Urbanization helps fuel industrial demand

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 times the 2010 level.

"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

Global industrial energy use also is driven by the chemicals sector, where demand for energy is rising about 50 percent faster than overall energy demand. Chemical companies use energy in two ways: as a fuel and as a feedstock to make plastics and other products essential to manufactured goods (see page 27). Demand for these goods — from consumer electronics to medical equipment — goes hand-in-hand with rising living standards. The global production of petrochemicals is expected to more than double from 2010 to 2040. At the same time, fertilizer production will grow by about 25 percent, keeping pace with population growth.

The energy industry itself accounted for about 20 percent of industrial energy demand in 2010, but its share is declining as the industry continues to improve efficiency. More efficient energy extraction and processing, along with reductions in natural gas flaring, are likely to limit the growth in the energy industry’s demand to only 30 percent of the total fossil-fuel growth rate.

Industrial efficiency saves energy

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 (yellow bars) is expected to rise with increased urbanization and expanded global prosperity. At the same time, continued improvements in energy efficiency (green bars) 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.

"By significant investments in new steelmaking technologies, and through the innovation of the women and men working on the plant floor, America’s steel industry has reduced energy intensity per ton of steel shipped by 30 percent since 1990."

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.