FOR IMMEDIATE RELEASE
September 14, 2017
Emerging Asian economies drive the increase in world energy use from 2015 to 2040
World energy consumption is projected to increase by 28% by 2040, according to the International Energy Outlook 2017 (IEO2017), released today by the U.S. Energy Information Administration (EIA). Most of the world’s growth in energy demand is projected to take place in countries outside of the Organization for Economic Cooperation and Development (OECD). China and the other non-OECD Asia nations alone account for more than 60% of the projected increase in world energy demand (Figure 1).
"Transportation energy use rises by nearly 30%, with almost all of the growth coming from non-OECD countries, as personal incomes rise and energy markets in many of these nations' rapidly growing economies become further integrated into global supply chains," said Ian Mead, EIA's Assistant Administrator for Energy Analysis.
Some key findings:
World energy use increases from 575 quadrillion British thermal units (Btu) in 2015 to 736 quadrillion Btu in 2040. The increase mainly occurs in the emerging economies of the world, driven by long-term growth in economies and populations.
In the IEO2017 Reference case, world net electricity generation increases by 45% from 23.4 trillion kilowatthours (kWh) in 2015 to 29.4 trillion kWh in 2030 and to 34.0 trillion kWh in 2040. Electricity is the world’s fastest growing form of end-use energy consumption, as it has been for decades, and power systems continue to evolve from isolated, noncompetitive grids to integrated and even international markets.
IEO2017 projects renewables as the world's fastest-growing energy source—increasing by 2.3% per year through 2040—but fossil fuels still account for more than three-quarters of world energy use (Figure 2). Although petroleum and other liquids remain the largest source of energy, the liquid fuels share of world marketed energy consumption falls from 33% in 2012 to 31% in 2040.
Natural gas is the fastest-growing fossil fuel in the outlook. Global natural gas consumption grows by 1.4% per year from 2015 to 2040. Abundant natural gas resources and rising production—including supplies of tight gas, shale gas, and coalbed methane—contribute to the strong competitive position of natural gas.
Compared with the strong growth in coal use in the 2000s, worldwide coal use remains essentially flat through 2040. After 2030, natural gas surpasses coal to become the world's second-largest energy source after liquid fuels (Figure 2).
Other IEO2017 highlights:
By 2040, renewables provide the largest share (34%) of world electricity generation—a substantial change from 2015, when coal provided 40% of all power generation. Hydropower and wind are the two largest contributors to the increase in world electricity generation from renewable energy sources, together accounting for two-thirds of the total increase from 2015 to 2040. Hydropower and wind generation each increase by about 1.8 trillion kilowatthours (kWh) in the IEO2017 Reference case.
The top three coal-consuming countries—China, the United States, and India—together account for more than 65% of the world's coal use through 2040. China alone currently accounts for slightly more than half of the world's coal consumption, but a slowing economy and plans to implement policies to address air pollution and climate change mean that coal use in China will decline over the projection period. Of the world's three largest coal consumers, only India is projected to increase coal use through 2040.
Worldwide electricity generation from nuclear power increases from 2.5 trillion kWh in 2012 to 3.7 trillion kWh in 2040, as concerns about energy security and greenhouse gas emissions support the development of new nuclear generating capacity, but reactor retirements and opposition from local populations keep nuclear from expanding in many parts of the world. Virtually all of the projected net growth in the world's installed nuclear capacity occurs in non-OECD countries, led by China's addition of 111 gigawatts of nuclear capacity from 2015 to 2040.
The industrial sector continues to account for the largest share of delivered energy consumption, using more than half of global delivered energy in 2040.
Worldwide energy-related carbon dioxide emissions rise from 34 billion metric tons in 2012 to 39 billion metric tons in 2040, a 16% increase from 2015 to 2040. Much of the growth in emissions is attributed to non-OECD nations, many of which continue to rely on fossil fuels to meet the growth in energy demand.
IEO2017 is available at http://www.eia.gov/ieo/.The product described in this press release was prepared by the U.S. Energy Information Administration (EIA), the statistical and analytical agency within the U.S. Department of Energy. By law, EIA's data, analysis, and forecasts are independent of approval by any other officer or employee of the United States Government. The views in the product and press release therefore should not be construed as representing those of the Department of Energy or other federal agencies.
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Supply chains are currently in crisis. They have been for a long time now, ever since the start of the Covid-19 pandemic reshaped the way the world works. Stressed shipping networks and operational blockages – coupled with China’s insistence on a Covid-zero policy – means that cargo tanker rates are at an all-time high and that there just aren’t enough of them. McDonalds and KFCs in Asia are running out of French fries to sell, not because there aren’t enough potatoes in Idaho, but because there aren’t enough ships to deliver them to Japan or to Singapore from Los Angeles. The war in Ukraine has placed a particular emphasis on food supply chains by disrupting global wheat and sunflower oil supply chains and kicking off distressingly high levels of food price inflation across North Africa, the Middle East and Asia. It was against this backdrop that Indonesia announced a complete ban on palm oil exports. That nuclear option shocked the markets, set off a potential new supply chain crisis and has particular implications on future of crude oil pricing and biofuels in Asia.
A brief recap. Like most of Asia, Indonesia has been grappling with food price inflation as consequence of Covid-19. Like most of Asia, Indonesia has been attempting to control this through a combination of shielding its most vulnerable citizens through continued subsidies while attempting to optimise supply chains. Like most of Asia, Indonesia hasn’t been to control the market at all, because uncoordinated attempts across a wide spectrum of countries to achieve a similar level of individual protectionism is self-defeating.
Cooking oil is a major product of sensitive importance in Indonesia, and one that it is self-sufficient in as a result of its status as the world’s largest palm oil producer. So large is Indonesia in that regard that its excess palm oil production has been directed to increasingly higher biodiesel mandates, with a B40 mandate – diesel containing 40% of palm material – originally schedule for full implementation this year. But as palm oil prices started rising to all-time highs at the beginning of January, cooking oil started becoming scarcer in Indonesia. The government blamed hoarding and – wary of the Ramadan period and domestic unrest – implemented a Domestic Market Obligation on palm oil refineries, directing them to devote 20% of projected exports for domestic use. Increasingly stricter terms for the DMO continued over February and March, only for an abrupt U-turn in mid-March that removed the DMO completely. But as the war in Ukraine drove prices even further, Indonesia shocked the market by announcing an total ban on palm oil exports in late April. Chaotically, the ban was first clarified to be palm olein only (straight refining cooking oil), but then flip-flopped into a total ban of crude palm oil as well. Markets went haywire, prices jumped to historical highs and Indonesia’s trading partners reacted with alarm.
Joko Widodo has said that the ban will be indefinite until domestic cooking oil prices ‘moderate’. With the global situation as it is, ‘moderate’ is unlikely to be achieved until the end of 2022 at least, if ‘moderate’ is taken to be the previous level of palm oil prices – roughly half of current pricing. Logistically, Indonesia cannot hold out on the ban for more than two months. Only a third of Indonesia’s monthly palm oil production is consumed domestically; the rest is exported. An indefinite ban means that not only fill storage tanks up beyond capacity and estates forced to let fruit rot, but Indonesia will be missing out on crucial revenue from its crude palm oil export tax. Which is used to fund its biodiesel subsidies.
And that’s where the implications on oil come in. Indonesia’s ham-fisted attempt at protectionism has dire implications on biofuels policies in Asia. Palm oil prices within Indonesia might sink as long as surplus volumes can’t make it beyond the borders, but international palm oil prices will remain high as consuming countries pivot to producers like Malaysia, Thailand, Papua New Guinea, West Africa and Latin America. That in turn, threatens the biodiesel mandates in Thailand and Malaysia. The Thai government has already expressed concern over palm-led food price inflation and associated pressure on its (subsidised) biodiesel programme, launching efforts to mitigate the worst effects. Malaysia – which has a more direct approach to subsidised fuels – is also feeling the pinch. Thailand’s move to B10 and Malaysia’s move to B20 is now in jeopardy; in fact, Thailand has regressed its national mandate from B7 to B5. And the reason is that the differential between the bio- and the diesel portion of the biodiesel is now so disparate that subsidy regimes break down. It would be far cheaper – for the government, the tax-payers and consumers – to use straight diesel instead of biodiesel, as evidenced by Thailand’s reversal in mandates.
That, in turn, has implications on crude pricing. While OPEC+ is stubbornly sticking to its gentle approach to managing global crude supply, the stunning rebound in Asian demand has already kept the consumption side tight to match that supply. Crude prices above US$100/b are a recipe for demand destruction, and Asian economies have been preparing for this by looking at alternatives; biofuels for example. In the past four years, Indonesia has converted some of its oil refineries into biodiesel plants; in China, stricter crude import quotas are paving the way for China to clamp down on its status of a fuels exporter in favour of self-sustainability. But what happens when crude prices are high, but the prices of alternatives are higher? That is the case for palm oil now, where the gasoil-palm spread is now triple the previous average.
Part of this situation is due to market dynamics. Part of it is due to geopolitical effects. But part of it is also due to Indonesia’s knee-jerk reaction. Supply disruption at the level of a blanket ban is always seismic and kicks off a chain of unintended consequences; see the OPEC oil shocks of the 70s. Indonesia’s palm oil export ban is almost at that level. ‘Indefinite’ is a vague term and offers no consolation to markets looking for direction. Damage will be done, even if the ban lasts a month. But the longer it lasts – Indonesian general elections are due in February 2024 – the more serious the consequences could be. And the more the oil and refining industry in Asia will have to think about their preconceived notions of the future of oil in the region.
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