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CHAPTER 11

ENERGY DEMAND IN THE DEVELOPING WORLD

Deborah Gordon

The 2010s generally found energy demand level-ing off in developed countries and taking off in the developing world. Between 1970 and 2010, global en-ergy demand doubled and shifted from the developed to developing regions. The aggregate share of energy consumption in the countries that comprise the Orga-nization for Economic Cooperation and Development (OECD) shrank significantly from 60 percent to 41 percent, off a much larger base, as seen in Figure 11-1. The countries and regions that grew their energy consumption the most over the past 40 years included China, the Middle East, Asia, and Africa.

Figure 11-1a. Global Energy Consumption.

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Source: 2013 Key World Energy Statistics, Paris, France: Interna-tional Energy Agency (IEA), available from www.iea.org/publica-tions/freepublications/publication/KeyWorld2013_FINAL_WEB.pdf.

Figure 11-1b. Global Energy Consumption.

Future growth trends are expected to continue in this direction, with energy demand expanding faster in the developing world. This should not be surpris-ing. The OECD nations ranked well above average in global per capita energy demand and most of the de-veloping nations are situated below the bar as seen in Figure 11-2. This creates a powerful impetus for less-developed nations to catch up. As the citizens in the developing world become more affluent this will drive greater modernization and mobility. These trends, in turn, will increase energy consumption more rapidly in developing nations.

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Source: Author’s image; IEA, 2013 Key World Energy Statistics.

Figure 11-2: Per Capita Primary Energy Consumption, 2011.

PROJECTING FUTURE TRENDS

According to the International Energy Agency (IEA), between 2011 and 2035, world primary energy demand is projected to increase at an average annual rate of 1.3 percent. The OECD countries are expected to grow more slowly than the rest of the world, as seen in the annualized growth rates noted earlier, each of the bars in Figure 11-3. While the OECD countries cur-rently consume more energy than the countries of any other region, starting in 2025, it is anticipated that Asia in its entirety (including China) will demand more energy than the OECD nations combined. The global share of energy consumed in the OECD is projected to contract from 40 percent to 32 percent through 2035,

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continuing a downward trend that began in the later part of the 20th century. China, India, Brazil, Indone-sia, the Middle East, and Africa are among the devel-oping nations and regions that are expected to experi-ence the most rapid growth in energy demand in the years ahead.

Source: Author’s image; IEA, 2013 Key World Energy Statistics.

Figure 11-3: Growth in Primary Energy Demand, by Region, 2011-35.

Disaggregating demand by energy sources indi-cates significant changes ahead. Looking out to 2035, non-OECD nations are projected to dominate energy consumption across the board—except for nuclear power, as seen in Figure 11-4. The majority of future energy demand in fossil and nonfossil fuels is expected to occur in China, India, Africa, and other non-OECD

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regions. While the story of China’s massive energy de-mands is not particularly novel, in reality other non-OECD nations could collectively consume one-half of tomorrow’s oil, gas, and renewables.

Source: Author’s image; IEA, World Energy Outlook, 2012, Appendices.

Figure 11-4. Projected Energy Demand Growth, by Source and Region, 2010 vs. 2035

(million tons oil equivalent [MTOE]).

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ELECTRIC POWER

Electricity generation, powered by renewable re-sources and natural gas, is projected to increase in the OECD countries, especially in all developing re-gions. A projected 50 percent growth spurt in future electricity generation will create both challenges and opportunities. Electricity generated with fossil fu-els, especially coal and residual oil, will exacerbate air pollution and climate change concerns. As the OECD’s coal consumption declines, China, India, and non-OECD Asia are projected to increase their use. By contrast, future electricity demands in emerging economies could ramp up consumption of renewable and distributed, small-scale nuclear and other cleaner energy sources, creating economies of scale for alter-natives to fossil fuels.

FOSSIL FUELS

Moving beyond fossil fuels will be no small feat, however. Oil, gas, and coal consumption are projected to expand to comparable levels—4,000-Mtoe each—by 2035. More fossil fuels will flow to the develop-ing world than to the OECD countries. Natural gas demand is expected to ramp up fastest. While gener-ally cleaner, the potential to pollute with natural gas through excessive venting and flaring is a mounting concern. Many of the air quality and climate problems that natural gas could address run the risk of mak-ing environmental matters worse in emerging nations if best practices, strict regulations, and tight enforce-ment are not enacted.

If emerging nations continue to motorize follow-ing patterns established in the countries of the OECD,

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oil consumption will expand across the board in all developing regions. Heavier oils in Venezuela, Can-ada, Saudi Arabia, and elsewhere that are not suited for transportation fuels increasingly could be used to generate power, fuel maritime movements, and serve as industrial inputs. As oil use grows in emerging na-tions, the OECD countries are expected to reduce col-lective oil demand by an estimated 25 percent, largely due to advances in vehicle fuel efficiency. High global oil prices will encourage these automotive trends in affluent nations while dampening auto ownership and use in less-affluent regions. Compact urban de-velopment, especially in the world’s expanding mega-cities, could also help emerging nations contain their oil demand in the years ahead.

NUCLEAR

Nuclear energy is the only source that is expected to remain dominated by the countries of the OECD in 2035. Outside the OECD countries, only China is expected to witness future growth in nuclear power. But even in the United States, where nuclear power increased 25 times from 1970 to 2003 before leveling out, this source seems to have turned a corner. For the first time in 15 years, operating U.S. nuclear plants are being forced to close, and energy companies are scut-tling plans for new plants and upgrades to existing ones. This is due to cheap natural gas alternatives, flat energy demand, and renewed safety and regulatory concerns, especially after the 2011 Fukushima nuclear accident. It is unclear how these nuclear trends will extend beyond the United States. Nevertheless, nucle-ar is expected to have the smallest increase in energy demand in 2035 compared to all other sources.

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ENERGY-RELATED SECURITY IMPLICATIONS BEYOND THE 2010s

All of these changes in energy consumption pat-terns will play out against the larger backdrop of increasingly dynamic energy supplies, with massive new resources being unlocked in the Western hemi-sphere. Geographic imbalances between supply and demand will lead to increased global fossil fuel move-ments. A significant portion of the projected 2,750-Mtoe increase in fossil fuel demand in 2035 will cir-cumnavigate the globe as it moves from producers to manufacturers and on to consumers.

While this growth of energy trade could increase worldwide economic integration, it could also inten-sify global risks from terrorism, accidents, and dam-ages wrought by climate change. Looking ahead, it is important to understand what these energy demand trends may imply for developing countries and for global energy self-sufficiency and energy security.

ELUSIVE ENERGY SELF-SUFFICIENCY

Overall, the developing world is projected to be-come less energy self-sufficient in the decades to come.1 The developing countries are planning to in-vest an estimated $23 trillion (in 2011 dollars) on ener-gy infrastructure through 2035, nearly twice as much as OECD nations.2 Oil investments are projected to be distributed across all developing countries, while gas, coal, and power investments will be centered largely in Asia’s developing nations. These infrastructure investments will likely lock in energy consumption patterns through the middle-to-end of the century. Se-

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lecting energy investments wisely will be critical. But it will also be difficult.

Many emerging nations have a long history of massively subsidizing fossil fuel consumption. In 2011, these subsidies topped $0.5 trillion, with the majority in the Middle East, North Africa, and Asia.3 These expenditures amounted to six times the level of support to renewable energy. The IEA estimates that 15 percent of global carbon dioxide emissions cur-rently receive an incentive of $120 per ton in the form of fossil-fuel subsidies, while only 8 percent of emis-sions are subject to a carbon price.4 Growing budget pressures strengthen the case for fossil-fuel subsidy reform worldwide. While G20 and Asia-Pacific Eco-nomic Cooperation (APEC) countries are moving to phase out subsidies, Middle East and African nations will need to follow suit.

Taken together, oil and gas are expected to con-tinue to dominate energy demand into the future. Increasing consumption will be met by an increas-ing array of unconventional hydrocarbon resources. Transportation costs, surprisingly, are a not a major part of energy supply chain economics because they currently use inexpensive residual oil (bunker fuel).5 While their transport is highly polluting, fossil fuels move around the globe with relative ease and afford-ability. These dynamics will invite more suppliers to vie for market share in a world that becomes increas-ingly energy interdependent. While greater competi-tion for oil and gas trade could increase risks of price volatility and short-term fossil fuel supply interrup-tions, it could also promote energy alternatives.

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ROLE OF DISTRIBUTED, RENEWABLE ENERGY GENERATION

As electricity demand explodes, especially in emerging countries, renewables are expected to meet nearly half of the net increase.6 With China in the lead and non-OECD Asia, Africa, and Latin America at their side, growth in hydroelectric power, wind, and other renewables is projected to be more than double that in the OECD, as seen in Figure 11-5. But to realize these gains, the conditions will have to be right.

Source: IEA, World Energy Outlook, 2013.

Figure 11-5. Growth in Electricity Generation from Renewables, 2011-35.

Financial support to renewable sources of energy totaled $101 billion compared to over five times that amount for fossil fuels in 2012.7 The expansion of non-hydroelectric renewables, however, depends on sub-sidies that more than double to 2035.8 This requires

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significant changes to existing policies and social con-tracts. Moreover, additions of wind and solar will have implications for power market design and costs that must be managed under new regimes that differ from those governing fossil fuel power generation. Today’s share of fossil fuels in the global mix, at 82 percent, is the same as it was 25 years ago. The strong rise of renewables only reduces this to around 75 percent in 2035.9 In other words, while critical, renewable ener-gy will be necessary but not sufficient to stem global energy security implications in the future.

STRUGGLES WITH ENERGY SECURITY

Energy demand in the 2010s and beyond will have significant impacts on the U.S. military. As energy trade continues to globalize, it will take more resourc-es to maintain energy and economic stability through-out the world. Leadership will remain critical. At the same time, America will need to play an increasingly discerning, collaborative, and nuanced role in its dy-namic and interdependent energy future.

The importance of the Middle East and North Af-rican oil producing countries will not fade despite ris-ing North American oil and gas supplies. Non-OECD Asia is projected to become the unrivaled center of global oil trade through the limited number of stra-tegic transport routes. Asian fossil fuel deliveries are projected to come not only from the Middle East and Africa, but also from Russia, the Caspian area, Latin America, and Canada.

Geographic choke points for fossil fuel trade are not expected to ease in the future, as seen in Figure 11-6. If anything, they could become even more con-cerning. Oil will move as raw crude and petroleum

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products and natural gas will be moved by pipeline over land and increasingly liquefied and moved by maritime shipping from continent to continent. By 2035, for example, a significantly increased amount of oil and gas could be moving through the Straits of Malacca and Hormuz.10 The Singapore Strait will be another potential problem area, given the amount of fossil fuels destined for Asia in the decades ahead.

Source: Energy Geopolitics, available from energeopolitics.files.word-press.com/2012/09/international-maritime-route.png.

Figure 11-6: Mapping of Global Maritime Transit Density with Select Choke Points.

CHALLENGED BY CLIMATE SECURITY

The energy sector is the key to limiting climate change but the trends are headed in the wrong direc-tion, especially in emerging nations. Non-OECD coun-tries now account for 60 percent of global emissions, up from 45 percent in 2000.11 As such, India, China,

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Russia, and the Middle East are far more energy inten-sive than the United States, the EU, and others in the OECD, as seen in Figure 11-7.

Source: World Energy Outlook Fact Sheet, Paris, France: IEA, June 2013.

Figure 11-7. Carbon Dioxide Intensity in Selected OECD and Non-OECD Regions, 2010-35.

With more fossil fuels destined for emerging na-tions in the decades ahead, these areas are walking a tight rope. They will drive the very changes to the cli-mate that they are least prepared to deal with, includ-ing increased droughts and water scarcity, reduced agricultural yields and food shortages, greater disease and morbidity, heightened storm intensity and infra-structure vulnerability, and dislocation and violence. The IEA forecasts that global carbon dioxide emission intensity will have to be halved to meet the 450 parts per million emissions target. But this burden will not be born equally. Emerging nations will require the most significant reductions in climate intensity for environmental and economic reasons.

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While climate change alone is currently considered unlikely to be a primary cause of conflict, it is thought to be an important secondary cause, as shown in Fig-ure 11-8. Hence, the governments and militaries in 110 countries have identified climate change as a threat to their security. Ultimately, however, the security con-sequences of climate change will likely be determined by how rising global temperatures affect and interact with local political, social, and economic conditions as much as by the magnitudes of the climatic shift itself.12

Source: American Security Project, available from american securityproject.org/issues/climate-energy-and-security/climate-change/impacts/.

Figure 11-8. Global Risks from Climate Security.

TOWARD A GLOBAL ENERGY POLICY

The global energy paradigm is shifting. As the Western hemisphere taps into unconventional oil and gas resources, overall energy demand is growing rap-

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idly in emerging countries in the Eastern hemisphere. But the more energy market fundamentals change, the more the underlying energy situation is expected to remain the same. Fossil fuels are expected to meet the bulk of tomorrow’s energy needs absent public poli-cies that correct market failures associated with these utilization patterns. Continuing to extract, convert, and combust dirtier hydrocarbons—especially extra-heavy oils, gas-to-liquids, coal gasification, coal lique-faction, methane hydrate extraction, and oil liberated from carbonates—will, in turn, exacerbate pollution and drive climate change. China, with its choking smog, is starting to witness firsthand the dangerous consequences that fossil fuels bring.

An increasingly affluent world desires—and de-serves—universal access to cleaner energy. According to the IEA, an estimated $1 trillion in cumulative in-vestment is needed (primarily in emerging nations) to achieve universal energy access by 2030. In addition to serving the energy impoverished, energy invest-ments upward of $40 trillion will be required over the next 2 decades to expand global energy supply capac-ity and replace obsolete energy equipment.13 Given the long lifetimes of energy infrastructure, it will be critical that, over the long term, both consumers and producers must be able to live safely side-by-side with the energy systems they ultimately choose to invest in.

Significant challenges lie ahead. There are barriers to change, and laissez faire systems encourage the en-ergy status quo. It is entirely rational for the current fossil fuel based energy enterprise to endeavor to play a significant role in meeting growing demands, and for good reason. Energy is an extremely vital and hugely profitable endeavor. International corporations and nationalized oil companies along with wildcatters and

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Wall Street are all eager to claim a stake in tomorrow’s emerging energy market.

The economy and energy are so intertwined that it will take a delicate balancing act to manage them, especially in the context of growing globalization. Fu-ture global energy policy will have to address mount-ing market failures. The asymmetry of information that impedes competition must be combated with expanded, standardized, verifiable, and transparent global energy data collection. Environmental exter-nalities, including climate change and the pollution of air, water, and land must be internalized in energy pricing. Only the most robust global energy policies hold out hope of changing course to deliver more ef-ficient energy markets for tomorrow’s global citizens.

ENDNOTES - CHAPTER 11

1. World Energy Outlook 2012, Paris, France: International En-ergy Agency (IEA), Figure 2.15.

2. Ibid., Table 2.5.

3. Ibid., Figure 2.13.

4. Redrawing the Energy-Climate Map, Paris, France: IEA, June 2013, available from www.iea.org/publications/freepublications/publi-cation/WEO_Special_Report_2013_Redrawing_the_Energy_Climate_Map.pdf.

5. The economics of LNG transport are less favorable due to increased cost for liquefaction, regasification, and the need for special shipping containers that can carry cryogenic LNG.

6. World Energy Outlook, Fact Sheet, Paris France: IEA, 2013, available from www.worldenergyoutlook.org/media/weowebsite/ factsheets/WEO2013_Factsheets.pdf.

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7. Ibid.

8. World Energy Outlook 2013, London Release, Paris, France: IEA, November 12, 2013, available from www.worldenergyoutlook.org/media/weowebsite/2013/LondonNovember12.pdf.

9. Ibid.

10. World Energy Outlook 2012, Figure 2.18.

11. IEA, June 2013.

12. Andrew Holland and Xander Vagg, “American Security Project: Preliminary Results,” The Global Security Defense Index on Climate Change, March 21, 2013, available from americansecu-rityproject.org/ASP%20Reports/Ref%200121%20-%20Global%20 Security%20Defense%20Index%20P-Results.pdf.

13. World Energy Outlook 2012.