TODAY’S STUDY: THE WORLD ENERGY PICTURE AHEAD

International Energy Outlook 2013

July 25, 2013 (U.S. Energy Information Administration)

Highlights

The International Energy Outlook 2013 (IEO2013) projects that world energy consumption will grow by 56 percent between 2010 and 2040. Total world energy use rises from 524 quadrillion British thermal units (Btu) in 2010 to 630 quadrillion Btu in 2020 and to 820 quadrillion Btu in 2040 (Figure 1). Much of the growth in energy consumption occurs in countries outside the Organization for Economic Cooperation and Development (OECD),2 known as non-OECD, where demand is driven by strong, long-term economic growth. Energy use in non-OECD countries increases by 90 percent; in OECD countries, the increase is 17 percent. The IEO2013 Reference case does not incorporate prospective legislation or policies that might affect energy markets.

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Renewable energy and nuclear power are the world's fastest-growing energy sources, each increasing by 2.5 percent per year. However, fossil fuels continue to supply almost 80 percent of world energy use through 2040. Natural gas is the fastest-growing fossil fuel in the outlook. Global natural gas consumption increases by 1.7 percent per year. Increasing supplies of tight gas, shale gas, and coalbed methane support growth in projected worldwide natural gas use. Coal use grows faster than petroleum and other liquid fuel use until after 2030, mostly because of increases in China's consumption of coal and tepid growth in liquids demand attributed to slow growth in the OECD regions and high sustained oil prices.

The industrial sector continues to account for the largest share of delivered energy consumption; the world industrial sector still consumes over half of global delivered energy in 2040. Given current policies and regulations limiting fossil fuel use, worldwide energy-related carbon dioxide emissions rise from about 31 billion metric tons in 2010 to 36 billion metric tons in 2020 and then to 45 billion metric tons in 2040, a 46-percent increase.

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World economic background

The world is still recovering from the effects of the 2008-2009 global recession.3 As these effects continue to be felt, many unresolved economic issues add to the uncertainty associated with this year's long-term assessment of world energy markets. Currently, there is wide variation in the economic performance of different countries and regions around the world. Among the more mature OECD regions, the pace of growth varies but generally is slow in comparison with the emerging economies of the non-OECD regions. In the United States and Europe, short- and long-term debt issues remain largely unresolved and are key sources of uncertainty for future growth. Economic recovery in the United States has been weaker than the recoveries from past recessions, although expansion is continuing. In contrast, many European countries fell back into recession in 2012, and the region's economic performance has continued to lag. Japan, whose economy had been sluggish before the devastating earthquake in March 2011, is recovering from its third recession in 3 years. Questions about the timing and extent of a return to operation for Japan's nuclear power generators compound the uncertainty surrounding its energy outlook.

In contrast to the OECD nations, developing non-OECD economies, particularly in non-OECD Asia, have led the global recovery from the 2008-2009 recession. China and India have been among the world's fastest growing economies for the past two decades. From 1990 to 2010, China's economy grew by an average of 10.4 percent per year and India's by 6.4 percent per year. Although economic growth in the two countries remained strong through the global recession, both slowed in 2012 to rates much lower than analysts had predicted at the start of the year. In 2012, real GDP in China increased by 7.2 percent, its lowest annual growth rate in 20 years. India's real GDP growth slowed to 5.5 percent in 2012.

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The world's real gross domestic product (GDP, expressed in purchasing power parity terms) rises by an average of 3.6 percent per year from 2010 to 2040. The fastest rates of growth are projected for the emerging, non-OECD regions, where combined GDP increases by 4.7 percent per year. In the OECD regions, GDP grows at a much slower rate of 2.1 percent per year over the projection, owing to more mature economies and slow or declining population growth trends. The strong growth in non- OECD GDP drives the fast-paced growth in future energy consumption projected for these nations.

In addition to concerns about the pace of world economic growth, other events have added further uncertainty to this year's energy outlook. Political unrest in several North African and Middle Eastern nations has persisted, most notably in Syria, but elsewhere as well. A number of the countries that experienced political transition as a result of the Arab Spring revolutions, including Egypt, Tunisia, and Yemen, have struggled to establish stability. In addition, the sanctions imposed on Iran as a result of its nuclear program have dampened the country's growth outlook. Unrest in the Middle East has been one reason that oil prices have been in the range of $90 to $130 per barrel4 well into 2013. The Brent crude oil spot price averaged $112 per barrel in 2012, and EIA's July 2013 Short-Term Energy Outlook projects averages of $105 per barrel in 2013 and $100 per barrel in 2014. With prices expected to increase in the long term, the world oil price in real 2011 dollars reaches $106 per barrel in 2020 and $163 per barrel in 2040 in the IEO2013 Reference case.

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High sustained oil prices can affect consumer demand for liquid fuels, encouraging the use of less energy or alternative forms of energy, but also encouraging more efficient use of energy. Energy efficiency improvements are anticipated in every end-use sector, with global liquids intensity—liquid fuels consumed per dollar of GDP—declining (improving) by 2.6 percent per year from 2010 to 2040. However, some of the greatest potential for altering the growth path of energy use is in the transportation sector. The U.S. transportation sector provides a good example of this potential to change future liquids consumption. More stringent U.S. vehicle fuel economy standards offset growth in transportation activity, resulting in a decline in the country's use of petroleum and other liquids over the projection. Improving vehicle fuel economy standards will likely be adopted throughout most of the world, helping to moderate future growth in liquids consumption.

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World energy markets by fuel type

In the long term, the IEO2013Reference case projects increased world consumption of marketed energy from all fuel sources through 2040 (Figure 2). Fossil fuels are expected to continue supplying much of the energy used worldwide. Although liquid fuels—mostly petroleum-based—remain the largest source of energy, the liquids share of world marketed energy consumption falls from 34 percent in 2010 to 28 percent in 2040, as projected high world oil prices lead many energy users to switch away from liquid fuels when feasible. The fastest growing sources of world energy in the Reference case are renewables and nuclear power. In the Reference case, the renewables share of total energy use rises from 11 percent in 2010 to 15 percent in 2040, and the nuclear share grows from 5 percent to 7 percent…

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Natural gas

World natural gas consumption increases by 64 percent in the Reference case, from 113 trillion cubic feet in 2010 to 185 trillion cubic feet in 2040. Although the global recession resulted in an estimated decline of 3.6 trillion cubic feet in natural gas use in 2009, robust demand returned in 2010 with an increase of 7.7 trillion cubic feet, or 4 percent higher than demand in 2008, before the downturn. Natural gas continues to be the fuel of choice for the electric power and industrial sectors in many of the world's regions, in part because of its lower carbon intensity compared with coal and oil, which makes it an attractive fuel source in countries where governments are implementing policies to reduce greenhouse gas emissions. In addition, it is an attractive alternative fuel for new power generation plants because of relatively low capital costs and the favorable heat rates for natural gas generation. The industrial and electric power sectors together account for 77 percent of the total projected world increase in natural gas consumption…

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Electricity

World net electricity generation increases by 93 percent in the IEO2013 Reference case, from 20.2 trillion kilowatthours in 2010 to 39.0 trillion kilowatthours in 2040. In general, the growth of electricity demand in the OECD countries, where electricity markets are well established and consumption patterns are mature, is slower than in the non-OECD countries, where at present many people do not have access to electricity. Total net electricity generation in non-OECD countries increases by an average of 3.1 percent per year in the Reference case, led by non-OECD Asia (including China and India), where annual increases average 3.6 percent from 2010 to 2040. In contrast, total net generation in the OECD nations grows by an average of 1.1 percent per year from 2010 to 2040.

In many parts of the world, concerns about security of energy supplies and the environmental consequences of greenhouse gas emissions have spurred government policies that support a projected increase in renewable energy sources. As a result, renewable energy sources are the fastest growing sources of electricity generation in the IEO2013 Reference case, at 2.8 percent per year from 2010 to 2040. After renewable generation, natural gas and nuclear power are the next fastest growing sources of generation, each increasing by 2.5 percent per year. Although coal-fired generation increases by an annual average of only 1.8 percent over the projection period, it remains the largest source of world power generation through 2040 (Figure 6). The outlook for coal, however, could be altered substantially by any future national policies or international agreements aimed at reducing or limiting the growth of greenhouse gas emissions.

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Almost 80 percent of the projected increase in renewable electricity generation is fueled by hydropower and wind power. The contribution of wind energy, in particular, has grown rapidly over the past decade, from 18 gigawatts of net installed capacity at the end of 2000 to 183 gigawatts at the end of 2010—a trend that continues into the future. Of the 5.4 trillion kilowatthours of new renewable generation added over the projection period, 2.8 trillion kilowatthours (52 percent) is attributed to hydroelectric power and 1.5 trillion kilowatthours (28 percent) to wind. Most of the growth in hydroelectric generation (82 percent) occurs in the non-OECD countries, and more than half of the growth in wind generation (52 percent) occurs in the OECD countries. High construction costs can make the total cost of building and operating renewable generators higher than those for conventional plants. The intermittence of wind and solar energy, in particular, can further hinder the economic competitiveness of those resources, as they are not necessarily available when they would be of greatest value to the system. However, improving battery storage technology and dispersing wind and solar generating facilities over wide geographic areas could help to mitigate some of the problems associated with intermittency over the projection period.

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Electricity generation from nuclear power worldwide increases from 2,620 billion kilowatthours in 2010 to 5,492 billion kilowatthours in 2040 in the IEO2013 Reference case, as concerns about energy security and greenhouse gas emissions support the development of new nuclear generating capacity. Factors underlying the IEO2013 nuclear power projections include the consequences of the March 2011 disaster at Fukushima Daiichi, Japan; planned retirements of nuclear capacity in OECD Europe under current policies; and continued strong growth of nuclear power in non-OECD Asia.

Japan significantly curtailed its nuclear generation as a direct result of the Tōhoku earthquake and related tsunami on March 11, 2011. In addition to the four damaged Fukushima Daiichi reactors, Japan's 50 other nuclear reactors were shut down over the following 14 months. Japan compensated for the loss of nuclear generation by increasing its generation from natural gas, oil, and coal and by implementing efficiency and conservation measures to reduce load. Two reactors have returned to service, and additional reactors are expected to return to service soon. In theIEO2013 Reference case, fossil fuel generation and conservation continue to bridge the gap left by the shutdown of many of Japan's nuclear plants.

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The Fukushima Daiichi disaster could have long-term implications for the future of world nuclear power development in general. Even China—where large increases in nuclear capacity have been announced and are anticipated in the IEO2013Reference case—halted approval processes for all new reactors until the country's nuclear regulator completed a safety review. Germany and Switzerland announced plans to phase out or shut down their operating reactors by 2022 and 2034, respectively. Although the IEO2013 Reference case considered the impacts of the disaster at Fukushima Daiichi, the uncertainty associated with nuclear power projections for Japan and for the rest of the world has increased. Still, substantial increases in nuclear generating capacity are projected, including 149 gigawatts in China, 47 gigawatts in India, 31 gigawatts in Russia, and 27 gigawatts in South Korea (Figure 7)…

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World carbon dioxide emissions

World energy-related carbon dioxide emissions rise from 31.2 billion metric tons in 2010 to 36.4 billion metric tons in 2020 and 45.5 billion metric tons in 2040 in the IEO2013 Reference case—an increase of 46 percent over the projection period. With strong economic growth and continued heavy reliance on fossil fuels expected for most non-OECD economies under current policies, much of the projected increase in carbon dioxide emissions occurs among the developing non-OECD nations. In 2010, non-OECD emissions exceeded OECD emissions by 38 percent; in 2040, they are projected to exceed OECD emissions by about 127 percent. Coal continues to account for the largest share of carbon dioxide emissions throughout the projection (Figure 10)…

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