Urbanization helps fuel industrial demand

"Around the world, more than 300 million people are employed in manufacturing, accounting for some 14 percent of global employment." ( World Economic Forum, Global Agenda Council on Advanced Manufacturing, 2013)

The industrial sector is a major consumer of energy, accounting for about half of all the electricity consumed around the world — and about 30 percent of primary energy use.

Urbanization and rising living standards continue to drive industrial demand for energy. The expansion of urban infrastructure creates new demand for steel, cement and other energy-intensive industrial goods. Growing middle-class populations will also increase demand for consumer goods – appliances, apparel and electronics – that require energy to manufacture.

Urbanization is one reason why global industrial energy demand is projected to rise by one-third through 2030, with almost all of the growth concentrated in non-OECD countries. Global demand then flattens, however, as rising demand in India and other leading growth countries is offset by a major development in the industrial sector: declining industrial demand in China post 2030.

China is the world’s largest industrial energy user and is projected to remain so over the Outlook period. But China’s industrial energy demand will likely peak around 2030, reflecting efficiency improvements and the natural maturing of its economy after decades of rapid growth. In 2010, China produced almost 50 percent of the world’s iron, steel and cement; after 2020, we expect China’s market share of these heavy industries to decline as its economy shifts toward higher-value manufacturing and services that have lower energy intensity.

By 2040, China’s industrial demand is expected to be just 25 percent higher than in 2010; in contrast, Brazil’s will be nearly double and India’s about 2 1/2 tmes the 2010 level.

Industrial demand for energy is a function of production activity – such as the manufacturing of steel, automobiles and chemicals – and energy intensity, or the amount of energy needed to produce each unit of output. Production activity is expected to rise with increased urbanization and expanded global prosperity. At the same time, continued improvements in energy efficiency are expected to reduce energy intensity. Because of this improved efficiency, growth in industrial energy demand will be well below the growth in global production activity.

For chemicals, energy demand includes both fuel and feedstock. Improvements to energy efficiency can reduce only the fuel portion – about 40 percent of the chemicals sector’s energy demand. This is why chemicals’ efficiency improvements appear modest relative to the improvements in heavy industry and the energy industry.

Two other elements of the industrial sector are the demand for fuel for agriculture, which will rise to support a growing population, and growth in asphalt demand for road construction.

Increased industrial activity is one reason for the projected strong growth in demand for energy for trucks and other forms of commercial transportation through 2040 (see page 21). This is especially true for China, India and other leading growth countries, where rising domestic consumption and exports drive robust industrial growth.

Through 2040, there are likely to be significant changes in the types of energy used in the industrial sector. Growth in unconventional sources of oil and natural gas is helping the industrial sector shift away from coal and curb direct CO2 emissions. By 2040, the industrial sector is projected to get only about 15 percent of its direct energy from coal, compared to over 20 percent in 2010. At the same time, natural gas and electricity are likely to increase their shares of industrial energy.

In the chemicals sector, rising demand for chemical products will drive increased demand for the liquids that are used as chemical feedstocks: oil-based feedstocks like naphtha and natural gas liquids (NGLs) such as ethane.

One aspect of global oil and natural gas demand that is not always obvious is the link to the plastics and other petrochemicals that are integral to many of today’s manufactured products.

The chemicals industry is unique among energy consumers because it uses energy in two ways. Only about 40 percent of the industry’s energy consumption is used for typical purposes like heat and power. The remainder is the oil and natural gas liquids (NGLs) that chemical companies use as raw materials to make the building blocks for a wide range of essential products. NGLs such as ethane, propane and butane are the valuable byproducts of production from natural gas wells.

The products of oil and NGL feedstocks include consumer goods such as plastics, rubber, paint, ink, electronics, pharmaceuticals, packaging and personal care products.

They also include industrial products like solvents, resins and coatings. And they include manufactured products such as auto parts, furniture, flooring, appliances, medical equipment and surgical supplies. Natural gas itself can also be a feedstock for products such as fertilizers.

At a chemical plant, steam cracking is one of the main processes used to turn feedstocks into intermediate chemical products such as ethylene and propylene, which are further processed to form plastics and other end-use products. About 70 to 80 percent of the energy consumed in steam cracking is due to the raw materials that are not combusted as fuels but rather transformed into other materials.

Rising natural gas production, particularly in North America, has reshaped the chemicals industry by shifting the economics of chemical production in favor of North American manufacturers.

Aside from the Middle East, North America is the only region of the world where most steam cracking facilities are designed to use NGLs rather than the more expensive oil-based feedstocks used in Europe and Asia Pacific.

The twofold advantage of access to an abundant supply of affordable natural gas (for fuel) and NGLs (for feedstocks) is leading to a resurgence in the North American chemicals industry and positioning the region to help meet rising global demand for chemicals.

Energy demand from the chemicals industry is projected to grow faster than the overall growth in energy demand as rising standards of living, particularly by the middle class in developing parts of the world, drive growth for goods made from chemical products.

Global chemicals energy demand is expected to rise by about 55 percent from 2010 to 2040, and will account for 35 percent of the growth in the industrial sector.

Most of the growth in energy demand in the chemicals sector will be for the feedstocks to make manufactured goods; fuel demand will grow more slowly as improvements to efficiency reduce demand growth.

Today, natural gas and electricity already account for more than half of the energy used for fuel purposes in chemical plants. That percentage will continue to grow over the Outlook period, as solid fuels like coal decline over time.