Spencer Dale – energy demand by sector
Spencer Dale, group chief economist, discusses the 'evolving transition' scenario in relation to energy demand by sector
Spencer Dale, group chief economist
Growth in global energy demand is broad-based across all the main sectors. Differing trends in the way energy is used and consumed in these sectors has an important bearing on the energy transition.
The industrial sector (including the non-combusted use of fuels) currently consumes around half of all global energy and feedstock fuels, with residential and commercial buildings (29%) and transport (20%) accounting for the remainder.
In the evolving transition (ET) scenario, the industrial sector accounts for around half of the increase in energy consumption, although improving energy efficiency causes growth of industrial use outside of the non-combusted sector to slow.
In contrast, the non-combusted use of fuels, particularly as a feedstock in petrochemicals, is projected to be the fastest-growing source of demand.
Energy growth in the buildings sector also grows robustly, driven by an increase in demand for space cooling, lighting and electrical appliances.
The slowing in demand growth is most marked in the transport sector as improvements in vehicle efficiency accelerate.
The slower growth of energy consumption within the industrial sector (excluding the non-combusted use of fuels) masks sharply differing trends across regions as the global composition of industrial production shifts.
After tripling over the past 15 years, growth in Chinese industrial energy demand in the ET scenario slows to a virtual standstill, as the Chinese economy transitions away from energy-intensive industrial sectors, such as steel and cement, towards less energy-intensive service and consumer-facing sectors.
Some of this growth in industrial production is displaced to lower-income economies, with India, other emerging Asia and Africa together accounting for around 70% of the growth in industrial energy consumption.
This shift in industrial composition is accompanied by coal-to-gas switching, particularly in China, with the share of industrial energy provided by coal declining from almost a third today to less than a quarter in 2040. Natural gas and electricity supply all of the incremental industrial energy demand, providing around two-thirds of total industrial energy by 2040.
The industrial sector currently consumes around half of all global energy and feedstock fuels
The non-combusted use of fuels – for example, as feedstocks for petrochemicals, lubricants and bitumen – becomes an increasingly important component of overall industrial demand over the Outlook.
In the energy transition scenario, non-combusted use of fuels grows at almost twice the rate of other industrial uses (1.9% p.a. versus 1.0% p.a.), with its share of overall industrial demand increasing to nearly 20% by 2040.
This stronger growth reflects the more limited scope for efficiency gains when oil, gas and coal are used as a feedstock rather than as a source of energy, although increasing environmental pressures on the use of some products, particularly single-use plastics and packaging, dampens growth quite materially relative to past trends.
Oil accounts for nearly two-thirds of the growth in the non-combusted use of energy, with natural gas providing much of the remainder.
Despite accounting for only a small fraction of current oil and gas demand (10%), the non-combusted use of oil and gas is the largest contributor of their combined growth in the latter part of the Outlook.
The increase in energy use in buildings is driven by a combination of growing population and increasing prosperity, allowing people to live and work in greater comfort.
In the ET scenario, both of these trends – growing population and increasing prosperity – are particularly concentrated in Asia, Africa and the Middle East, which together account for over 90% of the growth in building energy use.
The relatively warm climate covering much of these regions means that the increase in demand for space heating is small.
Instead, the majority of demand is driven by the need for space cooling (air conditioning), together with growing prosperity increasing demand for lighting and electrical appliances.
As a result, almost all of the increase in energy consumption in buildings over the Outlook is provided by electricity, which is the most efficient source of energy for meeting these demands.
There is also a small increase in gas consumption, which gains share from both coal and oil in space heating.
Almost all of the increase in energy consumption in buildings over the Outlook is provided by electricity
The world continues to electrify, with electricity consumption growing strongly.
In the ET scenario, almost 70% of the increase in primary energy is used for power generation, with power demand growing three times more quickly than other energy.
But the quickening pace of efficiency gains in the final use of electricity means that the relationship between economic growth and electricity consumption weakens over the Outlook, with this weakening particularly pronounced in the OECD.
The mix of fuels used in power generation is set to shift materially, with renewable energy continuing to gain in importance. In the ET scenario, renewables account for around half of the increase in power and their share of total power generation increases from 7% today to around a quarter by 2040.
The main loser is coal, which accounts for just 13% of the increase in power over the Outlook compared with more than 40% over the previous 25 years. Even so, coal remains the largest source of energy for power in 2040, with a share of almost 30%.
The share of natural gas is projected to be relatively flat at a little over 20% during the Outlook, after rising gradually over much of the past 25 years.
The mix of fuels used in power generation is set to shift materially, with renewable energy continuing to gain in importance
The shifting mix of fuels used in global power generation reflects sharply different trends across regions.
The increase in renewable power in the ET scenario is driven by the OECD and China, with coal-powered generation falling in the OECD and starting to decline in China from around 2030.
By 2040, the share of non-fossil fuels in the OECD and Chinese power sectors is projected to be broadly similar, although the ratio of coal to gas remains much higher in China.
In contrast, coal remains the dominant source of energy for power generation in the rest of Asia, accounting for the vast majority of the increase in power generation in the region over the Outlook.
As a result, the pace of change in the structure of power generation in the rest of Asia is less pronounced than in China. In the ET scenario, the broad structure of the fuel mix in the Indian power sector in 2040 is broadly similar to the mix in China today.
In the evolving transition scenario, the broad structure of the fuel mix in the Indian power sector in 2040 is broadly similar to the mix in China today