BP plc’s (BP Quick QuoteBP - Free Report) latest annual Energy Outlook presents a comprehensive analysis of the global energy landscape, charting two primary scenarios — Current Trajectory and Net Zero. Both scenarios predict significant shifts in energy demand, supply dynamics, and the role of clean energy, offering a detailed roadmap to investors and stakeholders in the energy sector.

Peak Oil Demand and Carbon Emissions

BP forecasts that global oil demand will peak in 2025 at approximately 102 million barrels per day (bpd) under both scenarios. This marks a pivotal moment as the world transitions from increasing fossil fuel consumption to a more balanced and eventually declining trend. Carbon emissions are also expected to peak by the mid-2020s, signaling a crucial step toward mitigating climate change.

Diverging Energy Demand Scenarios

In the Current Trajectory, which is based on existing climate policies and commitments, primary energy demand will continue to rise until the mid-2030s before stabilizing. By 2050, energy demand in this scenario will be about 5% higher than in 2022. In contrast, the Net Zero scenario, which assumes aggressive climate policies aligned with the Paris Agreement, predicts that energy demand will peak by the mid-2020s and then decline, reaching levels 25% lower than in 2022 by 2050.

Oil Consumption Trends

The future of oil consumption diverges significantly between the two scenarios. Under the Current Trajectory, oil demand is projected to gradually decline to around 75 million bpd by 2050. The Net Zero scenario, however, foresees a more pronounced drop, with demand falling to between 25-30 million bpd by mid-century. The primary driver of this decline is the reduction in oil use in road transport, although this is partially offset by increased use in the petrochemicals sector due to rising demand for plastics and other materials.

Renewable Energy Surge

Both scenarios predict a substantial increase in renewable energy capacity, particularly from wind and solar power. Under the Current Trajectory, wind and solar capacity is expected to grow eightfold by 2050 compared to the 2022 levels. In the Net Zero scenario, this expansion is even more dramatic, with a 14-fold increase. This rapid growth is supported by continuing declines in technology and production costs, making renewables increasingly competitive with traditional energy sources.

The Role of Natural Gas

Natural gas presents a mixed outlook in BP’s projections. Under the Current Trajectory, gas demand is expected to grow by about 20% by 2050, driven primarily by developing economies. In contrast, the Net Zero scenario anticipates that gas use will peak around the mid-2020s and then decline by 50% by 2050. The demand for liquefied natural gas (“LNG”) is expected to rise significantly in both scenarios, increasing by 30-40% from the 2022 levels.

Bioenergy and Technological Advancements

Modern bioenergy is set to play an increasingly important role in the global energy mix. BP projects significant growth in the use of solid biomass, biofuels and biomethane, particularly in sectors that are difficult to electrify. In the Net Zero scenario, modern bioenergy use more than doubles by 2050. This expansion is achieved without increasing land use, as most bioenergy will be sourced from residues and wastes.

Clean Energy and Emission Reduction

BP’s outlook underscores the critical importance of clean energy in reducing global carbon emissions. The rapid deployment of wind, solar, and bioenergy is essential to achieving the Net Zero target. The report highlights that technological advancements and cost reductions in renewable energy will be pivotal in accelerating this transition.

The Future of Oil: A Positive Outlook

Despite the projected decline in oil demand, BP maintains that oil will continue to play a significant role in the global energy system for the next 10-15 years. This continued relevance is due to its use in industries such as petrochemicals and as a feedstock for various materials. The outlook suggests that while the transition to cleaner energy sources is underway, the journey will be gradual, with oil remaining a crucial component of the energy mix.

3 Stocks to Watch

Per BP, the future energy landscape is a dynamic interplay between traditional fossil fuels and emerging clean energy technologies. Keeping this in mind, we advise investors to focus on three companies — one upstream oil operator, an LNG exporter and a solar energy stock.

First, we have SM Energy Company (SM Quick QuoteSM - Free Report) . SM beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters. The Zacks Rank #1 (Strong Buy) independent oil and gas exploration and production company has a trailing four-quarter earnings surprise of 13.8% on average. SM is valued at around $5.2 billion. SM Energy has seen its shares increase 38.6% in a year.   

You can see the complete list of today’s Zacks #1 Rank stocks here.

Then there is Cheniere Energy (LNG Quick QuoteLNG - Free Report) . Being the first company to receive regulatory approval to export LNG from its 2.6 billion cubic feet per day Sabine Pass terminal, Cheniere Energy enjoys a distinct competitive advantage. Cheniere Energy beat the Zacks Consensus Estimate for earnings in two of the last four quarters and missed in the other two. This Zacks Rank #3 (Hold) natural gas exporter has a trailing four-quarter earnings surprise of roughly 58.9%, on average. LNG shares have moved up 7.7% in a year.

Finally, companies like SunPower (SPWR Quick QuoteSPWR - Free Report) assume importance in the dynamic energy landscape. The #3 Ranked firm is among the leading solar companies delivering personalized, premium renewable energy solutions for homes designed to address the specific requirements of families. Notably, the Zacks Consensus Estimate for SunPower’s 2024 earnings per share indicates 33% year-over-year growth. TREE shares have decreased 73.4% in a year.