The drivers of global energy demand growth to 2050
June 2016 | Rembrandt Sutorius, Matt Frank
The energy market is evolving. A series of macro and micro structural changes are dragging down growth in demand, while the drive towards a lower carbon future, changes in consumer behavior, and technological innovation are affecting the fuel mix and shifting supply emphasis towards renewable energy sources.
In our latest integrated energy outlook, we project lower long-term demand growth than other reference scenarios, and even than our own previous forecasts have anticipated. So what is leading this evolution? And could we see a peak in demand for traditional fuels?
What drives energy demand?
At a fundamental level, population, economic growth, and energy efficiency improvements are the key influences on energy demand.
In the 37-year period between 2013 and 2050 we’ll see significant change across each of these drivers:
- Global population looks set to increase by 36% to around 10 billion
- GDP per capita, although set to grow more slowly than previous estimates, will double.
But while on the surface, these two drivers would indicate continued growth in demand for energy, it is in fact decelerating.
Much of the growth in population will result from people living longer, which will in turn depress employment figures and place pressure on GDP. Meanwhile, although GDP will increase overall, we’ll see a global shift towards a service-driven economy, away from energy-hungry heavy industry. And as technology and process improvement on both the demand and supply sides lead to greater productivity and energy efficiency within individual sectors, energy intensity of the economic growth will halve.
Overall, primary energy demand growth looks set to slow to around 0.7% per year through to 2050, a rate lower than mainstream ‘base case’ perspectives, and 30% slower than our own projections from 2015.
Where will energy demand come from?
Regionally? From non-OECD, countries, most notably, China, followed relatively closely behind by India. Demand in North America and Europe will likely see a decline.
These are the sectors that will drive primary energy demand:
- Demand for feedstock and energy from the chemicals sector will drive growth of more than double the rate of the rest of total demand, with a CAGR of 1.8%
- Industry, power and heat, and buildings will see a slightly flatter forecast, at around 0.6-0.7%
- Energy for light vehicles will decline, by 0.2% overall, after a peak around 2023
- Electricity will be the clear winner in terms of energy type, outstripping growth in demand for other sources by more than two to one – primarily as a result of building and industry electrification in China and India. Almost 80% of capacity to meet this growth will be generated from solar and wind; reflecting the shift towards renewables long-term.
What will these changes in demand mean for energy suppliers?
The fuel mix, particularly in the power industry, will remain reliant on fossil fuels right through to 2050, albeit at a reduced rate. Accounting for 74% of the total primary mix, down from a current high of 82%, the gap will be filled by renewables; most notably solar and wind, which will rise to 7%. A shift towards greener energy generation will be matched by a move towards electric vehicles and more efficient engines, leading to a decline in energy-related CO2 emissions from 2035 onwards.
Drilling down, demand for gas will continue to increase, with a CAGR of around 1.2% between 2013 and 2050. In contrast, oil looks set to flatten, with growth of just 0.4% overall, while coal will peak by around 2025. Crude producers will need to look beyond anticipated growth in the chemicals sector to shore up the industry, as the feedstock products driving growth in that sector are not typically manufactured from crude or refining.
It’s a less than dynamic outlook for oil, which begs the question, could we see a peak in demand? Of course, this business-as-usual case could be impacted by a number of influences; changes in GDP, continually fluctuating oil prices, new innovation in technology, and regulatory change. Sector players however, would be well advised to continue monitoring growth forecasts and consider the implications for investment in the long term.
About the authors
Rembrandt Sutorius is General Manager of Global Energy Demand and Matt Frank is a specialist, both with Energy Insights in McKinsey's London office.
ENERGY DEMAND INSIGHTS