Global Outlook For The Energy Market: Macro View For 2040 Strategic Insight For Global Players



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The Energy market will remain hot for the next 25 years. This article is a strategic paper for all those policy makers involved in investments, operations, risk and strategy in the energy market. The global energy market looks very enthralling as demand is set to outpace supply. Market volatility, uneven globalisation, and complex regulations continue to challenge business leaders charged with managing value chains and delivering energy services. To succeed in this competitive marketplace, both emerging players and established companies must evaluate political and economic risks as they respond to consumer needs. So the big question is where do I see the market in the next 30 years? The answer to that question varies by region, reflecting diverse economic and demographic trends as well as the evolution of technology and government policies.

MAJOR SNAPSHOTS FOR THE GLOBAL ENERGY MARKET

1. Global energy demand will be about 35 % higher in 2040 compared to 2010. As economic output increases, the scale of the challenge is enormous and will double as prosperity expands across the world and will require an integrated set of solutions with global population nearly touching 9 billion people. According to Rex W. Tillerson, ExxonMobil Chairman and CEO, demand growth will slow as economies mature, efficiency gains accelerate and population growth moderates.

2. Flat in OECD and boom in Asia Pacific. In countries belonging to the Organization for Economic Cooperation and Development (OECD) – including countries in North America and Europe – energy use would remain essentially flat, even as these countries achieve economic growth and even higher living standards. In contrast, Non OECD energy demand will grow by close to 60 %. China’s surge in energy demand will extend over the next two decades then gradually flatten as its economy and population matures. Asia Pacific would become the hotbed for the energy market with major developments taking place in Indonesia, Malaysia, Singapore and Vietnam. These regions would require energy for their economic trajectory and developmental growth. By 2040, electricity generation will account for more than 50 % of global energy consumption.

3. Demand for coal will peak and begin a gradual decline, in part because of emerging policies that will seek to curb emissions by imposing a cost on higher-carbon fuels. Use of renewable energies and nuclear power will grow significantly. Environmental concern will grow for coal in the next 10-15 years.

4. Oil, gas and coal continue to be the most widely used fuels, and have the scale needed to meet global demand, making up about 75% of total energy consumption in 2040.

5. Natural gas will grow fast enough to overtake coal for the number-two position behind oil. Demand for natural gas will rise by more than 60 % in 2040. For both oil and natural gas, an increasing share of global supply will come from unconventional sources such as those produced from shale formations. In fact, on June 18, 2012, The Wall Street Journal called it, “the holy grail” in a special report on innovations in energy.

6. Gains in efficiency through energy-saving practices and technologies – such as hybrid vehicles and new, high-efficiency natural gas power plants – will temper demand growth and curb emissions in the environment.

THE OUTLOOK FOR ENERGY: THE BASIC DRIVER FOR STRATEGIC INVESTMENT

All the major investments have their roots in the Outlook for Energy. For example, over the past 15 years, the Asia Pacific region has received most of the investment of more than $10 billion. Take for example, Exxon Mobil expanding its refining and petrochemical production in Singapore because it expects economic growth across the Asia Pacific region.

Furthermore, the decision over a decade ago to invest with Qatar Petroleum to develop their natural gas reserves was grounded in the view that global demand for gas would rise significantly, as was the $41 billion purchase of XTO Energy in 2010. And projected strength in commercial transportation demand, coupled with tightening emissions standards, drove its 2008 decision to invest more than $1 billion to expand clean diesel production capacity in the United States and Europe. Global oil companies have made massive investments amounting to $457 billion roughly in energy projects over the past five years. As big as those investments are, the International Energy Agency estimates that to meet energy demand, global energy infrastructure investments will need to average approximately $1.5 trillion per year through 2035, with half of that amount related to oil and natural gas.

According to Kelvin Hoe —Chief Investment Officer at IQI Group Holdings: “ Residential energy demand increases as Africa and China lead a 50-percent rise in the number of households worldwide. By 2040, there will be 2.8 billion households in the world, an increase of nearly 50 percent from 2010. These households will need energy for lighting, heating, cooking, hot water and refrigeration, as well as electricity to run everything from computers to air conditioners”

Every region will see a net increase in households through 2040, but growth will be particularly strong in Africa, China, India and Latin America. The reasons vary. In Africa, it is an expected sharp rise in population. China is a rising affluence, which enables fewer multifamily or shared households. In India and Latin America, it is a mix of both. By 2040, these four regions will account for about 60 percent of all households in the world.

Through 2040, global growth in households will more than offset projected improvements in residential energy efficiency, resulting in rising demand in this sector. Yet in terms of the relationship between people, their homes and their energy use, it is important to remember that significant differences exist between regions.

For example, although India and Africa will have the largest populations by 2040, each will have fewer homes than China. Also, while the number of households in Africa, China and India will rise sharply, accounting for 60 % of total household growth, average energy use per household in Non OECD nations will remain relatively low; even by 2040 it will be only about two-thirds of the level of the average household in the OECD.

Energy use in commercial buildings in the United States varies widely. It averages over 100,000 BTUs per square foot of floor space each year. Households typically use less than half that amount. U.S. Department of Energy Buildings Energy Data Book 2010 Economic activity spurs a rise in energy demand for businesses, with growth led by Non OECD countries.

By 2040, electricity will account for about 40 % of the energy used in the residential/commercial sector, compared to less than 30 percent today. This shift helps explains why electricity generation will be the fastestgrowing source of energy demand through 2040. The shift to electricity in the residential/commercial sector is happening in all parts of the world, but for varying reasons.

Industrial, residential/commercial sectors will lead a steady rise in electricity demand. Electricity generation is the largest and fastest-growing source of global energy demand – bigger than the amount of primary energy used in the transportation and residential/ commercial sectors combined.

Demand for electricity continues to rise in all parts of the world. Population and economic growth are two main reasons, just as they are for the projected demand growth in other fuels. But with electricity there is an extra factor at work: the switch to electricity from other forms of energy, such as oil or biomass for lighting and heating in the home or coal in the industrial sector.

Natural gas, nuclear and renewable will see strong growth through 2040 as generators shift to lower-carbon sources. Because electricity can be produced from many sources, and because the economics of electricity generation are influenced by a range of factors – including technology, environmental policies, capital investment costs and fuel prices – the mix of fuels used for electricity generation represents one of the biggest variables in the energy landscape in coming decades.

On the other hand, lower-carbon sources will gain share. Natural gas, which emits up to 60 percent less CO2 than coal when used for electricity generation, will gain the most. By 2040, natural gas will account for 30 percent of global electricity generation, compared to just over 20 percent today. Renewable fuels also will grow significantly, led by wind. Although wind’s potential is limited by its intermittency and – in the case of offshore wind, its cost – the quantity of electricity generated by wind power will grow more than tenfold through 2040.

Happy investing in the energy market.

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