There is no longer a single ‘most likely’ future for the energy sector with oil, gas, coal and renewables all increasing simultaneously, a new report has found.
McKinsey’s Global Energy Perspective (GEP) has this year found that the industry’s central question has changed – whereas it was asking whether the world will need more energy, it is now asking what will supply that growth, at what cost and with what implications for security and emissions?
Humayan Tai, Senior Partner at McKinsey, said: “Over the past year, the energy transition has become an energy expansion, with total energy demand up 2.7% and every major energy source growing simultaneously. These combined forces underscore that the cost of not thinking broadly enough about the range of possible outcomes has never been higher.
“The ongoing disruption in the Strait of Hormuz is the clearest example of this risk: maritime traffic through the world’s most critical energy chokepoint fell more than 90%, energy prices surged across fuels and continents, and strategies built around diversified liquified natural gas (LNG) were tested in real time.”
The report also found that the next energy crisis is as likely to be driven by equipment, labour, batteries, or critical minerals as it is by barrels of oil.
These are already industry-wide issues, with the IEA finding that around 60% of energy companies reported labour shortages, putting project timelines, system reliability and cost control at risk.
The IEA also found that procurement times for cables and large power transformers have doubled since 2021, with transformers now taking up to four years to secure.
The GEP report says these such uncertainties make scenario planning more important, helping organisations identify risks, keep options open and recognise when strategy or investment decisions may need to change.
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