McKinsey Global Institute releases report: Beyond the supercycle: how technology is reshaping resources
London, UK, 16 February 2017
- New McKinsey Global Institute report shows technology-driven changes to both consumption and production of resources could save global economy $900 billion to $1.6 trillion in 2035
- Peak demand possible within this period for oil, thermal coal, and iron ore
- Technological changes will lower energy intensity and increase efficiency, potentially raising energy productivity in the global economy by 40-70% in 2035
Rapid advances in technologies including artificial intelligence, automation, data analytics, and the Internet of Things are transforming the resources sector and could enable major savings for consumers and a much-needed productivity boost for producers over the next two decades, according to new research from the McKinsey Global Institute (MGI) published today. Beyond the supercycle: how technology is reshaping resources highlights three key changes from technology adoption:
- Consumption of energy will become less intense as people use energy more efficiently in their homes, offices, and factories, including with smart thermostats and lighting controls that optimize usage. One of the biggest changes will be in transportation, the largest single user of oil, as engines become more fuel-efficient and use of autonomous and electric vehicles grows. Oil demand by light vehicles will decline from 2015 levels, saving between $150 and $280 billion by 2035, according to the report.
- Renewable energies including solar and wind will become cheaper and more competitive with fossil fuels, and play a substantially larger role in the global economy’s energy mix. Renewables could grow from 4 percent of power generation today to as much as 36 percent of global electricity supply by 2035, the research shows, illustrating how rapidly and fundamentally technology is changing the sector.
- Resource producers will be able to deploy a range of technologies in their operations, putting mines and wells that were once inaccessible within reach, raising the efficiency of extraction techniques, shifting to predictive maintenance, and using sophisticated data analysis to identify, extract, and manage resources.
The research models two scenarios for resource supply and resource demand. The first is a “moderate” technology adoption case, which assumes improved energy productivity from the greater deployment of technology to support energy efficiency, continued falling cost of renewables, and incremental improved productivity of resource producers. The second scenario, the “tech acceleration” case, assumes a faster rate of adoption of technologies by both consumers and producers, potentially cutting energy demand and sharply increasing productivity.
These trends will strongly affect the outlook for major commodities. The price correlation that was evident during the 2003-15 supercycle is unraveling, and prospects for ‘growth commodities’ and ‘declining commodities’ are diverging:
- Demand for oil, thermal coal, and iron ore could peak before 2035, according to the report’s technology acceleration scenario.
- Natural gas will continue its growth but demand could limited by the growth of renewables.
- By contrast, demand for copper, which is widely used in the electronics industry, is likely to continue growing.
Overall, these changes will have a strong effect on the global energy and resource economy. Technological advances will reduce energy intensity and raise energy efficiency, potentially increasing energy productivity by 40-70% in 2035. For the global economy, the reduction in energy demand together with productivity gains by producers could save between $900 billion and $1.6 trillion in 2035, equivalent to the GDP of Indonesia or, at the higher end, Canada.
Jonathan Woetzel, Shanghai-based Director of MGI said: “Changes in the resource sector in the past often came about as a result of regulation, but now it is technology that is driving the shifts. Our new research shows that the global economy has a significant opportunity to make substantial savings on energy in the next two decades by adopting and embracing technological change. But those savings are not guaranteed. Policy makers and resource companies both have a role to play in capturing the dividend from technological innovation. Governments of all countries, whether exporters or importers or resources, will be able to redeploy savings from reduced energy demand into other areas of the economy, and companies across all sectors will benefit –including those in the resource business.”
Richard Sellschop, Partner in McKinsey’s Global Energy and Materials practice said: “Resource producers are still recovering from the supercycle and now face a new era of disruption as technological innovation reshapes the sector. Resource companies must adapt quickly, incorporating new technology into their operations, boosting productivity, and looking for new growth opportunities. The payoff could be significant with as much as $400 billion in potential productivity savings for producers in 2035.”
About McKinsey Energy Insights
Energy Insights, a specialist analytics unit within McKinsey, provides distinctive analysis, insights, and support to energy players.
Energy Insights’ dedicated specialists apply proprietary tools and methodologies and a data-driven approach. With its strong ties with McKinsey’s oil and gas consulting practice and collaborations with the wider McKinsey network, its research and analysis yield knowledge available nowhere else.
They have over 100 dedicated specialists, across London, Houston, Singapore, Amsterdam and Wroclaw and an extended network, as part of McKinsey & Company, of over 500 energy specialists, in 105 offices across the globe.
Focused on integrating market insight with analytics, Energy Insights combines McKinsey’s industry knowledge and expertise with rigorous analytics delivered in market outlooks and cloud-based analytics software, bespoke scenario planning, and performance improvement programs.
About The Mckinsey Global Institute
The McKinsey Global Institute (MGI), the business and economics research arm of McKinsey & Company, was established in 1990 to develop a deeper understanding of the evolving global economy. Our goal is to provide leaders in the commercial, public, and social sectors with the facts and insights on which to base management and policy decisions.
The partners of McKinsey & Company fund MGI’s research; it is never commissioned by any business, government, or other institution.
In January 2017, for the second year running, The Lauder Institute at the University of Pennsylvania ranked MGI the number-one private-sector think tank in the world in its annual 2016 Global Go To Think Tank Index.
For further information about MGI and to download all reports for free, please visit www.mckinsey.com/mgi