Throughout history, economic growth and development have gone hand in hand with energy use. Although the strength of this link changes over time and with the level of economic development, it is much stronger when countries are in the intermediate stages of development since the manufacturing sector, which is a high energy intensity sector, expands rapidly during this phase.
As economies develop further, other factors – such as technology, energy efficiency, structural shifts in the economy towards the service sector and demographics – enter into the equation.
Reflecting the interactions of these factors, on a global level, total primary energy demand has increased 1.6 times since 1970, from 104.5 mboe/d in 1970 to 273.9 mboe/d in 2014. It is forecast to increase by another 40% by 2040 to reach 382.1 mboe/d.
According to data researched from World’s Oil Outlook, WOO 2016, on a regional basis, energy demand in Developing countries, is expected to grow at an average rate of 2.1% p.a. over the forecast period 2014–2040. This is in sharp contrast with an average 0.1% p.a. growth projected for OECD regions and 0.6% for Eurasia.
This variation is a reflection of the relatively higher economic growth forecast for Developing countries since economic growth is a major driver of energy demand growth. Developing countries are forecast to post real GDP growth at PPP of 4.6% p.a. over the 2014–2040 period, compared with an average 2% p.a. growth in the OECD regions.
Moreover, higher population growth and increased urbanization in Developing countries are also driving future energy demand growth. In contrast to this, OECD regions are at a more mature and saturated stage of development with a lower potential for strong energy demand growth.
In terms of the actual quantity of energy demand, Developing countries’ energy demand will increase by more than 100 mboe/d from 2014–2040 compared to energy demand growth of 3.3 mboe/d in the OECD regions and 4.3 mboe/d in Eurasia.
As a result, almost 63% of global energy demand will stem from Developing countries by 2040, compared to the current share of 51%. On a global level, India’s share of energy demand will increase from around 6% in 2014 to almost 11% in 2040.
China is already consuming more energy than OECD America and this gap will continue to widen as China’s future energy demand growth of 1.5% p.a. is far greater than the 0.2% p.a. growth projected in OECD America.
Energy demand in OPEC and ‘Developing countries excluding China, India, and OPEC’ will grow at rates close to the overall pace of all Developing countries, around 2.1% p.a.
For the OECD group, its share of total world energy demand is forecast to decrease from about 40% in 2014 to 30% in 2040 while Eurasia’s share is expected to decrease from 9% in 2014 to 7% by 2040. These projections are driven by the future outlook for demographics, economic growth, changes in the structure of national economies, and policy developments.
Most of the world’s energy needs traditionally have been supplied by fossil fuels– namely, oil, gas, and coal. In 1970, fossil fuels accounted for 87% of the global energy mix and the fuel mix was dominated by oil (44%). Fossil fuels continue to dominate current global primary energy demand with a share of 81% of total energy demand recorded in 2014. Oil’s share has decreased to 31% and the share of gas has increased from 16% to 22% over the same period. Biomass had a share of 10.3% in 2014 followed by nuclear with 4.8%, hydro with 2.4% and other renewables with 1.3%.
How gas is overtaking oil
By 2040, fossil fuels will maintain their importance in the global energy mix, although with a lower share of 77% of total energy demand.
Most of the world’s energy needs traditionally have been supplied by fossil fuels– namely, oil, gas, and coal.
In 1970, fossil fuels accounted for 87% of the global energy mix and the fuel mix was dominated by oil (44%). Fossil fuels continue to dominate current global primary energy demand with a share of 81% of total energy demand recorded in 2014. Oil’s share has decreased to 31% and the share of gas has increased from 16% to 22% over the same period.
Biomass had a share of 10.3% in 2014 followed by nuclear with 4.8%, hydro with 2.4% and other renewables with 1.3%.
By 2040, WOO says fossil fuels will maintain their importance in the global energy mix, although with a lower share of 77% of total energy demand.
By 2040, the difference is that the share of coal is projected to decrease over the forecast period whereas the share of coal increased between 1990 and 2014. Also, the shares of gas and other renewables will increase by greater amounts when compared with the last 25 years.
In absolute terms, as mentioned earlier, total primary energy demand is forecast to increase by 40% by 2040 to reach 382.1 mboe/d, or an average increase of 1.3% p.a. Figure 2.3 (which represents this increase by fuel type) shows that the majority of this growth will come from gas (+42.1 mboe/d) followed by oil (+14.7 mboe/d), other renewables (+14.5 mboe/d), coal (+13.8 mboe/d) and nuclear (+10.2 mboe/d).
This progressive shift away from oil and coal and towards gas and renewables is not surprising given that policymakers are increasingly engaged in climate change mitigation initiatives. A declining share of oil in the energy mix is mainly the result of tightening fuel efficiency standards across most countries of the world.
Examples of such measures include the Corporate Average Fuel Economy (CAFE) and CAFC standards in the US and India, respectively, the Energy Efficiency Directive in the EU and the Federal Sustainable Development Strategy in Canada, among others.
Moreover, a gradual increase in the penetration of alternative vehicles also plays a role. In the case of coal, the loss of its share in the total energy mix has mainly been driven by its substitution for natural gas and renewables in the electricity sector, which are more environmentally acceptable alternatives.
This change has been supported by the Clean Power Plan in the US, decarbonization policies in the EU (such as Renewable Energy Directive) and recent policy changes in China, among others.
• Total global primary energy demand is forecast to increase by 108.2 mboe/d (or 40%) from 273.9 mboe/d in 2014 to 382.1 mboe/d by 2040.
• Developing countries’ energy demand will increase by more than 100 mboe/d from 2014–2040 compared to energy demand growth of 3.3 mboe/d in the OECD regions and 4.3 mboe/d in Eurasia. By 2040, almost 63% of global energy demand will stem from Developing countries, compared to the current share of 51%.
• Oil is expected to remain the fuel with the largest share for most of the forecast period, but it is anticipated that it will be overtaken by gas at some point close to 2040. Oil is also estimated to be the second-largest contributor to additional energy needs between 2014 and 2040.
• Although overall coal consumption is forecast to increase in the long term, its share in the total global energy mix is expected to decline by 4.4 percentage points.
• Global gas demand is forecast to increase on average by 2.1% p.a., from around 60 mboe/d in 2014 to almost 102 mboe/d in 2040. This represents the largest increase among all energy sources.
• Nuclear power is expected to increase significantly over the forecast period, driven by energy security and the need to limit CO2 emissions.
• Other renewables – which include mainly wind, PV, solar thermal and geothermal – is expected to increase from over 3 mboe/d in 2014 to 18 mboe/d in 2040 bringing its share in the global energy mix to almost 5%.
• Globally, energy intensity, measured as the amount of energy required to produce one unit of GDP, is falling and this trend is expected to continue over the long-term.
• Energy consumption per capita in OECD regions peaked around 2005 and is now on a steady downward trend. This reflects a service-oriented economy and technology-induced energy efficiency gains.
• In emerging and developing economies, energy consumption per capita is increasing, reflecting greater electrification, urbanization, expansion of the middle class, overall economic development and strong economic growth. Despite this positive trend, energy poverty and access to affordable, reliable and modern energy for all will remain a major challenge in developing countries.