Large scale shifts in the global energy system

Four large-scale shifts in the global energy system set the scene for latest issue of The International Energy Agency’s (IEA) flagship report, World Energy Outlook 2017:

• The rapid deployment and falling costs of clean energy technologies.
• The growing electrification of energy.
• The shift to a more services-oriented economy and a cleaner energy mix in China.
• The resilience of shale gas and tight oil in the US.

These shifts come at a time when traditional distinctions between energy producers and consumers are being blurred and a new group of major developing countries, led by India, moves towards centre stage.

Focusing on the report’s New Policies Scenario, global energy demand is expected to rise more slowly than in the past but will still expand by 30% from now until 2040. Without improvements in efficiency, however, the projected rise in final energy use is more than double. Energy demand in this projection is driven by a number of key factors:

• a growth in the global economy at an average rate of 3.4% per year,
• population growth from 7.4bn today to more than 9bn in 2040, and
• a process of urbanisation that adds a city the size of Shanghai to the world’s urban population every four months.

The largest contribution to demand growth – almost 30% – comes from India, whose share of global energy use rises to 11% by 2040 under this scenario. This is followed by other developing countries in Southeast Asia.

Global energy needs will be met by natural gas, as well as by the rapid rise of renewables and energy efficiency, suggests the study.

Fossil fuels

The report suggests it is the end of the boom years for coal, with net additions from today to 2040 of only 400 GW, compared to a 900 GW addition from 2000 to 2016.

Oil demand will continue to grow to 2040, albeit at a steadily decreasing pace. Oil used to produce petrochemicals is the largest source of growth, closely followed by rising consumption for trucks, for aviation and for shipping. Already a net exporter of gas, the US is expected to become a net exporter of oil in the late 2020s. A more rapid switch to electric cars will keep oil prices lower for longer.

Meanwhile, natural gas will account for a quarter of global energy demand by 2040. Some 80% of the projected growth in gas demand takes place in developing economies, led by China, India and other countries in Asia. However, a new gas order is emerging, with US LNG helping to accelerate a shift towards a more flexible, liquid, global market. By the mid-2020s, the US will become the world’s largest LNG exporter.

On the role of methane emissions in the natural gas value chain, there are technical possibilities to avoid 75% of the current methane emissions, suggests the IEA. In addition, it could be possible to avoid 40–50% of methane emissions at no net cost.

The versatility of natural gas means that it is well placed to grow but it cannot afford price spikes or uncertainty over methane leaks, warns the IEA.

Renewables

Renewable sources of energy are expected to meet 40% of the increase in primary demand by 2040, with the share of all renewables in total power generation rising to 40% by that date under the New Policies Scenario. Renewables share of direct and indirect use in final energy consumption will rise from 9% to 16%, from today to 2040, while the direct use of renewables to provide heat and mobility worldwide will double.

In the European Union, renewables will account for 80% of new capacity, with wind power to become the leading source of electricity soon after 2030.

Meanwhile, the US will overtake China by 2030 to become the largest producer of nuclear-based electricity.

Electricity

Electricity is making up 40% of the rise in final energy consumption to 2040 – the same share of growth that oil took for the last 25 years. Industrial electric motor systems account for one-third of the increase in power demand.

The global electric car fleet is forecast to rise to 280mn by 2040, from 2mn today.

Global investment in electricity overtook that of oil and gas for the first time in 2016.

China

This year, the report includes a special focus on China, where the new energy policy is now firmly on electricity, natural gas and cleaner, high-efficiency and digital technologies. Demand growth is expected to slow to an average of 1% per year to 2040 (compared to an average of 8% per year from 2000 to 2012 to less than 2% per year since 2012). Energy efficiency regulation explains a large part of this slowdown.

One-third of the world’s new wind power and solar PV is installed in China, and China also accounts for more than 40% of global investment in electric vehicles (EVs).

The country provides a quarter of the projected rise in global gas demand and will overtake the US as the largest oil consumer around 2030. However, oil demand growth is larger in India than in China post-2025.

Sustainable energy development

Meanwhile, universal access to electricity remains elusive. Around 675mn people – 90% of them in sub-Saharan Africa – are expected to remain without access to electricity in 2030 (down from 1.1mn today), and 2.3mn continue to rely on biomass, coal or kerosene for cooking (from 2.8mn today).

Premature deaths worldwide from outdoor air pollution will rise from 3mn today to more than 4mn in 2040.

Despite their recent flattening, global energy-related CO₂ emissions increase slightly to 2040 – however, this is far from good enough to avoid severe impacts of climate change, notes the IEA.