What does the future hold for energy demand?

25 September 2018
There is no need to worry about oil demand … yet

With the world’s population projected to rise to 10 billion people by 2050, from about 7.6 billion today, and with large parts of the world still to gain access to sustainable sources of energy, there will be no let up in demand for hydrocarbons any time soon.

In 2017, global demand for oil rose about 1.6 per cent, according to the International Energy Agency (IEA) – double the average rate of increase over the past decade.

Despite this, global energy remains at a critical turning point. The challenge facing the region’s oil and gas producers is no longer simply the balance between supply and demand. Instead, the questions facing the world’s energy providers are about how, where and when energy supply is produced, and how, where and when it is used.

Demographic expansion and socio-economic development, particularly in the fast-growing economies of Asia — from the giant Chinese and Indian markets to the smaller Asian economies with rising middle-classes — are set to make up the lion’s share of future energy demand growth, whether from conventional or renewable sources.

At the same time, changing policy goals coupled with technological advancements are transforming both energy consumption and supply.

The quest for energy security is therefore focusing on the diversification of energy sources away from fossil fuels, while government and industry alike are seeking to reduce costs by harnessing the latest technologies to drive greater energy efficiency and reduce consumption.

Fuel efficiency

For the next 20-30 years, oil will continue to dominate primary energy requirements despite the plateau in production and demand expected towards the end of this period. Contrary to popular opinion, what is likely to curb demand is not the increasing adoption of alternative energy sources or even electric cars, but rather the broader implementation of fuel-efficiency standards and improvements across all main forms of transport — particularly in the trucking industry.

Speaking in April to an audience of energy industry specialists and media, IEA secretary-general Fatih Birol explained that more than 50 countries have car fuel-efficiency standards, but only four have truck fuel-efficiency standards — a nod to the major inroads yet to be made in significantly reducing oil demand growth. This is important because the improvement in the economic lot of communities, particularly in the developing world, is often followed by growth in the trucking industries in these countries in order to feed this economic growth.

“Even if every second car sold [globally] was an electric car, global oil demand will still continue to grow … because demand growth is not coming from cars. Today, one third of the global oil demand growth comes from Asian trucks only,” Birol told the audience gathered at Columbia University’s Centre of Global Energy Policy (CGEP) in New York.

Regardless, a major obstacle for oil producers in meeting the growth in global oil demand is the exponential rate of depletion of oil fields around the world, which is putting considerable pressure on both international oil companies (IOCs) and national oil companies (NOCs) to hunt for ever-larger oil fields to replace this loss in output.

Field depletion

In January, French oil field tubular goods manufacturer Valourec warned that to keep up with current global oil demand of about 96 million barrels a day (b/d), field depletion was “above and beyond” the most important issue for producers to contend with. Current annual depletion rates of the world’s major fields average at 4-7 per cent, or about 3 million b/d in ageing fields, while demand continues to grow by between 1.5-1.6 million b/d, according to the IEA.

The company highlighted how US shale oil production alone “is insufficient to offset worldwide depletion”, underscoring the concerted and increasingly closer coordination needed between Opec and non-Opec-producing nations to shore up oil supplies in the medium-to-long term. The US is projected to see an additional 1.6 million b/d of total liquid production — mainly from shale — by the end of 2018.

However, while rapidly rising shale oil and gas output from the US poses strong competition to Opec and large non-Opec producers such as Russia, the main ongoing issue for US producers is getting its product to market in a quick and efficient manner. The impetus for doing so is the comparatively short lifespan of US shale oil and gas wells, since output can fall by 40 per cent in just one year. Infrastructure to bring products from short-lived unconventional deposits in formations such as the Bakken and Eagle Ford fields pose logistical challenges to operators, who usually have to opt for flexible yet cost-inefficient land transport options over pipelines, despite their expensive initial build costs.

Natural gas has been touted as the energy source of choice during the energy transition due to it abundance across the world, from the shale fields of the US and the giant shared Gulf formations being exploited by Qatar and Iran, to the huge gas fields in Russia and Australia.

According to BP’s 2018 Energy Outlook for the next 20-25 years, gas is seen as a ‘bridge’ fuel by both developed and emerging-economy nations as they seek to reduce carbon emissions from coal use in their industrial sectors.

The global power sector, while keeping pace with economic growth, is meanwhile likely to see a plateauing in demand for natural gas, despite ongoing gas consumption for industrial, commercial and domestic purposes. This is mainly due to gas competing with coal and renewables, despite expectations of a sharp decrease in demand for coal from large consumers such as China and India by 2040.

In 2017, 30 per cent of total growth in the world’s gas demand was generated by China alone. Much of the growth comes as a result of authorities seeking to reduce localised pollution from coal-fired power plants. Faced by the twin challenges of a mounting public health crisis and maintaining strong economic growth, China is ramping up imports of clean-burning natural gas, particularly for power plants and industry in and around economic hubs in coastal areas.

Natural gas

Roughly 150 billion cubic feet of additional daily natural gas production is expected to come online by 2040, according to forecasts, bringing total global production to 500 billion cubic feet a day (cf/d).

Expected to be brought to consumer markets in liquefied natural gas (LNG) form or via pipeline over the next two to three decades, natural gas will experience strong and widespread demand not only from emerging markets such as those in Asia and Africa, but also from Europe and North America.

World LNG supplies are expected to experience the sharpest increase in availability over the next 20 years, with nearly half of the increase generated over the next five years alone. LNG could quite easily surpass regional pipeline supplies at this rate.

While the LNG scene is a buyer’s market, growing demand from China and India could eliminate the supply-demand differential early in the next decade, according to industry observers. Since the lag between the building and supply phases of the LNG project cycle is wide enough for demand to catch up with ease, this will translate into a need for new investment in greenfield projects around the world.

As the global transport sector grows on the back of economic progress in emerging economies, it is expected to be the single fastest-growing sector over the next 20-30 years.


This article is extracted from a report produced by MEED and Mashreq titled The Future of Middle East Energy. Click here to download the report

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