It is expected that the main driving forces behind this are from road transportation, maritime and the aviation sectors.

The report states that the supply of hydrogen, which is currently primarily made up of grey hydrogen, will shift to 60% clean hydrogen by 2035. This clearly showcases the effort being made across the industry to generate the cleanest variants of the clean energy carrier.

It also shows how successful grey hydrogen could be in creating an initial market for hydrogen.

Perhaps the biggest headline from the report is that peak oil may be just three years away, McKinsey finds. Yet it also questions, is that transition moving quick enough?

Here we take a deeper dive into five of the key insights from the report’s executive summary.

Energy uncertainty driving decarbonisation?

While governments and businesses are increasingly committed to steep decarbonisation targets, energy markets face extreme volatility driven by geopolitical tensions and a rebound in energy demand.

The conflict in Ukraine, as well as other factors, have triggered significant peaks in energy prices as uncertainties around supply security and affordability are paramount. This comes at a time where markets are already tight following the Covid-19 rebound.

Throughout 2021, global energy demand and emissions increased by 5% compared to 2020, almost reaching pre-Covid-19 levels (~33 Gt energy-related CO2 equivalent).

In the context of COP26, a total of 64 countries (accounting for 89% of global CO2 emissions) have made Net Zero pledges, while financial institutions and private sector enterprises also continue to increase their decarbonization aspirations.

The shift in energy mix

Going forward, the energy mix is projected to shift toward power. By 2050, electricity and enabling hydrogen and synfuels could account for 50% of the energy mix.

Electricity demand is projected to triple by 2050 as sectors electrify and hydrogen and hydrogen-based fuels increase their market share due to decarbonisation.

Renewable generation is projected to reach 80–90% of the global energy mix by 2050 as the global build-out rates for solar and wind grow by a factor of five and eight, respectively.

Hydrogen demand in new sectors could reach 350–600 mtpa in 2050 (compared to ~80 mtpa today); global demand for sustainable fuels is expected to mature, reaching 8–22% of all liquid fuels by 2050.

Peak fossil fuel demand nears

The projected peak in demand for fossil fuels continues to move forward; demand for oil is projected to peak in the next five years.

Peak oil demand is projected to occur between 2024 and 20271, driven largely by EV uptake – a development that is already underway. Coal demand peaked in 2013 and, after a temporary rebound in 2021, is projected to continue its downward trajectory.

The conflict in Ukraine is leading to price spikes as the market and consumers balance supply security and affordability. Toward 2035, gas demand across all scenarios is projected to grow another 10–20% compared to today1; after 2035, gas demand will likely be subject to larger uncertainties, driven especially by the interplay with hydrogen.

Two to four1 Gt (gigatonnes) of CO2 will need to be captured by CCUS (carbon capture and utilisation) by 2050 to decarbonise heavy industries where fossil fuels continue to play a significant role.

Transition acceleration key to 1.5ºC pathway

Even if all countries with Net Zero commitments deliver on their aspirations, global warming is projected to reach 1.7°C by 2100.

All scenarios require substantial shifts to occur across the energy landscape. Even in McKinsey’s Current Trajectory scenario, significant investments will likely be required to kick-start new technologies.

With current government policies, additional commitments, and projected technology trends, global warming is projected to exceed 1.7°C, making a 1.5°C pathway increasingly challenging. To keep the 1.5°C pathway in sight, the global energy system may need to accelerate its transformation significantly, shifting away from fossil fuels toward efficiency, electrification, and new fuels, quicker than even the announced Net Zero commitments.

Annual investments in non-fossil energy accelerating

Total investments across energy sectors are projected to grow by more than 4% per annum and are projected to be increasingly skewed towards non-fossil and decarbonisation technologies, while returns remain uncertain.

Annual investments in energy supply and production are expected to double by 2035 to reach $1.5 trillion to $1.6 trillion1; almost all growth is expected to come from decarbonisation technologies and power, which will by 2050 exceed today’s total energy investments.

EBIT in decarbonisation technologies and power is expected to grow by 5% per annum, and could outpace the growth in underlying investments. Business models in a highly decarbonised system are expected to remain uncertain across sectors, and will likely rely on adjustments in market design (for example, capacity payments for flexible thermal power generation), subsidies, or other support mechanisms (for example, support for CCUS on top of CO2 prices).

Ukraine conflict

The report’s executive summary also points out that while developments of the conflict in Ukraine are highly uncertain, today’s decisions could impact the long-term energy transition and path towards decarbonisation.

There are many questions related to the development of the conflict, as well as the impact on GDP and energy markets.


1 – Between Current Trajectory and Achieved Commitments scenarios

Source: McKinsey Energy Insights Global Energy Perspective 2022