Indian industrial sector could drive energy demand through 2035

06 February 2014

http://orfonline.org/cms/sites/orfonline/modules/report/ReportDetail.html?cmaid=62750&mmacmaid=62751

The global energy consumption is estimated to increase 1.5 percent per year while the global economy doubles in size and the population increases by another 1.7 billion in the period 2012-2035, according to Mr. Christof Ruehl, the chief economist of the BP Group. 

Presenting the ’World Energy Outlook 2035’ at Observer Research Foundation on January 28, 2014, Mr Ruehl said that industrial demand for energy would be the biggest. He noted that the industrial sector was less flexible in India than in China and that this could drive the energy demand. He also indicated that industrialisation in China would continue even if it changes its economy structure. 

Mr. Ruehl said with the energy consumption estimated to increase by 1.5 percent per year, the total increase in energy consumption till 2035 is estimated to be over 41 percent. But this growth is less when compared with the growth of last 20 years which was at the rate of 52 percent, he said. 

He pointed out that the ’energy consumption hump’ which started during 2000 had started decelerating and would last till 2020. The decade between 2002 and 2012 had seen the strongest energy consumption growth on record of around 30%. He pointed out that the hump was extensively driven by China and India. 

Comparing the OECD and Non-OECD economies, Mr. Ruehl said energy consumption growth over the forecast period would be driven by developing countries which would account for 95% of the total growth while in OECD energy demand growth would be small. 

He noted that the EU as a subgroup of OECD countries would be declining in energy consumption through the entire projection period and that it was unlikely that the region would ever come back to the levels of 2006, the year of the highest energy consumption level. He also posed an intriguing question: "Under what circumstances would economic growth be sustained under flat or declining energy consumption growth?" 

Mr. Ruehl highlighted the rather surprising fact that about 43% of primary energy is converted into electricity today and that the largest share of all the primary fuels is actually used for conversion into electricity. 

As per the BP forecast, electricity would account for more than half of the growth of primary energy. Showing the split of primary energy across different sectors, he said that industrial demand for energy would the biggest and that the acceleration in growth of energy over the last 10-15 years and possible deceleration in demand in the next 10-15 years was driven largely by the industrial sector. 

Talking about the fuel base, Mr. Ruehl highlighted the point that 80% of world energy demand during the projection period would still depend on fossil fuels while renewables would be the fastest growing at 6.4%. Among the fossils fuels, oil would have the lowest growth at 0.8% and natural gas the fastest at 1.9%. The share of coal, which contributed to maximum energy demand growth in last 10 years, would diminish rapidly by 2035 due to fall in growth to 1.1 % during the entire forecast period, he said. 

Mr. Ruehl also highlighted the fact that energy production would continue to grow in every region except Europe and that Asia would be the fastest, providing 47 percent of the increase in global energy production. The non-OECD production will account for 80 percent. 

He also said that as a result of the continued technology innovation and large scale investments, generation of power from unconventional fuels and renewables would increase and account for 43 percent of incremental energy production over forecast period. 

Mr. Ruehl talked about the continued improvements in energy efficiency (energy intensity) which fell by 20% in last 20 years and said that it is likely to fall by 36% by the end of forecasting period. As a result of competition and continued market tendency towards the convergence of fossil fuels, market shares of major fossil fuels are likely to converge at about 27% each by 2035. 

He concluded that there would be: 

• Continued energy demand growth with a continuing ’hump’ in demand but there would be enough supplies including new supplies generated by innovation, improvements in energy efficiency to satisfy demand. 

• Competition among fossil fuels and consequently fuel substitution and this would see, for the first time in human history, no dominant fuel in the primary energy mix. 

• Increase in the share of gas and renewables in power generation but coal would still dominate power generation over projection period. 

• Shift of the North America from a net energy importer to exporter and this would result in energy imports becoming much more concentrated in Europe and Asia. 

The presentation was chaired by former Unioin Power Secretary, Mr Anil Razdan. He appreciated the outlook saying that it is one of the benchmarks for energy valuation and gave a telescopic view into the future. He said that some predictions tend to be too telescopic with their far too distant view and hence lose relevance. Despite this, the forecasts are impressive and the assumptions and constraints on which these scenarios are based are even more important. 

Earlier welcoming Mr. Christof Ruehl, Mr. Sunjoy Joshi, Director, ORF, said that forecasts are very important from the point of view of perspective planning. He cautioned that the predictions may not hold true tomorrow, but for planners shaping present policies, a long term perspective is always a key input. 

Mr. J.M. Mauskar, Advisor, ORF, in his comments highlighted the importance of technology innovation and fuel switching. He gave the example of Japan’s gas hydrates policy of 2020 and the possibility of Japan producing hydrates by 2020. He noted that India and the US also had massive reserves of gas hydrates and if exploitation of these reserves becomes technically and economically viable, by 2020 the geo-political scenario could change. 

Mr. Mauskar said that fuel switching could also occur as a result of in-situ combustion of coal and oil to produce gas and that this technology may come into play in the next 5-10 years. 

He raised the issue of un-burnable carbon which has been the focus of the environmental or NGO sphere. He pointed out that for the concentration of green house gases in the atmosphere to remain at the level of 450 ppm, a large share of fossil fuels will have to remain permanently below the surface of the earth. He also raised the question as to whether this was a workable concept? He observed that technology could deliver change in the rules of game. 

(This report is prepared by Akhilesh Sati, Centre for Resources Management, Observer Research Foundation, Delhi)