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The Next 100 Years: Demand Growth in the Developing World

It is conventional wisdom among energy analysts that in the decades ahead, demand growth in oil and gas consumption will come mostly from developing countries. There are signs, however, that future increases in energy demand will be more gradual than expected, with no booming surge in consumption.

Guy Caruso is senior adviser for the Energy and National Security Program of the Center for Strategic and International Studies, a policy research organization in Washington, D.C.

He’s also a former head of the U.S. Energy Information Administration (EIA) and the president-elect of the United States Association for Energy Economics (USAEE).

“Probably 75 percent of all energy demand growth is going to be in countries we would call ‘developing,’” Caruso noted. “Everybody’s outlook has most of the growth in the developing countries, but that’s a broad category that includes China and India.”

In the latest edition of its World Energy Outlook, the International Energy Agency (IEA) contrasted energy demand growth in developing nations with demand declines among members of the Organisation for Economic Co-operation and Development (OECD), a group of 35 mostly economically advanced countries.

“With total demand in OECD countries on a declining path, the geography of global energy consumption continues to shift towards industrializing, urbanizing India, Southeast Asia and China, as well as parts of Africa, Latin America and the Middle East,” the report’s summary said.

In the next 20 years, “China and India see the largest expansion of solar photovoltaics (PV); while by the mid-2030s developing countries in Asia consume more oil than the entire OECD,” it predicted.

Blunted Boom

Caruso said more efficient use of energy has tempered demand in the world’s highly developed nations.

“We’re using energy far more efficiently in the U.S., the E.U. and Japan than we were in the 1970s and ‘80s,” he observed.

“Transportation is a much bigger part of our energy consumption than it is in the developing countries, and it’s getting more efficient. And it will continue to get better,” Caruso said. “In developing countries, they’re still using a lot of energy in the industrial sector and that’s less efficient.”

BP forecast significant energy-demand growth for China and India in its Energy Outlook to 2035, issued last year. The world’s overall energy consumption is expected to increase by 34 percent between 2014 and 2035, in BP’s estimate.

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It is conventional wisdom among energy analysts that in the decades ahead, demand growth in oil and gas consumption will come mostly from developing countries. There are signs, however, that future increases in energy demand will be more gradual than expected, with no booming surge in consumption.

Guy Caruso is senior adviser for the Energy and National Security Program of the Center for Strategic and International Studies, a policy research organization in Washington, D.C.

He’s also a former head of the U.S. Energy Information Administration (EIA) and the president-elect of the United States Association for Energy Economics (USAEE).

“Probably 75 percent of all energy demand growth is going to be in countries we would call ‘developing,’” Caruso noted. “Everybody’s outlook has most of the growth in the developing countries, but that’s a broad category that includes China and India.”

In the latest edition of its World Energy Outlook, the International Energy Agency (IEA) contrasted energy demand growth in developing nations with demand declines among members of the Organisation for Economic Co-operation and Development (OECD), a group of 35 mostly economically advanced countries.

“With total demand in OECD countries on a declining path, the geography of global energy consumption continues to shift towards industrializing, urbanizing India, Southeast Asia and China, as well as parts of Africa, Latin America and the Middle East,” the report’s summary said.

In the next 20 years, “China and India see the largest expansion of solar photovoltaics (PV); while by the mid-2030s developing countries in Asia consume more oil than the entire OECD,” it predicted.

Blunted Boom

Caruso said more efficient use of energy has tempered demand in the world’s highly developed nations.

“We’re using energy far more efficiently in the U.S., the E.U. and Japan than we were in the 1970s and ‘80s,” he observed.

“Transportation is a much bigger part of our energy consumption than it is in the developing countries, and it’s getting more efficient. And it will continue to get better,” Caruso said. “In developing countries, they’re still using a lot of energy in the industrial sector and that’s less efficient.”

BP forecast significant energy-demand growth for China and India in its Energy Outlook to 2035, issued last year. The world’s overall energy consumption is expected to increase by 34 percent between 2014 and 2035, in BP’s estimate.

“China’s share in global energy demand rises from 23 percent in 2014 to 25 percent in 2035, while its growth contributes 32 percent to the world’s net increase,” BP’s Outlook said.

“Energy production (in China) as a share of consumption drops from 82 percent in 2014 to 80 percent by 2035, making the country the world’s largest net importer of energy,” it forecast.

By 2032, China will overtake the United States and become the world’s largest consumer of energy liquids, BP predicted.

India also will see big increases in energy consumption over the next 20 years, BP said. It forecast India’s oil imports to rise by 161 percent and its demand for natural gas to increase by 155 percent. Renewables and other energy sources will have only a gradual affect on India’s consumption, it predicted.

“India’s energy mix evolves very slowly over the Outlook, with fossil fuels accounting for 87 percent of demand in 2035, compared to a global average of 79 percent. This is down from 92 percent in 2014,” BP said.

“India’s share of global demand rises to 8.7 percent in 2035, accounting for the second largest share of the BRIC [Brazil, Russia, India and China] countries with China at 25 percent, Russia 4 percent, and Brazil 2 percent,” it added.

Slowed Growth

While the world’s developing countries are expected to generate the largest share of energy demand growth in coming decades, the questions “How much?” and “How fast?” remain difficult to answer with any certainty.

“The crystal ball is pretty cloudy,” said Jim Smith, professor of finance and Cary M. Maguire chair of oil and gas management at Southern Methodist University in Dallas, and a past president of USAEE.

“The growth rates are potentially fast but there is a kind of lack of track record in responding to an economic downturn, which India and China are both struggling with now,” Smith said.

Current estimates point to slowing growth in energy demand in developing nations, with BP expecting demand growth to fall to about 1.4 percent per year after growing at 2.3 percent per year from 2000 to 2014.

And several trends also indicate slower-than-expected growth:

• Environmental awareness:

Increased use of energy to spur economic development has had a significant impact on the environment in developing nations, particularly in China, but also in India.

“In both of those countries, the problem is the environment,” Smith observed.

He said public concern about the environment in many developing countries has less to do with climate change than with direct effects on air quality and water quality. Problems with land pollution and trash generation also affect many emerging nations.

Consequently, he said, those countries will have to take environmental effects into account when planning future energy use.

“The national health statistics demand that. The population is beginning to demand that,” Smith said. “Once you attain middle class, you become more discreet in how you want to live.”

But Caruso said energy demand should still increase in developing countries this century, with environmental concerns only a mitigating factor.

“Most of the developing countries are attempting to increase their efficiency and to factor in the cost of local pollution on carbon emissions, but their emphasis is on economic growth,” he said. “Climate change is important, but it doesn’t appear to be important enough to have a major effect.”

• Increasing urbanization:

Energy demand growth from increased development is “happening more slowly that it did in the E.U. and the U.S. because another trend that’s going on in the developing countries is increasing urbanization,” Caruso said.

“It’s a combination of the sectors where the energy is used and the demographics of the particular country. That’s especially true in China,” he noted.

A tenet in the oil and gas industry once held that “everyone in China and India will want a car,” leading to a boom in fuel demand and energy consumption. Now even in developed countries, a shift to urban living has lessened the demand for private vehicles.

• Reduced subsidies:

Energy consumption is subsidized in a number of developing countries. Some subsidize gasoline prices or hold prices artificially low. India has a program of subsidizing diesel fuel for agricultural uses, Smith noted. Now there’s a trend to reduce subsidies and introduce market forces in energy consumption.

“It started in the Group of 20, which is a combination of developed and developing countries, to take on the subject of subsidization,” Caruso said. “The other area where there is a lot of subsidization is in the producing countries. Gasoline is very cheap in Saudi Arabia, in Iran, Iraq.”

Governments might favor the idea of reduced energy-consumption subsidies, but actions that lead to higher energy prices often generate social unrest.

In December, the Mexican government announced it would increase gasoline prices, in some cases by 20 percent. The immediate effect of the price hikes was rioting, with four dead, at least 300 stores ransacked and more than 700 people arrested, officials said.

The Known Unknown

One trend with an uncertain effect is the continuing introduction of technological advances in developing countries.

“Whenever you’re investing in technology for the long term, the results are unpredictable. Look at our own case in the U.S. No one thought the United States would be exporting crude oil 10 years ago,” Smith said.

Caruso believes technology will be a critical factor in allowing developing countries to continue growing economically while reducing their ratio of energy use to output units. He said it’s “better to grow at three percent and become much more efficient.”

“Technology has made a big difference in both the demand side and the supply side,” he said. “The key is going to be technological innovation, if we’re going to crack this code.”

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