Global fundamentals

Energy is about people — individuals and societies using electricity, transportation fuels and other energy to make life better. As economies and populations grow, and as living standards improve for billions of people, the need for energy will continue to rise. Even with significant efficiency gains, global energy demand is projected to rise by about 35 percent from 2010 to 2040.

" Energy is a necessary input to improving quality of life and economic growth. Access to reliable and affordable energy sources can reduce poverty, improve public health, and improve living standards in myriad ways."

Columbia University’s Center on Global Energy Policy

Population and progress

People and economies need energy to grow and thrive.

From 2010 to 2040, the world’s population is projected to rise from 7 billion to nearly 9 billion, and the global economy will more than double. Over that same period, global energy demand is likely to rise by about 35 percent.

But our world’s energy landscape is always more complex than it seems at first glance.

Even a casual assessment reveals that the world is not one homogenous place, but rather many individual countries and regions, each at a different stage of economic and energy development. For example, economic growth in Organisation for Economic Co-operation and Development (OECD) countries will likely average 2.0 percent annually, while non-OECD countries are expected to average 4.4 percent a year through 2040. This growth in gross domestic product (GDP) means improved quality of life for billions of people.

We can categorize our world in broad groups:

The United States and other OECD member nations.

This group already has relatively high living standards, urbanization levels and per capita energy use reflecting well-advanced economies. As OECD economies continue to expand, improvements to energy efficiency and slower population growth will combine to keep overall energy demand essentially flat in these countries through 2040.

China and India.

These two countries are the world’s most populated, and each is in the process of making broad gains in living standards. By 2040, nine of the world’s 20 most populous cities — and one of every three people on the planet — will be in China or India. Together these nations account for half of the projected growth in global energy demand.

China has been a dominant force in energy trends over the past 20 years as its economy grew and living standards rose. China’s energy demand will continue to grow substantially, but by 2040, China will have a much more mature economy, with energy demand growth — as well as economic and population growth — slowing to a more temperate pace. India will continue to experience strong growth, with its large population realizing significant gains in living standards. Since 2005, India has surpassed Japan and Russia to become the third-largest energy consumer behind China and the United States – a position it will likely retain through 2040.

Key growth countries and other non-OECD.

Economic progress will drive demand for energy in other non-OECD countries, where many more people will be able to afford some or all of the hallmarks of a middle-class lifestyle, such as better homes, air conditioning, appliances, personal vehicles and computers. The biggest gains should be seen in 10 key growth countries: Brazil, Indonesia, Saudi Arabia, Iran, South Africa, Nigeria, Thailand, Egypt, Mexico and Turkey. By 2040, these 10 countries will have energy demand approaching the level of China. Although Mexico and Turkey are OECD members, their significant population, economic and energy demand growth closely resemble that of the other countries in this group.

As we have seen in developed economies over the previous century, one important fundamental of energy demand is the migration of populations from rural to urban areas. Naturally, the expansion of urban infrastructure creates demand for iron, steel, cement and other industrial goods that are energy intensive.

Urbanization also tends to drive energy demand higher for several other reasons: Average urban income levels are higher than in rural areas; energy-intense manufacturing and other industries cluster around cities; and in developing economies, the number of people per household is usually lower in urban settings, which leads to a higher number of actual households.

All this, combined with an expanding middle class, leads to a higher penetration of consumer electronics, personal vehicles, and other demands for energy.

By 2040, the proportion of people living in urban settings in non-OECD countries is projected to rise to about 60 percent, up from 45 percent in 2010 and 30 percent in 1980. OECD urbanization rates are likely to rise to 85 percent, from about 75 percent.

Even with all of this progress, the growth in global demand for energy is actually slowing down.

While the projected rise in energy demand from 2010 to 2040 is substantial, it is only about 80 percent of the growth seen from 1980 to 2010. This is all the more remarkable because the growth in economic output from 2010 to 2040 will be more than double the growth from 1980 to 2010. This means that the world is continuing to become more efficient as prosperity advances.

This shift is due in part to advances in technology; for example, fuel demand for light-duty vehicles is expected to be relatively flat through 2040 as advanced cars with better fuel economy enter the market.

Energy efficiency works in every aspect of the world’s economy to offset demand growth. Its importance is illustrated by recognizing that the projected rise in population and GDP through 2040 could have caused global energy demand to rise by more than 100 percent. But much of that demand increase will be avoided because of advances in energy efficiency across all sectors. Another reason for the slowdown in global energy demand growth is the fact that over time, an increasing percentage of the world’s population — including OECD countries and China — will already have achieved a relatively high standard of living, with relatively stable energy needs.

While our economies become more efficient, commercial activities and consumer preferences will still drive global energy needs higher.

While worldwide demand for energy that people use directly (in cars and homes) will grow through 2040,

there will be even larger increases in demand for energy that serves people indirectly through the broader economy. These needs include fuels for manufacturing, trucking and shipping, as well as energy for power generation to support industrial customers, computers and telecommunications.

All energy sources should be pursued to meet global demand through 2040. New technologies will continue to expand the world’s energy options. One prominent example is the rapid growth in the production of tight oil and shale gas that has revitalized North American energy production.

While oil will remain the fuel of choice for transportation, natural gas is emerging strongly as a growing fuel of choice for other sectors.

Utilities and other consumers are turning to this abundant, affordable and clean-burning fuel. Half of the growth in demand for natural gas is being driven by the need for electricity around the world, which is expected to increase by 90 percent from 2010 to 2040. Nuclear and renewable energy will also grow to support electricity needs.