There is an energy transition underway in the global pattern of energy demand, with the developing world increasing its role as the main market for energy consumption.
In 1990, the OECD accounted for almost two-thirds of energy demand, with the developing world just one-third. In the ET scenario, that position is almost exactly reversed by 2040, with the non-OECD accounting for over two-thirds of demand.
Much of the increase in energy demand is concentrated in developing Asia (India, China, and Other Asia), where rising prosperity and improving living standards support increasing energy consumption per head. See the Global backdrop page for a discussion of the importance of providing ‘more energy’.
China’s transition to a more sustainable pattern of economic growth means that by the mid-2020s India surpasses China as the world’s largest growth market, accounting for over a quarter of the growth in global energy demand over the Outlook. Even so, China remains the largest market for energy: roughly double the size of India in 2040.
Africa’s energy consumption remains small relative to its size: in 2040 Africa accounts for almost a quarter of the world’s population, but only 6% of energy demand.
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 two countries accounting for the fastest growth in energy demand – India and China – both start with relatively coal-intensive fuel mixes.
In the ET scenario, China’s coal share declines sharply over the Outlook – falling from 60% in 2017 to around 35% in 2040 – largely offset by increasing shares of renewables and natural gas. Indeed, in China, the growth of non-fossil fuels (renewables plus nuclear and hydro power) more than matches the entire growth in Chinese energy demand over the Outlook.
In contrast, the share of coal within India declines only modestly, driven by increasing coal consumption within the Indian power sector.
The US and EU both start the Outlook with relatively diverse fuel mixes and, over the Outlook, share similar trajectories of declining shares of coal and oil offset by increasing use of renewables and, in the US, natural gas.
The global pattern of energy production is also shifting, with strong growth in US energy production and a slowing in the expansion of Chinese energy supplies.
US energy production increases markedly in the ET scenario, driven by increases in oil, gas, and renewables. The US is the largest contributor to energy production growth until the mid-2020s; after which growth slows as tight oil production peaks and gradually declines.
The growth of energy production in China slows markedly relative to the past 20 years as China adjusts to a more sustainable pattern of economic growth. Despite this slowing, China is the world’s largest source of growth in energy supplies over the Outlook, driven by rapid growth in renewables and nuclear power.
The Middle East maintains its role as a key source of energy, supported by the growth of OPEC oil production in the second half of the Outlook, together with an expansion in gas production in Qatar and Iran.
Russia’s share of global energy production declines slightly over the Outlook, largely reflecting an edging down in its share of global gas production. Even so, Russia remains the world’s largest exporter of oil and gas. The changing global pattern of energy trade and imbalances is considered below.
The differing regional trends in energy consumption and production lead to significant shifts in the pattern of energy trade across the globe.
The ET scenario points to sharply contrasting patterns in the energy balances (consumption minus production) of the Americas and Asia, which were both small net importers of energy 20 years or so ago.
The rapid growth of US tight oil and shale gas leads to a significant increase in net energy exports from the Americas, such that by 2040 the Americas are a material source of energy exports to the rest of the world.
In contrast, the rapid growth of energy demand in Asia, led by India, China, and Other Asia, reinforces Asia’s position as the largest market for energy imports. The impact that trade disputes and increasing concerns about energy security could have on the pattern of energy flows is considered in the alternative ‘Less globalization’ scenario below.
The slow growth of energy consumption relative to production over the Outlook allows Russia and other CIS countries to increase their share of world energy exports. In contrast, the net energy exports of the Middle East and Africa are relatively unchanged.
International trade has an important influence on the global energy system: it underpins economic growth and allows countries to diversify their sources of energy.
If the recent trade disputes escalate they could have a significant impact on the energy outlook. The alternative ‘Less globalization’ scenario considers a case in which trade disputes increase and have a persistent impact on the energy system. In particular:
Slower trend GDP growth reduces the level of world GDP by 6% and energy demand by 4% in 2040 relative to the ET scenario, with those falls concentrated in countries and regions most exposed to foreign trade. The risk premia on imported energy means the fall in energy consumed is concentrated in traded fuels (oil, gas and coal), with renewable energy increasing slightly.
This general pattern is also evident in individual countries: lower energy demand and a shift in the fuel mix towards domestically-produced sources of energy.
The lower level of energy demand, together with the increased concerns about energy security, leads to a sharp reduction in energy trade, as overall demand falls and countries revert to domestically produced sources of energy.
This has a material impact on the largest exporters of oil and gas, such as Russia and the US. The growth of Russia’s oil and gas net exports by 2040 in the ‘Less globalization’ scenario is more than 50% lower than in the ET scenario.
The impact on the growth of US net oil and gas exports is even more pronounced as the US consumes more of its gas domestically, crowding out the growth of renewable energy. By 2040, US oil and gas exports in the ‘Less globalization’ scenario are around two-thirds lower than in the ET scenario.
In terms of imports, the energy deficits of the major importers of oil and gas, such as China and India, are smaller than in the ET scenario. For example, China’s imports of oil and gas in the ‘Less globalization’ scenario are respectively 12% and 40% lower than in the ET scenario.
This reduction in imported energy stems from both the lower overall level of energy consumption and the shift away from oil and gas towards domestically produced renewables.