Energy demand: Three drivers

• Global demand reaches 675 quadrillion BTUs in 2040, up ~20 percent versus 2017, reflecting a growing population and rising prosperity
• Residential and commercial energy demand is flat out to 2040 as efficiency improvements offset the energy needs of a growing population
• Electricity generation is the largest and fastest-growing sector, primarily reflecting expanding access to reliable electricity in developing countries 
• Industrial sector growth supports construction of buildings and infrastructure, and manufacturing of a variety of products to meet the needs of the world’s population
• Commercial transportation grows with expanding economies, which increase the movement of goods. Personal mobility also expands, but efficiency improvements and more electric vehicles offset the increase in vehicle miles traveled

• Global energy consumption continues to shift proportionally to developing economies where population and economic growth are both faster than the global average. Non-OECD share of global energy demand reaches ~70 percent in 2040
• China and India contribute ~50 percent of the world’s energy demand growth to 2040 
• Efficiency gains outpace economic growth in the OECD, which helps offset energy demand increases historically linked to economic expansion
• The combined share of energy used in the United States and European OECD nations declines from about 30 percent in 2017 to less than 25 percent in 2040

• Oil continues to play a leading role in the world’s energy mix, with growing demand driven by commercial transportation and feedstocks for the chemicals industry
• Natural gas grows the most of any energy type, reaching a quarter of all demand
• Renewables and nuclear see strong growth, contributing more than 40 percent of incremental energy supplies to meet demand growth
• Coal use remains significant in parts of the developing world, but drops below 20 percent global share as China and OECD nations transition toward lower-carbon sources like renewables, nuclear and natural gas 
• Electricity, an energy carrier and not an energy source, grows ~3X faster than overall energy demand

Transportation

Commerce and trade drive transportation energy consumption up more than 25 percent.

Over the past few decades the movement of people and goods has grown dramatically, driven by vast growth in the purchasing power of individuals. Likewise, technology advancements have provided new and more efficient mobility options.

Global transportation demand is driven by differing trends for commercial transportation and light-duty passenger vehicles. As economic activity expands, especially in developing regions, commercial transportation is expected to grow. The majority of the growth comes from heavy-duty trucking as a result of goods movement, but increased aviation travel also plays a role as individual purchasing power expands.

Passenger vehicle ownership is expected to expand as a result of the dramatic growth in the middle class and increased urbanization, leading to increased passenger vehicle travel. The fuel mix continues to evolve with more alternatives, like electric vehicles (BEV and PHEV).

In the 2018 Outlook, hypothetical sensitivities for light-duty demand showed that for every additional 100 million EVs on the road, liquids demand could fall by ~1.2 million barrels per day in 2040. In a 100 percent light-duty EV sensitivity by 2040, light-duty liquids demand could see 100 percent displacement while growth in chemicals and commercial transportation offset much of the decline resulting in similar liquids demand as seen in 2013. This 100 percent EV sensitivity by 2040 would require all passenger vehicle sales to be electric starting in 2025.

Projections

• Global transportation-related energy demand is expected to grow by more than 25 percent from 2017 to 2040
• Personal vehicle ownership continues to grow as purchasing power rises, however, higher efficiency and more electric vehicles lead to a peak and decline in light-duty vehicle energy demand in the mid-2020s 
• Commercial transportation (heavy-duty, aviation, marine and rail) energy demand is driven by growth in economic activity and personal buying power, which drives increasing trade of goods and services 
• Aviation demand sees the highest annual growth rate at 2.2 percent from 2017 to 2040 due to both rising economic activity as well as rapid growth of the middle class, specifically in emerging economies

Light-duty projections

• When individual purchasing power increases, access to personal mobility also increases, driving growth of the global fleet of light-duty vehicles and motorcycles
• Motorcycles offer a lower-cost entry point to personal mobility, with ownership and growth particularly high in Asia Pacific
• Increasing access to vehicles drives a worldwide increase in personal mobility-related energy demand growth, with Asia Pacific leading the growth 
• In the OECD (such as U.S. and Europe), while the number of cars per 1,000 people increases by about 10 percent, passenger vehicle fuel demand declines about 30 percent on average as a result of efficiency gains and powertrain diversification

• In 2017, the global fleet was about 1.1 billion vehicles, with ~3 million (0.3 percent) of the fleet being plug-in hybrids, battery electric & fuel cells 
• By 2040, these advanced vehicles grow to over 20 percent of the fleet (~420 million) and nearly 30 percent of new car sales, driven by decreasing battery costs and policies for tailpipe emissions, efficiency and energy independence for importing countries 
• Light-duty vehicle demand for internal combustion engine (ICE) fuels are projected to peak prior to 2025 and then decline to levels seen in the early-2010s by 2040 
• The reduction in fuel demand, while driven in part by electrification, is mostly connected with efficiency gains across all vehicle types

Commercial transportation projections

• Historically, commercial transportation services (e.g. ton-miles of freight,passenger-miles of air travel) demand growth tracks with GDP and economic growth
• As GDP continues to grow, especially in developing nations, there will be increased demand for goods and services
• Recent accelerated decoupling of the trends for GDP and commercial transportation demand has been observed and is expected to continue as a result of fuel switching and efficiency improvements (e.g., mode shifting, engine improvements or logistical improvements)
• Continued improvements in efficiency will moderate commercial transportation energy demand associated with expanding economic activity.

• The largest growth in commercial transportation services is observed in the non-OECD countries, driven by increases in population and GDP
• While all regions see some increased demand, Asia Pacific leads the growth, rising to 40 percent of commercial transportation energy demand
• All modes of commercial transport grow over the Outlook period, with heavy-duty trucking accounting for over 50 percent of the growth through 2040
• Electrification plays a role in certain applications (e.g., short-haul trucks and buses),but electricity in commercial transportation grows slowly due to upfront costs,range limitations, payload requirements, and the pace of infrastructure development Index,

Heavy-duty landscape

• Fleet breakdown and truck usage play a critical role in understanding the types of alternate fuels available for substitution in trucking 
• In 2015, HCV long-haul trucks made up ~15 percent of the fleet, but used ~55 percent of the fuel for trucking driven by the heavy loads carried over long distances

Heavy-duty sensitivity

• The base Outlook assumes that future efficiency improves on average at double the historical rate from 2000 - 2016, and that alternative fuels grow to ~13 percent of demand
• In comparison, the high demand sensitivity above assumes future efficiency improves only at the historical rate, which could increase demand ~30 percent versus the base Outlook, and highlights the need for continued technology investments in efficiency improvements
• The low demand sensitivity assumes a deeper penetration of alternative fuels with accompanying efficiency gains. The penetration assumptions vary by truck type and usages. LCVs see nearly 100 percent penetration of EVs due to shorter, start/stop routes, MCVs see 70 percent alternative fuels, and HCVs see ~20 percent alternatives, mostly biofuels due to the need for high energy density fuels in long-haul trucks. This sensitivity would require a rapid acceleration in the early 2020s of both alternate fuels into the heavy-duty fleet as well as infrastructure build-out to support the alternatives. The resulting fuel penetration is ~3x the base Outlook in 2040, with traditional fuel demand peaking prior to 2025 before declining to mid-2000s levels 
• The impact on total liquids demand from the high sensitivity shows liquids demand could be ~7 percent above the base Outlook, while in the low demand sensitivity total liquids demand could peak in the mid-2030s as growth in chemicals, aviation and marine are offset by the heavy-duty decline
• These hypothetical sensitivities highlight the difficulty of decarbonizing heavy-duty transportation and the need for further technology development on economic, lower-carbon solutions

Residential and commercial

Projections 

As populations grow and prosperity rises, more energy will be needed to power homes, offices, schools, shopping centers and hospitals.

Combined residential and commercial energy demand is projected to rise by around 20 percent through 2040. Led by the growing economies of non-OECD nations, average worldwide household electricity use will rise about 25 percent between 2017 and 2040.

Energy efficiency plays a big role in constraining energy demand growth within the residential and commercial sectors as modern appliances, advanced materials and policies shape the future.

• In addition to the energy people need to heat or cool their homes and keep appliances running, this sector also includes the energy required in hospitals, schools, grocery stores, retail shops, offices, sports facilities and cultural centers 
• With rising prosperity and expanding commercial activity comes an increased demand for lighting, heating, cooling and power in homes and offices of around 20 percent by 2040 
• Strong middle class growth in non-OECD nations increases energy demand by more than 35 percent. Improving building efficiencies lower energy demand in OECD countries by about 5 percent
• Globally, electricity supplies the entire net demand increase

• Residential electricity use is expected to rise about two-thirds by 2040 as a substantially increased middle class seeks to improve health, security and comfort at home
• The annual electricity use per household in non-OECD countries rises about 60 percent with residential electricity use in India and China expected to grow strongly, bringing electricity consumption per household close to the European average by 2040
• Electricity use per household in OECD nations will be stagnant or declining as more efficient appliances help limit electricity requirements

• Efficient buildings, appliances and consumer products lead to a decrease of residential demand in North America and Europe increasingly met by electricity 
• More households, urbanization and rising living standards in developing nations lead to continued energy increases 
• While most developing nations transition away from traditional biomass (such as wood and charcoal) with improved access to LPG, electricity and gas, Africa’s rising population and insufficient supplies of alternative sources increase its biomass use

Industrial

Projections 

Almost half of the world’s energy use is dedicated to industrial activity

As the global middle class continues to grow, demand for durable products, appliances and consumable goods will increase. Without exception, industrial activities are required to manufacture these products and their components. Industrial activities, such as textile manufacture, car assembly or creation of construction materials, take place in almost all regions, and for all this activity energy is required.

Industry grows in emerging markets, like India, Southeast Asia, the Middle East and Africa. Industry also evolves in OECD nations as businesses and consumers strive to reduce their environmental impact by using energy more efficiently.

Industrial growth takes energy. It also takes innovation. This Outlook anticipates technology advances, as well as the increasing shift toward cleaner sources of energy such as electricity and natural gas. The industry of the future will be more energy efficient and less carbon intensive than it is today.

• The industrial sector provides more than a billion jobs for people who work to feed, clothe, shelter and improve the lives of people around the world
• Rising population and prosperity trigger demand for modern cities, medical equipment, mobility and home appliances that underpin the need for steel, cement and chemicals
• In 2017, the industrial sector used about half the world’s electricity and nearly as much primary energy as the transportation and residential/commercial sectors combined
• Increased options for consumers to ‘reduce, reuse, recycle’ and manufacturers’ efforts to improve industrial processes and efficiency can conserve fuel and mitigate emissions
• Heavy industry (steel, cement, metals and manufacturing) and chemicals (plastics, fertilizer and other chemical products) are expected to account for 85 percent of growth to 2040

• Industry uses energy products both as a fuel and as a feedstock for chemicals, asphalt lubricants, waxes and other specialty products
• Oil, natural gas and electricity each contribute about one-third of industrial energy growth to 2040
• Oil grows because it is particularly well-suited as a feedstock; companies choose natural gas and electricity for their versatility, convenience and lower direct emissions
• Coal is expected to continue to play a role in steel and cement manufacturing but its use declines as nations and businesses strive to reduce their environmental impact
• Shifting to lower-carbon fuels holds the industrial sector’s 2040 direct emissions at about the same level as 2017 even as energy demand increases by around 15 percent

Heavy industry projections

• Heavy industry energy intensity measures the amount of energy used in heavy industry and manufacturing per dollar of overall economic activity (GDP) 
• Producing more value with less energy has a positive impact - economically and environmentally - for manufacturing companies and countries 
• OECD nations have lower energy intensity due to their service-based economies and predominance of higher-value, energy-efficient industries 
• China's intensity spiked as it invested in infrastructure and heavy industry; recently its intensity has been improving rapidly as its economy matures and efficiency increases
• Optimizing energy use via advances in technology, processes and logistics can help companies remain competitive and contribute to gains in global energy-intensity

• Manufacturing tends to gravitate toward regions with access to abundant, affordable energy, an able workforce and balanced policies 
• Each region’s fuel mix differs based upon its unique blend of manufacturing activity and the relative availability and cost of its energy sources 
• Electricity use is expected to grow; it is ideal for motors, robotics and process controls 
• Natural gas is expected to give a competitive edge to resource-rich areas of Africa, the Middle East and Latin America; it also helps China manage its air quality 
• Coal’s use declines in the OECD and China but doubles in coal-producing India and the rest of Asia because of coal’s abundance and affordability relative to other fuels

Chemical projections

• Chemicals are the building blocks for a wide variety of products people rely on every day 
• Demand for fertilizer, adhesives, cosmetics, textiles and plastics used in medical devices, cars, computers and other basic home goods spur chemicals growth 
• Asia Pacific’s chemicals production grows to meet the needs of its rising middle class 
• Investors in the U.S. and Middle East chemicals production are expected to tap abundant, affordable energy supplies (used as feedstock and fuel) to gain competitive advantage
• Europe, Russia, South Korea and Japan remain important contributors to global chemicals production

• The chemical industry uses hydrocarbon products as both a feedstock and a fuel 
• Naphtha and natural gas liquids are primarily used as feedstock; natural gas is used as both a feedstock (notably for fertilizer) and a fuel 
• Natural gas liquids consumption almost doubles from 2017 to 2040, as unconventional oil and natural gas production in the United States expands supply 
• Naphtha is expected to remain the dominant feedstock in Asia; the Middle East is expected to rely on natural gas liquids and natural gas
• Advances in plastic materials and chemical processes can save energy as the industry continues to meet rising consumer demand for high-performing products

Electricity and power generation

Projections

Since it first started lighting homes in the late 1800s, electricity has provided the means to boost economic productivity and improve the human condition with modern conveniences like electric motors, air conditioning and refrigeration. Power generation has witnessed transitions in fuel sources from coal to nuclear and gas, and now we are harnessing wind and solar energy. The growth of new energy sources is impacted by factors such as technology cost improvements, the availability and quality of domestic resources, and government policies.

Electricity demand is expected to grow around the globe, supplied primarily by growth in wind, solar, natural gas-fired generation, and nuclear. Besides meeting residential, commercial, and industrial demand, the increase in electricity demand is also fueled by the growth of electric vehicles in light-duty transportation. Cost reductions in transportation batteries are being leveraged for other applications including larger-scale electricity storage.

Today, batteries represent a small share of installed capacity on the grid, and are used for short-duration storage. The increased variable production from weather-dependent wind and solar triggers additional transmission build-out, storage and flexible gas peaking generation but results in reduced asset efficiency. Further breakthroughs that provide new solutions deployable at commercial scale to maintain reliable and affordable electricity for consumers are needed.

• The mix of electricity generation varies geographically as a result of technology costs, domestic resource availability, and policy targets (e.g. renewable portfolio standards for local generation)
• The world continues to shift further to lower carbon sources for electricity generation, led by wind and solar, natural gas, and nuclear, based on regional opportunities and policies
• In 2017, coal was the leading source of electricity production (accounting for over 45% in non-OECD countries). While China’s coal-fired electricity remains nearly constant to 2040, its share in power generation decreases as renewables and nuclear provide almost 85% of the delivered electricity growth
• The share of electricity use into transportation is small today, but is expected to grow with increasing penetration of electric vehicles as a result of emissions/fuel economy targets and cheaper batteries

• Wind and solar generation grow the most to 2040, supported by technology cost reductions (particularly for solar) and policies targeting lower CO2 emissions 
• Natural gas grows significantly; OECD growth is partially due to coal-to-gas switching, while half of the non-OECD growth is in gas-producing Africa and the Middle East
• China accounts for nearly 70 percent of all nuclear growth. OECD growth nets to near zero as expected nuclear restarts in Japan are offset by phase-out of nuclear in other OECD nations due to concerns about costs and safety
• Coal-fired generation grows in the non-OECD, primarily in Asia Pacific countries with domestic resources, growing electricity demand and favorable economics

• Wind and solar grow across the globe, but penetration in 2040 varies based on natural resource quality and varying levels of policy support. Globally, wind and solar’s share of delivered electricity grows significantly from about 6 percent in 2017 to about 20 percent in 2040 
• In 2040, wind and solar are expected to deliver 25 percent or more of electricity in Europe and North America, contributing to renewables policy goals 
• Renewables growth in Asia Pacific contributes to local air quality improvements and energy security goals
• Up to 20-30 percent wind and solar penetration can be achieved without significant additional costs to the power grid. Higher penetration levels incur additional costs to manage intermittency through flexible backup generation, transmission build-out and storage to ensure reliable electricity delivery

Considerations

Natural gas sensitivity

Similar to the transportation sector, we use sensitivity analyses to provide greater perspective on how changes to our base Outlook assumptions in the power generation sector could affect the energy landscape.

Power generation modeling is complex with a number of questions to explore for both demand growth and supply mix, including:

• How will electricity access expand in developing nations?
• How will technology evolve to enable more electricity use in other sectors (e.g., EVs for personal mobility instead of gasoline-fueled cars or mass transit)?
• How will developing nations transition off coal if it is their lowest cost supply today?
• Will perceptions about nuclear safety challenge new builds in some countries?
• What is the optimum penetration of variable renewables before intermittency challenges create reliability and cost impacts for power grids?

There are a number of different potential outcomes for each of these questions that could yield different projections. The top chart shows outcomes for different third-party models,including some deep decarbonization scenarios like the IEA’s Sustainable Development Scenario (IEA SDS). These results describe a range of potential outcomes with some common trends:

• Electricity demand grows significantly from today to 2040
• Zero-carbon power generation grows 2-3x due to cost competitiveness and policies
• Gas use for electricity grows in all cases except the IEA SDS, accompanied with coal’s decline primarily in developed countries

The bottom chart is a sensitivity to test the impact of alternate assumptions on natural gas:

• Lower cost wind and solar with efficient storage to manage their inherently variable production could increase penetration to 50 percent of supply (more than 2x the base Outlook). Ratable reductions in both coal and natural gas by region could reduce global natural gas demand by ~115 BCFD

• Decline in coal-fired generation occurs predominantly in developed countries out to 2040. Switching 50 percent of the remaining coal to natural gas to address issues such as air quality and emissions could increase natural gas demand by over 20 percent

Monitoring technology advancements, market behavior and the evolving policy landscapes can identify signposts related to cost reduction, technology deployment and policy targets indicating how a different outcome may materialize.