Growth in global energy demand is driven by increasing prosperity – enabled by plentiful supplies of energy – and improving living standards in fast-growing, emerging economies
Spencer Dale, group chief economist, discusses the 'evolving transition' scenario in relation to energy demand by region
China and India will each roughly provide around a quarter of the growth in energy demand over the next 25 years.Spencer Dale, group chief economist
In the evolving transition (ET) scenario, the majority of the increased energy is consumed in Asia: with China, India and other non-OECD Asia accounting for around two-thirds of the growth. Energy demand within the OECD is flat.
China and India each account for around a quarter of the increase in world energy over the Outlook, although this masks sharply contrasting trends. China’s energy growth slows significantly as it transitions to a more sustainable pattern of economic growth. In contrast, the slowing in India’s demand growth is less pronounced, underpinned by robust economic growth. As a result, by the second half of the Outlook, India emerges as the world’s largest growth market for energy.
Africa also plays an increasingly important role in driving energy demand in the latter stages of the Outlook – contributing more to global demand growth in the final five years of the Outlook than China – supported by an increasing population together with some pick-up in productivity.
Differences in the fuel mix an important influence
Differences in the fuel mix across regions, and the extent to which that mix changes over the Outlook, have an important bearing on the energy transition.
The regions accounting for the majority of the growth in global energy demand – China, and India & other emerging Asia – start with relatively coal-intensive fuel mixes.
In the ET scenario, China’s coal intensity declines sharply, with its overall coal consumption falling, more than offset by a large rise in renewable energy. Indeed, the largest growth of any energy source at a regional level is the increase in renewables in China.
In contrast, the share of coal within India and other emerging Asia is largely unchanged, such that coal demand increases along with overall energy demand.
The US and EU both start the Outlook with diverse fuel mixes and share similar trajectories of declining shares of coal and oil, offset by increasing use of renewables and, in the US, natural gas.
The growth in Middle East energy demand is almost entirely met by an increase in consumption of natural gas.
China’s energy needs are changing
Primary energy consumption by region (billion toe)
In the evolving transition scenario, the majority of the increased energy is consumed in Asia
China is the world’s largest consumer of energy and has been the most important source of growth for global energy over the past 20 years. But as China transitions to a more sustainable pattern of growth, its energy needs change.
In the ET scenario, China’s energy demand is projected to grow by just 1.5% p.a., less than a quarter of its growth rate over the past 20 years. China’s energy mix also changes significantly, driven by its shifting economic structure and its commitment to move to cleaner, lower carbon fuels.
In particular, China’s coal consumption is projected to fall over the Outlook, in sharp contrast to the past 20 years where it provided the vast majority of the energy used to power China’s rapid industrialization. It seems increasingly likely that China’s consumption of coal has peaked.
In contrast, renewable energy, together with nuclear and hydro, account for over 80% of the increase in China’s energy demand out to 2040. Renewables overtake oil to become the second largest energy source in China.
India’s footprint in global energy markets increases materially over the Outlook, with India emerging as the largest growth market for global energy.
The rise in India’s energy demand is supported by continued robust economic growth, partially offset by quicker declines in energy intensity. In the ET scenario, the pace of Indian industrialization slows relative to the past 25 years. But if India’s sustained, strong economic growth is accompanied by an increasing shift to industrial activity, this could pose upside risks to energy demand.
Coal continues to provide the main source of energy supporting India’s economy, accounting for 45% of the increase in energy demand; over 70% of the increase in coal consumption feeds the power sector as India seeks to provide access to electricity to its entire population.
Renewable energy grows rapidly over the Outlook, with particularly strong growth in solar energy.
Gas consumption almost triples, with strong growth in industry, including as a feedstock for production of fertilizers. Growth of gas in power is less strong, held back by the continued dominance of coal and the rapid growth of renewables.
The extent of Africa’s role in global energy depends on productivity and industrialization
Africa has an increasingly important bearing on global energy markets in the latter part of the Outlook and beyond.
In the ET scenario, Africa accounts for around one-fifth of total energy demand growth in the final five years of the Outlook.
Africa’s role as a significant exporter of energy diminishes, with overall net exports declining as domestic consumption increases by more than production. A sharp reduction in oil surplus is only partially offset by higher net exports of natural gas.
Africa’s economic development until now has been held back by low levels of industrialization and productivity. Reflecting that, the industrial share of energy consumption in Africa has been falling sharply since the early 1980s and is far lower than other developing economies at a similar stage of development.
In the ET scenario, the industrial share of energy rises gradually as the level of industrialization picks up, but the precise profile is uncertain and will depend on a variety of factors including the efficiency of Africa’s wave of urbanization over the next 25 years.
Africa's energy supply and demand growth (Mtoe per annum)
Africa accounts for around one-fifth of total energy demand growth in the final five years of the Outlook
The US extends its lead in oil and gas production
The US enhances its position as the world’s largest producer of oil and gas over the Outlook, but its net exports account for only a small fraction of world trade.
In the ET scenario, the US share of global oil production (crude plus NGLs) increases from about 12% today to about 18% by 2040, well above Saudi Arabia – the world’s second largest producer – which has a market share of about 13% by 2040. For natural gas, the US lead is even more pronounced: accounting for 24% of total gas production in 2040, compared with Russia’s share of 14%.
But the US also remains the world’s largest consumer of gas and second-largest consumer of oil. As such, in the ET scenario, its net exports account for only a relatively small share of overall world trade. In 2040, the US exports 360 Mtoe of oil and gas combined, equivalent to only around 9% of global trade in oil and gas in 2016, and less than half that of Russia (780 Mtoe in 2040) – the world’s largest exporter of oil and gas.
The US also loses its position as the largest producer of renewable energy, with its share of global production declining from 24% currently to around 15% by 2040. In contrast, China’s share of renewables increases to around 30%.
The EU leads the transition to a lower carbon economy
The EU continues to lead the transition towards a low carbon economy.
In the ET scenario, EU carbon emissions by 2040 are over 35% lower than in 2016 and the EU’s carbon emissions per unit of GDP are almost half the world average. This transition is supported by a range of policies targeting energy efficiency and encouraging a shift towards lower carbon fuels.
Improvements in energy intensity continue to play the largest role: in 2040, the EU consumes roughly the same amount of energy as it did in 1975, despite its level of GDP being more than three times bigger.
A shift to a lower carbon fuel mix also plays an important role. Over the Outlook, oil consumption falls materially – driven by efficiency gains in road transport – as does coal consumption, as renewables account for an increasing share of power generation.
By 2040, non-fossil fuels provide around 40% of EU’s energy demand, up from 25% in 2016 and considerably higher than the world average of 25%.