pathway, liquids demand
1.5ºC Pathway Reference Case 2020 Peak demand
110 requires a rapid decline across all sectors; oil demand
Aggressive regulatory constraints on the
never returns to 2019 levels, resulting in 2050 demand
carbon intensity of fuels in the transport 2024 +15%
and industry sectors result in the rapid 2029 being approximately 75 percent lower than in the
100
adoption of EVs in road transport as well Reference Case
as alternative fuels in aviation, maritime,
2019
and industry sectors 90
–22% In the Accelerated Transition scenario, liquids demand
diverges from the Reference Case path in the late 2020s,
Accelerated Transition 80
Stronger governmental push for peaking in 2024 and resulting in around 22 percent
subsidizing purchases or banning ICE lower demand by 2050, with key differences in the road
vehicles, combined with strong uptake of 70 transport and aviation sectors
alternative fuels in aviation and maritime.
Stricter regulations for minimum recycling –75%
levels and avoiding plastics in packaging 60 By contrast, in the Delayed Transition scenario, oil
demand continues to grow until 2050. By 2050,
Reference Case 50
oil demand is around 15 percent higher than in the
Consensus view on the key drivers of oil Reference Case
demand, including global trade, rate of
car ownership, and electrification of road 40
transport; EVs reach cost parity with
ICE vehicles in next decade, while
hydrogen becomes competitive for 30
long-haul trucks around 2030
20
Delayed Transition
Slower uptake of EVs due to supply
10
delays and limited government subsidies
or industry targets. Less recycling and
avoidance of plastics in packaging due to 0
sustained lower oil prices and lack 1990 2000 2010 2020 2030 2040 2050
of regulation

After a long period of growth, global liquids demand peaks in
the
After alate 2020s.
long period of growth, global liquids demand peaks in the late 2020s.
Road transport is the main driver of the peak in oil demand After more than 30 years of stable growth of more
than 1 percent p.a., oil demand growth slows in the 2020s
Reference Case 2020 Road transport Other transport Chemicals
(Pre-COVID-19) Other industry² Power (and heat) Buildings Demand peaks in 2029, three years earlier than
indicated in McKinsey’s pre-COVID-19 projections—
Global liquids demand outlook by sector,¹ MMB/D CAGR, % Reference Case 2020; road transport is the main driver
2019– 2035– of the peak
Total peak oil demand (2029)
110 35 50
100 By 2050, oil demand is roughly similar to today’s
–0.3 0.1 levels, mainly driven by continued growth in chemicals,
90
–6.6 –5.8 industry, maritime, and aviation, especially in regions with
80
increased GDP growth
0.8 0.4
70
60
2.1 1.0
50
40
Road 1.3 0.8
30 transport
20 peak oil
demand
10 0.8 –2.9
(2023)
0
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
CAGR, %
1.4 1.4
0.4
–0.3
–0.7
2000–09 2010–19 2020–29 2030–39 2040–49
1
Including biofuels, natural-gas liquids, and oil produced through pyrolysis.
²Includes (among others) refining, agriculture, iron and steel, and oil and gas sectors.

Oil demand in road transportation nearly halves by 2050 after
peaking
early 2020s. in early 2020s.
Oil demand in road transportation nearly halves by 2050 after peaking in
Car-park growth slowdown, increased efficiency, and EVs disrupt historical trends Oil demand in road transport decreases 19 MMB/D by
2050 versus today (44 percent), with a global peak in
Impact of drivers on road-transport liquids demand, MMB/D Continuation of
2023. Three primary drivers diverge from the path of
historical trends¹
80 continuing historical trends:
70 Car-park growth 1. A
slowdown in car-park growth, as city congestion,
slowdown new regulations, and shared mobility limit car
60
Increasing fuel ownership both in OECD and emerging economies
50 efficiency
2. Increased fuel efficiency of ICE engines, primarily
Peak
40 demand Move to electric through regulation
–44% vehicles
30 3. Increased electrification of passenger cars and
Reference other vehicle segments, driven by financial benefits,
20
Case regulation, and changing consumer preferences
10
0
2018 2020 2025 2030 2035 2040 2045 2050
1
Extrapolation of current vehicle-ownership trends, no fuel-efficiency increase, and constant share of electric vehicles.

Shifts across sectors accelerate the energy transition with an
additional 24 MMB/D disruption.
Shifts across sectors accelerate the energy transition with an additional
24 MMB/D disruption.
In the Accelerated Transition scenario, oil demand drops to around 64 MMB/D by 2050 In the Accelerated Transition scenario, annual net oil
demand declines by 1.5 MMB/D yearly from 2030
Global liquids and net oil demand, MMB/D
Reference Case to 2050, leading to around 64 MMB/D net oil demand
Gross liquids Net oil1 x Decrease in oil demand Additional in Accelerated Transition in 2050
105
1 Road transport
The acceleration of EV uptake across vehicle
EV share of 2018 1 segments in road transport has the biggest impact on
passenger global liquids demand
2035 50 92
cars
2050 86 100
Uptake of alternative fuels in aviation shows ranges from
95
EV % of 2018 1 8 to 50 percent of the fuel mix by 2050 in the Reference
commercial Case and the Accelerated Transition, respectively
2035 41 79
vehicles
2050 86 100 In the Accelerated Transition scenario, additional hydrogen
2 Aviation uptake occurs across different sector shifts (road transport,
85 aviation, and maritime) and has a cumulative displacement
1 Share of 2018 0
2 effect of 10 MMB/D of oil across sector shifts
alternative
–10 2035 7
fuels uptake2
2050 8 50
–5
2
3 Maritime 41
75
–4
Share of 2018 0
3 alternative
–4 fuels uptake 2035 10 25
4 2050 20 65
5
4 Chemicals
65 –1
Share of 2018 18
–24 plastics
recycling3 2035 35 60
2020 2030 2040 2050 2050 49 89
5 New COVID-19 shifts

1
Oil demand including crude and natural-gas liquids, but excluding biofuels, synfuels, and
pyrolysis oil. a. Deglobalization
2
% biofuels, natural gas, and electricity in the global fuel mix.
3
% of global plastic waste to recycling.
b. Decreased air traffic
Source: McKinsey Energy Insights Global Energy Perspective 2021, December 2020 c. Increased remote working

Contents
• Gas
• Oil
• Coal
• Hydrogen

Coal demand
Chapter summary
Global coal demand peaked in 2014 and continues Power drives almost all global coal-demand decline, Further energy-transition acceleration can decrease
to decline under increasing regulatory and financial while global industry demand remains stable coal demand by an additional 1,000 metric tons,
pressures approximately, by 2050
• Global coal-power capacity declines by 45 percent
• COVID-19 increases uncertainty in a coal market by 2050; global capacity remains at more than • Acceleration of the energy transition could result in a
that is already under great regulatory and financial 25 percent of 2000 levels drop in demand for both thermal and metallurgical coal
pressure; commitments to divest $14 trillion from fossil
• Rapidly declining coal-power capacity requires many In a decarbonized world, all coal-dependent industries
fuels have been made
plants to retire before they reach the end of their life in all regions drastically transform
• In the Reference Case, global coal demand peaked cycles; the average age of a coal plant is 13 years in
• At 90 percent demand reduction, few industries
in 2014 and declines by 40 percent over the next China, 14 years in India, and 37 in the rest of the world
continue to consume coal
30 years; long-term share of coal in primary energy
• European coal-fired power rapidly declines, driven by
demand halves from 30 to 15 percent
economics and decarbonization efforts; more than 60
• Coal demand peaks before 2025 in almost percent of European capacity is affected by already-
all regions in the world, representing almost 85 announced coal phaseouts
percent of today’s demand; only India and ASEAN
• Coal demand in iron and steel is robust, as growth in
show long-term growth
India replaces declining demand in China
• China drives 80 percent of the net drop in global
demand for coal in 2050, while India sees the
largest absolute increase; OECD countries see
declines of more than 50 percent in the
next 15 years

Global coal demand continues to decline under increasing
regulatory
financial pressure. and financial pressure.
Global coal demand continues to decline under increasing regulatory and
In the Reference Case, coal demand drops by a quarter by 2035 and 40 percent by 2050 In the Reference Case, coal demand drops by 30 to
40 percent versus today’s levels, to 4,731 Mt in 2050. This
Scenario descriptions Global coal demand outlook1 by scenario, MtCe²
decline is due to tightening environmental regulations and
increased competition from renewables, natural gas, and
1.5ºC Pathway Reference Case 2020 Peak demand
9,000 electrification
Increased regulations for decarbonization
across all sectors lead to a 90 percent
phaseout of coal in global power by 2040 2014 In the 1.5ºC Pathway, demand drops to 624 Mt by 2050
and limit the share of coal-based steel 8,000 (90 percent below that of the Reference Case). Moreover,
production
demand must decline by 50 percent every five years until
2035 to stay within projection requirements
Accelerated Transition 7,000
Favorable financing terms for low-carbon
generation and higher carbon prices In the Accelerated Transition scenario, higher carbon
accelerate the retirement of coal-fired 6,000 prices and cheaper renewables alter cost-tipping points,
units. Also, stronger increased regulations leading to sooner-than-anticipated coal-fired power supply
and higher efficiency gains drive the
retirement and an approximately 22 percent decrease in
switch to EAF³ steel production
5,000 +4% coal demand in 2050 versus the Reference Case
Reference Case –22% Even in the Delayed Transition scenario, low-emissions

Consensus view on the key drivers of coal 4,000
demand: tightening environmental and gas-based technologies are more economical than
regulations and increased competition the marginal costs of coal-based generation or steel
from renewables and natural gas (in 3,000 production. Coal demand is only around 4 percent higher
power) and electrification and natural gas –90%
(in industrial sectors, mainly metallurgy)
2,000
Delayed Transition
Deprioritized decarbonization efforts
followed by lower carbon prices limit 1,000
fuel switching and investments in
renewables technologies, protecting
coal-usage phaseouts
0
1990 2000 2010 2020 2030 2040 2050
1
Includes metallurgical coal, thermal coal, and lignite.
2
Million tonnes of coal equivalent.
3
Electric arc furnace.

In the Reference Case, global coal demand peaked in 2014 and
declines
40 percent overby 40 30percent
the next years. over the next 30 years.
In the Reference Case, global coal demand peaked in 2014 and declines by
The long-term share of coal in primary energy demand halves from approximately 30 percent to 15 percent Coal supplies almost 30 percent of today’s global energy
demand but declines to 15 percent by 2050
Other India Eurasia OECD Europe OECD Americas Greater China
xx China’s contribution to the global increase or decline, % Despite a small resurgence, coal demand after 2015 slows.
Peak coal demand likely occurred in 2014
Global coal-demand outlook by sector, million TJ CAGR, %
2014: Coal peak 2019– 2035– Over the past two decades, the growth in coal demand has
35 50 been primarily driven by strong economic growth in China
160
140 Consequently, China is the single largest consumer of

–40% coal today, representing approximately 55 percent of
120 +67% global coal consumption
100 82%
88% The drop in coal demand is mainly driven by declining coal
–2.9 –3.7
80 use in the power sector (by 50 percent from 2020 to 2050,
–3.5 –4.4 shrinking almost 2.4 percent p.a.)
60 –3.3 –2.8
That said, metallurgical coal demand in industrial sectors,
40 –0.5 –0.1
such as iron and steel, remains relatively stable to 2050
1.5 0.7
20
0.6 0.2
0
1990 1995 2000 2005 2010 2015 2019 2025 2030 2035 2040 2045 2050
Share of total
25 27 15 primary demand, %
24 56 32 Chinese share, %
CAGR, %
4.4
0.7 0.6
–1.0 –1.6
–2.3
1990–99 2000–09 2010–19 2020–29 2030–39 2040–49
Power drives almost all global coal-demand decline, while global
industry
demand remainsdemand remains stable.
Power drives almost all of global coal-demand decline, while global industry
stable.
Cement declines before 2035; iron and steel grow, even after 2035 Today, power accounts for more than 60 percent of global
coal demand, while iron and steel account for 20 percent.
Coal demand by segment, million TJ China¹ India North America EU27+UK ASEAN Other²
Until 2050, almost all reduction in overall coal demand is
driven by the power sector
159.8
Until 2035, heavy industries, particularly iron and steel and
cement, experience net growth driven by economic growth
in India and ASEAN as well as few alternatives for coal in
high-temperature heat and feedstock
–40%
1.0 122.8 Post-2035, iron and steel and cement show a net decline
in coal demand at the global level
–36.0 –1.6 –0.1
–0.2 The speed of change in coal demand is dependent on
0.2 available technology options, economics, and government
96.6 policies for respective sectors
–0.7 –0.8
–22.1
–2.9
2019 Power Iron and steel Other³ 2035 Power Iron and steel Other³ 2050
Buildings Cement Buildings Cement
Net
change in –37 –46 20 –1 0 –36 –35 4 –9 –6
sector, %
Note: Figures may not sum to 100%, because of rounding.

1
Includes Hong Kong and Taiwan.
²Includes other Europe, CIS, Africa, Middle East, other Asia, and Latin America.
³Includes transport and other industry.

Further energy-transition acceleration decreases coal demand
by an additional approximately 1,000 Mt by 2050.
Further energy-transition acceleration decreases coal demand by an additional
approximately 1,000 Mt by 2050.
Acceleration of energy transition results in declining demand for thermal and metallurgical coal In the Accelerated Transition scenario, there is an even
stronger rate of coal demand decline (2.0 percent p.a.
Reference Case Additional in Accelerated Transition
versus 1.5 percent p.a. in the Reference Case), resulting in
Global coal¹ demand, MtCe Delta, Lever assumptions, Reference Case and coal demand of around 4,000 Mt in 2050, which is
Shift MtCe (2050) Accelerated Transition 25 percent lower than in the Reference Case
8,000
Efficiency improvement BF-BOF²
% lower than 2019 Acceleration of cost decline in solar PV and wind energy
combined with a higher carbon tax results in a drop in
2019 0 demand for thermal coal of approximately 500 Mt
7,000 2035 6 9
2050 11 16 Metallurgical coal consumption declines by approximately
Iron and 520 Mt due to increased efficiency improvement
–526
steel Share of EAF³ in total steel production (50 percent) and a higher share of production through
6,000 % of global EAF (60 instead of 44 percent)
~50% 2019 27
2035 40 47
5,000 2050 44 60
Carbon price in Germany

$/metric tons
4,000 2019 26
2035 31 39
2050 34 51
Power –497
Solar LCO cost decline in Germany
% lower than 2019
2019 0
2035 60 60
0
2020 2030 2040 2050 2050 70 75
Including thermal and metallurgical coal and lignite.

1
Blast furnace to basic oxygen furnace.

2
Electric arc furnace.

3

Contents
• Gas
• Oil
• Coal
• Hydrogen

Hydrogen
Chapter summary
Hydrogen demand grows rapidly in the coming In the Accelerated Transition scenario, hydrogen • Momentum for hydrogen is picking up, with
decades, with green hydrogen through electrolysis demand growth is even more pronounced, increasing increased commitments for electrolyzer projects to
accounting for most of the increase more than sixfold through 2050 realize an accelerated uptake by 2030; commitments
for 2030 grew tenfold in just 16 months
• In the Reference Case, we expect hydrogen demand • In the Accelerated Transition scenario, global
to grow approximately threefold through 2050; installed electrolyzer capacity needs to ramp up by • A small number of countries can already enable
around 80 percent of hydrogen in 2050 comes from 150 gigawatts (GW) by 2030 significant electrolyzer capital-expenditure
electrolysis reductions; an equivalent push to Germany and
• Transport contributes to around 75 percent
Japan on solar PV can reduce capital expenditures
• The cost of green hydrogen is set to decline rapidly of the hydrogen demand increase; at lower
by approximately 55 percent
as the technology advances and its uptake increases; hydrogen costs, uptake of fuel-cell trucks in
strong declines in electrolyzer capital expenditures 2030s is accelerated
and renewables costs are key drivers
• Low renewables costs and supportive regulation
• In the Reference Case, green hydrogen becomes can make synfuel a viable competitor for fossil
competitive before 2040 in most countries; green jet fuel; without additional support, synthetic jet
hydrogen starts to replace gray hydrogen after 2030 fuel does not break even before 2050
• With additional support, clean hydrogen becomes

competitive in large-volume sectors; by 2030, low-
cost hydrogen is cost competitive in approximately
5 percent of the European Union’s energy demand
• Policy makers consider providing support to

accelerate hydrogen uptake to decarbonize hard-to-
abate sectors; this is needed because 30 percent of
energy-related CO2 emissions are hard to abate with
electricity only

Hydrogen demand grows rapidly in the coming decades.
Hydrogen demand grows rapidly in the coming decades.
Cost reductions and the increasing importance of decarbonization are key drivers In the Reference Case, global hydrogen demand grows
by 3.5 percent p.a from 2019 to 2050 and more than
Scenario descriptions Global hydrogen-demand outlook per scenario, million tonnes
triples when compared to today’s levels. Growth is driven
600 primarily by the chemical sector in the short term and the
1.5ºC Pathway
Aggressive regulatory constraints on the
transportation sector in the long term
carbon intensity of fuels in the transport
and industry sectors and robust policy The Accelerated Transition scenario shows a 6 percent
support for hydrogen mean hydrogen p.a. growth rate, resulting in hydrogen demand in 2050
becomes competitive in large-volume 500
sectors and result in a rapid adoption that is twice as high as in the Reference Case. Overall
growth is driven primarily by chemicals and road transport
Accelerated Transition in the short term and aviation in the long term. Post-2030,
3x
Increased regulations around faster uptake green hydrogen grows due to accelerated deployment and
of hydrogen and revised production routes. 400 subsequent reductions in cost
Blue hydrogen becomes cost competitive
in the early 2020s, replacing approximately
one-tenth of gray hydrogen in existing The 1.5ºC Pathway shows a 7 percent p.a. growth rate,
uses through 2030 resulting in hydrogen demand in 2050 that is three times
as high as in the Reference Case
300 2x
Reference Case
Consensus view on the adoption of In the Delayed Transition scenario, demand grows by
hydrogen-based solutions, especially in
2 percent p.a. In 2050, it is 34 percent lower
road transport and aviation. In selected
regions, blue hydrogen breaks even in the compared with the Reference Case, particularly affecting
early 2020s. Due to steep reduction in the 200 the transport sector
cost of electrolyzers as well as capital
expenditures combined with the increasing
–34%
affordability of renewables, green
hydrogen quickly becomes cheaper than
existing gray hydrogen after it reaches
cost parity with gray 100
Delayed Transition
Slower uptake of hydrogen results from
slower deployment and higher costs. The
demand for green hydrogen increases to 0
67 percent of total hydrogen demand by 2017 2030 2040 2050
2050, compared with 90 percent in the
Reference Case

With additional support, clean hydrogen becomes competitive
in
Withlarge-volume sectors.
additional support, clean
large-volume sectors.
hydrogen can become competitive in
By 2030, low-cost hydrogen is cost competitive in around 5 percent of the European Union’s energy demand Low-cost clean hydrogen (such as green hydrogen from
Spain) is set to become cost competitive in chemicals
Green hydrogen not cost competitive Including $100/tCO₂ tax and refining and long-haul trucking by 2030. This means
Green hydrogen cost competitive xx Share of total EU energy demand used by hydrogen can compete in 5 percent of total European
incumbent tech today, %
energy demand
Break-even production cost of clean hydrogen against competing incumbent technology
Hydrogen production cost for TCO parity in 2030 based on average EU commodity prices, $/kg A carbon tax of around $100/tCO2 makes several other
potential hydrogen applications cost competitive
Hydrogen is Incumbent technology
Incumbent Hydrogen by 2030 and unlocks up to 20 percent of energy demand
cost competitive is cost competitive
Sector technology application for hydrogen
Chemicals/refining SMR (natural gas) Electrolysis 1

Besides its production cost, the competitiveness of
hydrogen is largely determined by distribution costs.
Long-haul trucking ICE truck Fuel-cell truck 4 For example, by 2030 more than half the at-the-pump
hydrogen price is determined by distribution costs
Aviation ICE kerosene ICE synfuel 5
Therefore, to roll out hydrogen at scale, significant public
Iron and steel Blast furnace DRI-EAF¹ 3 and private investment is needed in cheap and efficient
infrastructure
Maritime ICE HSFO² ICE ammonia 4
Old building
Natural gas boiler Hydrogen blending 3
heating
Industry heating Industrial boiler/ Hydrogen boiler/

14
furnace³ furnace
0 0.5 1.0 1.5 2.0 2.5 3.0
Green hydrogen
2030 cost level in Spain Total 34
1
Direct reduced iron (reduction process can be done with hydrogen) and electric arc furnace production route (cost estimates).
²High sulfur fuel oil.
³Excluding steel production and ammonia or methanol production. Ammonia production is covered in chemicals/refining.
Source: McKinsey Energy Insights' Global Energy Perspective 2021, December 2020

Policy makers are considering supporting accelerated hydrogen
uptake tohard-to-abate
decarbonize sectors. hard-to-abate sectors.
Policy-makers are considering support to accelerate hydrogen uptake,
to decarbonize
Thirty percent of energy-related CO₂ emissions are hard to abate with electricity only Hydrogen can contribute to decarbonizing many
sectors, assuming it is produced without emitting CO2.
Strong potential: Some potential: Low potential: Sector uses H₂
Few alternatives to H₂ can contribute to Hosts few competitive at scale today In the aggregate, sectors in which hydrogen can be a
decarbonize without H₂1 decarbonization2 H₂ applications decarbonization lever account for up to 60 percent of total
energy-related CO2 emissions
% of total energy
emissions 30% 30% 40%
Around 30 percent of today’s emissions from energy
Energy-related CO₂ emissions by sector in 2019, Gt CO₂ come from sectors that are hard to decarbonize with only
7.9 7.9 1.7 2.7 12.7
electrification. For these emissions, hydrogen is one of
the few low-carbon alternatives to incumbent fuels. Other
alternatives include biomass and CCUS
Other4
Other5 Other
Other industry 3
comm.
Passenger cars The industry and transport sectors have the largest
potential markets for hydrogen applications, such as:
Oil
Cement and
Bulk power generation • L
ong-haul heavy-duty trucking or aviation, for which
Chemicals Buses and short-haul trucks gas
batteries would be too big and heavy or require long
Other
res. charging times
Long-haul trucks
Rail
Iron and steel Refin- • V
irgin steel production, through the direct reduced iron
Maritime Old gas-heated
ing (DRI) process instead of the emission-intensive blast
buildings6
Aviation furnace route
Peak power generation
Industry Transport Buildings Power
Other energy
1
Hydrogen is one of few decarbonization options and is likely to be adopted on a large scale if decarbonization is pursued. Key decarbonization alternatives for
hydrogen in these segments are carbon capture, utilization, and storage (CCUS) and biomass.
2
Hydrogen is one of several decarbonization options and adoption will likely be on a limited scale.
3
Contains agriculture/forestry, construction, fishing, food and tobacco, manufacturing, mining, nonenergy use, nonferrous metals, and other materials.
4
Contains two- and three-wheelers and nonenergy uses for transport.
5
Contains transformation processes.
6
Old buildings (such as those in old city centers) with an existing gas network connection switching to heating with hydrogen requires an adaptation of the gas
network and home-heating equipment such as boilers.
Source: McKinsey Energy Insights Global Energy Perspective 2021, December 2020; McKinsey 1.5ºC Pathway

Contents

Chapter summary
In the Reference Case, global CO2 emissions peak in Limiting global warming to 1.5ºC by 2050 requires The 1.5ºC Pathway remains technically possible and is
2023, followed by a decline of around 23 percent by rapid and substantial shifts in the energy mix across all increasingly supported by ambitious climate policies,
2050. Yet the 1.5ºC Pathway, which is considered the sectors and geographies such as the EU Green Deal. Such policies trigger
threshold to avoid drastic effects of global warming, drastic energy transitions, creating a need to deeply
• In the 1.5ºC Pathway, steep emissions reductions
requires significant additional reductions understand—and navigate—a changing landscape
must occur across all sectors; the power sector must
• Projected CO2 emissions in the Reference Case and reduce emissions faster than others • The EU Green Deal is an example of a set of ambitious
Accelerated Transition are far from the 1.5ºC Pathway; climate policies that can lead to drastic changes; the
• The 1.5ºC Pathway requires rapid demand decline for
2050 emissions in the Reference Case are seven latest EU Green Deal proposals aim to reduce CO2
all fossil fuels as well as high renewables growth; by
times higher than in the 1.5ºC Pathway emissions by 55 percent in 2030 versus 1990
2050, it implies twice as much renewable capacity
• To stay below the 1.5ºC warming, cumulative emissions compared with the Reference Case • The 1.5ºC Pathway for Europe shows that more
after 2018 must be kept within a 570 gigaton budget; than 50 percent of cuts to emissions by 2030 can
• There are ten key requirements to stabilize the
doing so requires halving CO2 emissions by 2030 and be made with positive economics; an additional
climate and limit the temperature rise to 1.5ºC;
achieving net-zero emissions by 2050 45 percent of 2030 GtCO2 emissions reductions can
demand reduction and renewables uptake alone can
be achieved for less than €100/tCO2
• Today, the power, transport, and industry sectors reduce CO2 emissions by approximately
contribute the most to global CO2 emissions; agriculture 50 percent by 2050
and industry are the biggest sources of non-CO2
emissions, namely methane and nitrous oxide

Projected CO₂ emissions in the Reference Case and Accelerated
Transition remain far from the 1.5ºC Pathway.
Projected CO emissions in the Reference Case and Accelerated Transition
2
remain far from the 1.5ºC Pathway.
2050 emissions in the Reference Case are seven times higher than in the 1.5ºC Pathway The Reference Case provides a perspective on how the
energy sector is likely to evolve based on current policies;
Projected global total (energy and nonenergy) gross CO2 emissions per scenario,1 GtCO2 per year despite being progressive, it does not project reaching
50 environmental targets of limiting global warming to 1.5ºC;
neither does the Accelerated Transition scenario
To provide an understanding of the implications and

40
requirements of the 1.5ºC Pathway, a set of scenarios
Delayed Transition in line with the latest scientific assessments has been
Reference Case 2021
developed to outline what is necessary for the world to
30 –53% transition to a deep decarbonization pathway
Accelerated Transition
The 1.5ºC Pathway must be supported by regulation and

20 –83% targeted investment and requires immediate action to
enable a rapid and steady decrease in emissions
10
1.5ºC Pathway
0
2017 2020 2025 2030 2035 2040 2045 2050
1
In addition to energy-related CO2 emissions, all pathways include industry process emissions (for example, from cement production) and emissions from defor-
estation and waste. The 1.5ºC Pathway also includes negative emissions (for example, reforestation and direct carbon-removal technologies, such as bioenergy
with carbon capture and storage and direct air capture with carbon storage), which are required to offset the hardest-to-abate sectors and reach net-zero
emissions by 2050.

To stay below 1.5ºC warming, cumulative emissions after 2018
must beGtCO₂
within a 570 kept within a 570 GtCO₂ budget.
To stay below 1.5ºC warming, cumulative emissions after 2018 must be kept
budget.
Doing so requires halving CO2 emissions by 2030 and achieving net-zero emissions by 2050 CO2 emissions must be mitigated to achieve the 1.5ºC
Pathway because they constitute the biggest share of
Global CO2 emissions in an orderly 1.5ºC transition, GtCO2 Positive emissions Negative emissions global greenhouse gas emissions, at 55 percent¹
1.5ºC Pathway (CCUS) 1.5ºC Pathway
45
This pathway has three main characteristics:
40
1 Remaining within the cumulative carbon budget of
570² GtCO2
35
2

2 50 to 55 percent reduction in emissions by 2030
30 50–55% versus 2010
drop by 2030
25 3 Net-zero emissions by 2050
Given the speed of the required decrease in net emissions,

20
negative emissions (for example, from sequestration
in newly planted trees) are required to offset the hardest-
15 to-abate industries by 2030 and reach net zero by 2050
10
Net-zero
emissions by 2050
3
5
–5
2010 2018 2030 2050
1
570 GtCO2 cumulative carbon budget from 2018 onward

1
Global greenhouse gas (GHG) emissions total up to 75 Gt of CO₂ equivalent (CO₂e). This number is derived by converting non-CO₂ GHGs, largely methane and
nitrous oxide, to CO₂e according to their relative warming impact, using the GWP20 conversion factors (84 for methane and 268 for nitrous oxide).
2
570 Gt of cumulative CO₂ emissions from 2018 for a 66 percent chance of a 1.5ºC increase in global mean surface temperature (GMST).

The 1.5ºC Pathway requires rapid demand decline for all fossil
The 1.5ºC Pathway requires rapid demand decline for all fossil fuels as well as
fuels as well
high renewables as high renewables growth.
growth.
Demand reduction and renewables uptake alone can reduce around 50 percent of CO2 emissions by 2050 The 1.5ºC Pathway assumes a steep decline in demand for
Transport Buildings Industry fossil fuels:
Agriculture Power Reference Case Additional for 1.5ºC Pathway
• 7
7 percent decline in oil demand by 2050 (versus
Demand for oil, gas, and coal declines rapidly . . . . . . as renewables quickly gain ground approximately 10 percent decrease in the Reference
Oil demand, MMB/D Solar installed capacity,¹ terawatts (TW) Case), mainly through electrification in transport
and industry
100 20.7
• 7
3 percent decline in gas demand by 2050 (versus
64 –77%
approximately 5 percent increase in the Reference
23 6.1 Case), mainly from replacement of gas-fired power
generation by renewables and electrification of heating
0.6
in the buildings sector
2019 2030 2050 2019 2030 2050
• 9
3 percent decline in coal-fired power generation by
Gas demand, trillion BTU/day Onshore wind installed capacity, TW 2050 (versus approximately 40 percent decline in the
Reference Case) due to the uptake of renewables,
338 4.5 battery storage, and hydrogen-fueled gas turbines
250
–73% 2.5
The share of power in the total (final consumption) energy
mix grows from 19 percent in 2019 to 46 percent in 2050
91 in the 1.5ºC Pathway
0.6
2019 2030 2050 2019 2030 2050
Coal demand for power generation, million tons/day Offshore wind installed capacity, TW
22 3.3
–93%
6 1.1
2
0.0
2019 2030 2050 2019 2030 2050
Includes solar PV and concentrated solar power.

1

There are ten key requirements to stabilize the climate and
limit therisetemperature rise to 1.5ºC.
There are 10 key requirements to stabilize the climate and limit the
temperature to 1.5ºC.
Renewable power and electrification drive the most significant reductions The current levels of greenhouse gas (GHG) emissions risk
triggering climate feedbacks (tipping points); for example,
CO2 CH4 (in CO2e2¹) N2O (in CO2e2²) the thawing of permafrost soils that store large amounts of
methane, a potent GHG
Reduce demand Change how we power and fuel our lives
Reduce demand Electrify road Deploy renewables Grow hydrogen Expand the use of Such feedbacks further increase the temperature in an
through process transport, building at scale and speed market many biomass, biofuels, accelerating feedback loop, intensifying the impacts of
optimization, consumption, times over and bioenergy into
energy efficiency, and industrial other sectors climate change
and a “circular processes
economy” Out of ten key requirements for the 1.5ºC Pathway, the
top three alone account for around 60 percent of CO2
Gt abated emissions abated by 2050:
by 2050
vs 2016 10.4² 7.2 4.7 12.0 2.5 1.1
emissions
1. R
enewables deployment of approximately 9,450
0.1³ 0.1⁴
GW more renewable capacity by 2050 than in the
Reference Case
Scale up a ‘carbon management’ industry Tackle other GHG emissions
2. D
emand reduction (better insulation of buildings and
Scale carbon Stop Develop CO2 Reform Eliminate less growth of international aviation)
capture, utilization, deforestation removal markets agriculture and fugitive methane
and storage food systems emissions 3. CO2 removal employment, both through natural
activities (afforestation) or technology-based
Gt abated by
2050 vs 2016 3.1 4.31 4.7 7.4 1.5 1.7
solutions (direct air-capture and carbon storage)
emissions 0.9
0.9 <0.15
1
Converted using GWP-20 years from IPCC’s AR5 report.
2
Demand reduction abates most of the methane emissions from the oil and gas and mining industries, as the activity is avoided at the source.
3
Demand reduction of chemical production.
4
Nitrous oxide emissions from stationary combustion sources.
5
Flaring of natural gas.

Contents

Chapter summary
The discussed trends in the energy landscape come After the COVID-19 shock, investments in the energy
with a set of uncertainties system steadily grow toward 2035
• History shows that energy transitions can be swift and • Despite the substantial capacity growth in power
impactful for both regions and sectors, with significant of 13 percent p.a., investment levels in generation
energy transitions occurring on a local scale assets stay nearly flat
• Key uncertainties across technology, regulation, • Investments in power are largely resilient against
the macroeconomy, and consumers determine the different COVID-19 scenarios, with only 5 percent
outcome of this transition lower investments in the Muted Recovery scenario
versus the Virus Contained scenario
• Business leaders must navigate these uncertainties
when making future investment decisions • Oil and gas investments dropped sharply with
COVID-19 but show continued growth of 3 percent
p.a. until 2035
• Despite electrification and hydrogen growth,

50 percent of energy investments in 2035 are still
made in oil and gas
• For fossil-fuel generation to break even,

support needs to make up more than half its
energy-based revenues

Energy transitions can be swift and impactful for both regions
and sectors.
Energy transitions can be swift and impactful on regional and sectoral level.
In the past, impactful energy transitions occurred on a local scale United Kingdom: Decreased wholesale electricity
prices from 2012 to 2018 and a near doubling of the
Not exhaustive Key driver for transition: Regulatory Technology/development Economics carbon price drove early retirements and decreased
utilization of coal plants
United Kingdom Denmark
Denmark: Following the 1970s oil crisis, the Danish
Electricity generation, TWh Electricity generation, TWh
government adopted an energy policy in 1976
361 29
that articulated the short-term goal of reducing oil
333 Oil dependence
RES
18
x4 Brazil: The Brazilian government started incentivizing
+7 27 Coal
Other flex-fuel vehicles in 2003 through reduced tax rates and
144
6 fuel taxes
21 Coal
2012 2018 1975 1985
Netherlands: Following the discovery of a significant
natural gas field in Groningen in 1959, the Netherlands
underwent a rapid transition away from oil and coal to
natural gas
Brazil France China
Passenger car sales, million cars Total primary energy demand, Installed power capacity, GW China: The Renewable Energy Law (2005) prioritizes
million TJ development and use of renewable energy, and the
1.1 2.9
2.5 1,944 current five-year plan places even greater emphasis on
100% = million million
9 Other Other
Coal and oil green energy
Gasoline
1.3 1,012
94 90 Flex fuel Coal
x25 1.3 Natural gas x11
0.1 359 Solar and wind
3 32
2003 2010 1965 1975 2010 2018
Source: McKinsey Energy Insights Global Energy Perspective 2021, December 2020; IEA; EIA; Enerdata; CBS

Business leaders must navigate uncertainties when making
future investment decisions.
Business leaders must navigate uncertainties when making future
investment decisions.
Decisions made during these times have direct impact on potential investment opportunities Illustrative examples
Detailed on the following pages
Power sector
1 Monitor signposts Identify and monitor signposts across technology, economics, Leaders must keep a close eye on regulatory
regulation, and public opinion to inform strategic moves developments, the uptake of EVs, and charging
Predict the implications of signposts infrastructure as well as technological advancements
such as bidirectional and smart charging or vehicle-to-
grid technology to identify investment opportunities in
2 Stress test the current portfolio Stress test the current portfolio for sensitivities and key
this growing market
uncertainties
Evaluate the portfolio against custom scenarios and the
Transport sector
likely evolution of trends, as measured by signposts
OEMs must closely monitor the impact of regulation,
falling battery costs, and shifting consumer preferences
3 Identify investment opportunities Estimate current and future value pools on demand for for existing ICE vehicles to identify
Conduct due diligence and investment planning optimal investment areas

Despite increased electrification and hydrogen, half of energy
Despite increased electrification and hydrogen, half of energy investments in
investments
2035 are still in oil andin
gas.2035 are still in oil and gas.
Renewable power grows 4 percent p.a. while conventional decreases by 4 percent p.a. in 2020–35 After an initial shock in 2020 and 2021, annual energy
investments return to pre-COVID-19 levels in 2025
Oil¹ Gas Power, conventional Power, RES Decarbonization tech Accelerate decarbonization tech²
A slow but steady shift can be observed from investments

Annual investments, $ billion CAGR, %
2019–35 in conventional power generation to renewable and
1,400 decarbonization technologies. However, oil and gas still
show continued growth toward 2035, as more expensive
4% p.a. projects replace depleting existing production
1,200
7.1
Investment in decarbonization technologies, such as
1,000 hydrogen, EV infrastructure, and biofuels, is projected to
3.2
increase threefold from 2025 to 2035 but still accounts
for only 3 percent of investments in 2035
800
–3.8 Additional investments in hydrogen driven by
accelerated uptake result in an annual investment
600 1.8
that is 15 times higher in 2035 than the pre-COVID-19
Reference Case and reaches $130 billion in 2035
400
1.1
200
0
2018–20 2021–23 2024–26 2027–29 2030–32 2033–35
Share of
oil and gas
55 51 55 55 45 51
investments,
%
1
Subsectors include: oil: upstream oil, oil refining, and petrochemicals; gas: upstream gas and LNG; RES: geothermal, marine, solar PV, CSP, on- and offshore
wind, storage, biomass, and hydro; decarbonization technologies: biofuels and hydrogen.
2
Only hydrogen accelerated (from Muted Recovery).
Source: IEA – World Energy Investments 2020; McKinsey Energy Insights Global Energy Perspective 2021, December 2020; McKinsey Energy Value Pool Model

Market-environment changes during the energy transition trigger
key questions
Changing for
market environment
questions for stakeholders.
stakeholders.
through the energy transition triggers key
How can . . .
Industry players . . . in oil and gas achieve best-in-class performance in times of decreasing
industry profitability?
. . . in new technology reach a competitive advantage by successfully navigating
the risky regulatory regime in the transition period?
Investors . . . identify top-quartile, high-return assets in times of decreasing oil and gas
industry profitability?
. . . select the right moment to invest in future decarbonization technologies to
ensure an optimal market presence (for example, reach a significant market
share at reasonable cost)?
Regulators . . . ensure stable market development by fostering required investments in new

technologies at reasonable cost?
. . . design power markets to better enable the transition by making investments
in renewable technologies attractive?

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organizations, and improve performance
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Senior Partner Senior Partner Partner
Bram Smeets Jasper van de Staaij Tamara Gruenewald

Associate Partner and Associate Partner and Solution Leader © Copyright 2021 McKinsey & Company
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Global Energy

Global Energy Perspective 2021 2

Global Energy Perspective 2021 3

Global Energy Perspective 2021 4

Global Energy Perspective 2021 5

30 sectors McKinsey Hydrogen Model

Global Energy Perspective 2021 6

Global Energy Perspective 2021 7

A shifting global energy landscape

Power demand and supply

Outlook per fuel type

Implications on energy value pools

Global Energy Perspective 2021 8

• The drop due to COVID-19 leads to a lower peak of

Global Energy Perspective 2021 9

As cities and countries move to meet carbon targets, an

2017 2020 2010 2020

Numbers represent global average.

Global Energy Perspective 2021 10

Crude oil prices have experienced a drop of up to

As a result of COVID-19, global energy investment

Revenue passenger kilometers.

As of November 17, 2020.

Global Energy Perspective 2021 11

30 200 Recent work by McKinsey on the effects of the COVID-19

150 170 At the time of this report’s publication (January 2021),

Coal has already

Global Energy Perspective 2021 12

500 2027 Fossil peak 35

Intermittent technologies include solar and on- and offshore wind.

Emerging economies include India, ASEAN, Latin America, and Africa.

Global Energy Perspective 2021 13

Coal demand decreases almost 40 percent from 2019 to

Coal –1.6 –1.6

Global Energy Perspective 2021 14

35 In the Accelerated Transition scenario, emissions by

Global Energy Perspective 2021 15

“ . . . climate change and related environmental issues

Financial-sector shifts Increased regulations

Global Energy Perspective 2021 16

A shifting global energy landscape

Power demand and supply

Outlook per fuel type

Implications on energy value pools

Global Energy Perspective 2021 17

• In buildings, electricity consumption grows fastest in

Global Energy Perspective 2021 18

Accelerated Transition In the Accelerated Transition scenario, shifts lead to

Global Energy Perspective 2021 19

9.5 Transport B. Industry: Electrification of energy consumption

Non-OECD Asia is responsible for around 60 percent of

2000 2019 2035 2050

This view represents a stylized example of complex hourly

0 50 100 2020 2025 2030 2035 2040

Global Energy Perspective 2021 21

40 40 The Reference Case generation perspective is based on

Global Energy Perspective 2021 22

Share of flexible capacity in total dispatchable capacity in selected countries,1,2 %

Global Energy Perspective 2021 23

A shifting global energy landscape

Power demand and supply

Outlook per fuel type

Implications on energy value pools

30 sectors McKinsey Hydrogen Model

“ . . . climate change and related environmental issues

9.5 Transport B. Industry: Electrification of energy consumption