World Energy Outlook 2017

November 22, 2017
Jock Finlayson

The timely release of the International Energy Agency’s Annual World Energy Outlook 2017 came during the 23rd Conference of the Parties under the United Nations Framework Convention on Climate Change.

The top-line findings of the report…there is hopeful news on the ongoing transition to a lower carbon global energy system. The stepped-up deployment of clean energy technologies and the move towards electrification around the world continue apace. At the same time, there is also increased investment in energy efficiency, effectively dampening the need for supply additions.[1] On the other hand, fossil fuels still make up a large majority of global energy supply and will do so for the foreseeable future.

Indeed, even under the most optimistic scenario,[2] where virtually all nations implement aggressive carbon management policies and more stringent regulatory measures, the share of fossil fuels in the world’s energy mix in 2040 remains at 61%. Under the more likely future scenarios, carbon forms of energy represent somewhere between 75% and 80% of global primary energy. The turning point for coal, used primarily in electricity generation, draws ever closer. But the principal and most obvious substitute for coal as a source of power is natural gas, another carbon-based energy source.

None of these facts are surprising. The current energy transition is not much different from those in the past. It is a long and complex process, and in the absence of a “black swan event,”[3], it is “exceedingly difficult to restructure the modern high-energy industrial and post-industrial civilization [based] on non-fossil fuels and flows to one [that is] overwhelmingly renewable.”[4]The sheer scope and scale of such change is almost incomprehensible. It means not only replacing today’s ~11,150 Mtoe of fossil fuels but also adding between ~3,800 and ~5,000 Mtoe of “other” primary energy by 2040. Other constraining factors include the uneven global distribution of renewables along with their intermittency, unpredictability, lower energy density, and vast spatial requirements. On the latter point, note that supplanting today’s fossil fuels with renewables would require about 12,500,000 square km of land -- an area half the size of North America.[5]

World Primary Energy Demand by Fuel and Scenario (Mtoe)
Current New Policies Sustainable
Energy Type 2016 2040 % of total 2040 % of total 2040 % of total
Coal 3,755 5,045 26% 3,929 22% 1,777 13%
Oil 4,388 5,477 28% 4,830 27% 3,306 23%
Gas 3,007 4,682 24% 4,356 25% 3,458 25%
Nuclear 681 997 5% 1,002 6% 1,393 10%
Hydro 350 513 3% 533 3% 596 4%
Bioenergy 1,354 1,728 9% 1,801 10% 1,558 11%
Other renewables 225 856 4% 1,133 6% 1,996 14%
Total primary demand 13,760 19,298 17,584 14,084
Carbon based fuel share 11,150 15,204 13,115 8,541
81% 79% 75% 61%
Renewables share 2,610 4,094 4,469 5,543
19% 21% 25% 39%
Growth in primary demand 5,538 3,824 324

The IEA is consistent in its predictions of global energy demand growing by about 30% by 2040, i.e., from 13,760 Mtoe to 17,578 Mtoe under the New Policies Scenario. For perspective, this increment in demand is equal to adding another ~3,900 million tonnes of oil equivalent -- or the current energy needs of China and India combined. The figures below show comparative information for 2016 and 2040 by region, with demand in the Asia Pacific – China, India, Japan, Southeast Asia – almost three times bigger than in North America by 2040. This makes sense since much of the world’s population growth is concentrated in Asia.

China is a global change driver in the energy world and will be a huge investor in energy production and transmission between now and 2040. It is projected to expand its electricity infrastructure by a quantum equal to the existing US network by 2040. It will also be responsible for 25% of the projected world-wide increase in natural gas demand. And by 2030, the IEA forecasts that China will be the number one global oil consumer, displacing the United States. Chinese policies, actions and investment choices promise to have important ramifications for global energy flows and for international trade in energy goods. As the country’s massive economy shifts incrementally from goods production to services, China’s energy needs are changing. However, as a major consuming nation, the raw materials and finished goods required to satisfy Chinese demand must come from somewhere. Canada is one candidate to help supply energy, other commodity-based goods, and high-value services to China. Middle class Chinese want “stuff”, stuff that ultimately comes from mining, the use of energy, and chemistry transforming raw materials into tangible products. It is a myth that a knowledge/service-oriented economy requires far less energy. In fact, the cooling needs of vast data centres, a central feature of our digital future, are substantial — up to 1.5% of the world’s electricity demand, a number set to increase[6] markedly over time.

The other major player highlighted in the IEA’s report is the United States. It is now a net (and growing) exporter of natural gas — at the expense of Canadian production and exports. By the mid-2020s, the US is expected to be a net exporter of both LNG and light crude oil, the latter mostly in the form of refined petroleum products. The IEA believes that growing US oil production will meet up to 80% of the increase in global oil demand – a scenario that was unthinkable a decade ago. By the mid-2020s, the US becomes the biggest global oil and gas producer, a development that will fundamentally shift how we think about the geopolitical context for energy. For Canada, the expansion of the petrochemical industry and other energy-intensive manufacturing sectors in the US is both positive and negative. If there is sufficient pipeline capacity, more Canadian oil can be shipped to US refineries for processing. On the other hand, supported by abundant, low-cost fossil fuel energy, the US is poised to become an even more formidable competitor across much of the manufacturing supply chain, as well as in the energy industry itself. The prospect of escalating US protectionism only adds to the challenges facing Canada as the US emerges as the new global energy superpower. Canada and the United States compete for similar market opportunities and similar pools of investment capital. Unlike Canada, the US is eager and determined to grab market share – in North America and globally – using its vast shale gas and tight oil resources to pursue every advantage. All of this underscores the urgent need for Canada to secure tidewater access to global markets for our oil and gas products.

Canada is mentioned throughout the IEA’s report, including in the context of LNG. The IEA suggests that natural gas will account for 25% of global energy demand by 2040. Four-fifths of the growth in world natural gas demand takes place in developing and emerging economy countries and it becomes the 2nd largest global fuel source after oil. LNG, which is simply liquefied natural gas, represents almost 90% of the projected growth in long-distance gas trade to 2040. The expanding role of natural gas generally, and LNG specifically, in the global energy mix points to significant opportunities for Canada -- if we can temper our propensity for self-sabotage. In the ongoing dialogue over whether to build pipelines and pursue oil and gas development in Canada, some politicians and environmental groups claim that this is “yesterday’s business,” implying that gaining access to Asia-Pacific markets for our energy products therefore doesn’t matter. The IEA’s latest report confirms that nothing could be further from the truth.

[1] IEA, World Energy Investment, 2017 notes that 14% of 2016 energy investment was in energy efficiency, amounting to $231 billion.

[2] The reference case for this blog is the IEA’s New Policies Scenario. It describes where existing policies and announced intentions might lead the energy system. The Sustainable Development Scenario, the newest IEA path, is aligned with the UN Sustainable Development goals and is very similar to the IEA’s previous 450 Scenario.

[3] An event or occurrence that deviates beyond what is normally expected of a situation and is extremely difficult to predict.

[4] Energy Transitions, History, Requirements, Prospects, Vaclav Smil, 2010, p.105.

[5] Ibid, p.117.

[6] Power Density, 2015, Vaclav Smil, p.185.

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