HOUSTON—Two decades from now, ExxonMobil Corp. (NYSE: XOM) sees the future increasingly dominated by an invisible, colorless and odorless power source.

Natural gas, by 2040, will grow more rapidly than any other energy source and outpace coal as the globe’s second most dominant fuel to meet the needs of industry and electrical generation, according to ExxonMobil’s Outlook for Energy report.

Oil will remain the top source of energy worldwide, meeting one-third of demand well into the ‘40s. And together, both hydrocarbons—oil and gas—will satisfy 55% the world’s energy needs for the next 23 years, said Todd Onderdonk, senior energy adviser of corporate strategic planning at ExxonMobil.

For both resources, U.S. tight oil, NGL and shale natural gas will play an oversized role in helping to meet supply needs. Shale has led the world’s energy revolution and reversed the “narrative of scarcity” that has dominated energy thinking since the late 1970s.

“When I joined the industry back in 1978, it was estimated there could be 1.7 trillion barrels [of oil] that could be recovered ultimately,” Onderdonk said at the 2017 NAPE Summit business conference on Feb. 15. “Today that number is approaching 6 trillion barrels. So there’s plenty of resources in the ground.”

Energy growth will be led by developing nations, where population growth will center. Overall, the global population is set to increase by 25%, or 1.8 billion people, to 9.1 billion.

As the world’s population grows, energy demand is expected to increase by about 25%.

“So 25%, 1% per year, that doesn’t sound like a whole lot,” Onderdonk said. “But in terms of the absolute amount energy, that’s about equivalent to the amount of energy North America and Latin America consume today. A huge additional supply [will have] to meet normal needs.”

And the cost to keep up with demand will be formidable.

Age Of Abundance

The world’s energy supplies change over time—from wood and steam power, to coal-fired smelters and diesel locomotives. The world’s energy supply is again in flux.

Coal, used since the time of the cave man, remains an important fuel but will continue to see market share decline as the world transitions toward lower-emission energy sources. Within a decade, natural gas is set to overtake coal as the world’s second-largest source of fuel.

U.S. shale oil and gas will help make that a reality as natural gas harvested here becomes an increasingly dominant part of world supplies.

“Overall, we expect natural gas supply to be up about 45%, with 60% of that growth led by unconventional gas led by North America,” Onderdonk said.

The LNG trade will also see significant growth, more than doubling its current cargoes.

Tight oil, too, will make North America into a net exporter within a few years, ExxonMobil forecasts.

“We expect growth in tight oil alone worldwide to be about 10 million barrels a day (MMbbl/d),” Onderdonk said, adding that NGL will increase to about 5 MMbbl/d.

By 2040, tight oil and NGL will exceed 25% of global liquids supply.

To keep pace, development of upstream supplies—conventional and continuous—will require an annual investment of about $450 billion. Another $250 billion will be needed to support upstream natural gas development.

“So about $700 billion a year to meet this rising demand for oil and natural gas,” Onderdonk said, adding midstream and downstream would also require investments.

Without funding, liquids supply will likely decline sharply, as more than 80% of new liquids will offset natural declines.

“There’s going to have to be substantial investment to bring that new supply to meet demand,” Onderdonk said. “We’re estimating total liquids demand, including biofuels, will be about 112 MMbbl/d [in 2040]” including 109 MMbbl/d of oil.

The Globe Electric

In developing countries, oil, natural gas and coal—particularly in India—should begin to alleviate a “state of energy poverty” that is currently a way of life for billions of people, Onderdonk said.

In 2017, about 1.2 billion people lack access to electricity and more than 2.5 billion people rely on basic biomass, wood, charcoal or dung for their cooking needs.

Electricity needs worldwide are projected to grow by 60% through 2040.

In the coming decades, energy demand will parallel the population increase, rising by about 25% from 2015 to 2040. In part, that will reflect large-scale migration to cities offset by savings from efficiency standards.

Up to 95% of the world’s population growth will take place in developing countries including China and India and nations in the Middle East and Latin America. By 2040, about 85% of the world’s people will live in those areas.

But increasingly, people are expected to migrate to cities from rural areas, which will spark industrial demand.

“When you see a city, what do you see? You see cement, steel, glass. All of those things have to be manufactured and that undergirds a lot of the industry demand that we see,” Onderdonk said.

Over the same period, developing countries’ gross domestic product (GDP) should continue to rise while globally GDP effectively doubles to roughly $150 trillion.

“China and India are likely to have 1 billion people in the middle class by 2040,” Onderdonk said, noting that their economies will grow by as much as 6% annually. The U.S., a far more mature economy, is expected to average 2% growth during that time.

More money to spend is already opening the door to more cars, trucks and motorcycles. About 1.8 billion cars will be on the road by 2040, compared to 1 billion today.

Most of the growth will take place outside of economically developed countries. The U.S., for instance, is “basically off the chart. We have about 800 cars per 1,000 people,” Onderdonk said.

Motorcycle use, at about 500 million currently, will significantly spike, as well.

“By 2040, we expect there to be about 1 billion motorcycles worldwide,” he said.

However, the energy demand of those new automobiles will be offset by fuel standards.

“The average fuel economy of new cars worldwide will rise from about 30 mpg in 2015 to close to 50 mpg in 2040,” he said.

Disruptor, Deliverer

Technology has a habit of tipping the world on its end and the shale revolution has been no different. In roughly a decade, oil and gas fields thought long since spent are rewriting the energy worldview.

ExxonMobil said that through 2040, innovation in transportation and a shift in types of energy used for electric generation will again change the worldview of supply.

The company says natural gas and renewable energy sources will lead the way.

“Innovative exploration and drilling technologies will help find and unlock abundant natural gas resources, providing a vital energy source as well as a reliable backup source for intermittent supplies from wind and solar,” the Outlook report said.

The unknown factor in any energy forecast is technology. While oil should still be the top source of energy, since ExxonMobil first started its outlook around 1945, scientific advancement has altered the energy industry’s landscape.

“It’s difficult to predict technology breakthroughs,” Onderdonk said. “Technology helps improve energy efficiency across the economy. It opens up all kinds of supply outlets. Certainly, we’ve seen that in oil and gas but it’s also having a factor now coming in with solar, wind and some of the renewable type energies.”

But even as renewable energy sources such as wind, solar and biofuels become more prevalent, they will still be a small part of the energy picture—about 4% in 2040.

“To some extent that just emphasizes just how big the energy sector is,” Onderdonk said. “You can be growing something very rapidly, but when it’s getting into a big pond of energy it can still be a very small share of the energy mix.”

Darren Barbee can be reached at dbarbee@hartenergy.com.