Four large-scale shifts in the global energy system set the scene for the World Energy Outlook 2017 (WEO-2017) namely:
- The rapid deployment and falling costs of clean energy technologies; in 2016, growth in solar PV capacity was larger than for any other form of generation; since 2010, costs of new solar PV have come down by 70%, wind by 25% and battery costs by 40%.
- The growing electrification of energy; in 2016, spending by the world’s consumers on electricity approached parity with their spending on oil products.
- The shift to a more services-oriented economy and a cleaner energy mix in China, the world’s largest energy consumer, subject of a detailed focus in this Outlook.
- The resilience of shale gas and tight oil in the United States, cementing its position as the biggest oil and gas producer in the world even at lower prices
These shifts come at a time when traditional distinctions between energy producers and consumers are being blurred and a new group of major developing countries, led by India, moves towards centre stage. How these developments play out and interact was the story of the 2017 Outlook.
Growing energy demand
In the New Policies Scenario, global energy needs rise more slowly than in the past but still expand by 30% between today and 2040. This is the equivalent of adding another China and India to today’s global demand. A global economy growing at an average rate of 3.4% per year, a population that expands from 7.4 billion today to more than 9 billion in 2040, and a process of urbanisation that adds a city the size of Shanghai to the world’s urban population every four months are key forces that underpin our projections.
The largest contribution to demand growth—almost 30%—comes from India, whose share of global energy use rises to 11% by 2040 (still well below its 18% share in the anticipated global population). Southeast Asia is another rising heavyweight in global energy, with demand growing at twice the pace of China. Overall, developing countries in Asia account for two-thirds of global energy growth, with the rest coming mainly from the Middle East, Africa and Latin America.
Renewables step up, coal strikes out
Compared with the past twenty-five years, the way that the world meets its growing energy needs changes dramatically in the New Policies Scenario, with the lead now taken by natural gas, by the rapid rise of renewables and by energy efficiency.
Improvements in efficiency play a huge role in taking the strain off the supply side: without them, the projected rise in final energy use would more than double.
Renewable sources of energy meet 40% of the increase in primary demand and their explosive growth in the power sector marks the end of the boom years for coal.
Since 2000, coal-fired power generation capacity has grown by nearly 900 gigawatts (GW), but net additions from today to 2040 are only 400 GW and many of these are plants already under construction. In India, the share of coal in the power mix drops from three-quarters in 2016 to less than half in 2040. In the absence of large-scale carbon capture and storage, global coal consumption flatlines.
Oil demand continues to grow to 2040, albeit at a steadily decreasing pace. Natural gas use rises by 45% to 2040; with more limited room to expand in the power sector, industrial demand becomes the largest area for growth. The outlook for nuclear power has dimmed since last year’s Outlook, but China continues to lead a gradual rise in output, overtaking the United States by 2030 to become the largest producer of nuclear-based electricity.
Renewables capture two-thirds of global investment in power plants to 2040 as they become, for many countries, the least-cost source of new generation.
Rapid deployment of solar photovoltaics (PV), led by China and India, helps solar become the largest source of low-carbon capacity by 2040, by which time the share of all renewables in total power generation reaches 40%.
In the European Union, renewables account for 80% of new capacity and wind power becomes the leading source of electricity soon after 2030, due to strong growth both onshore and offshore. Policies continue to support renewable electricity worldwide, increasingly through competitive auctions rather than feed-in tariffs, and the transformation of the power sector is amplified by millions of households, communities and businesses investing directly in distributed solar PV.
Growth in renewables is not confined to the power sector. The direct use of renewables to provide heat and mobility worldwide also doubles, albeit from a low base. In Brazil, the share of direct and indirect renewable use in final energy consumption rises from 39% today to 45% in 2040, compared with a global progression from 9% to 16% over the same period.
When China changes, everything changes
China is entering a new phase in its development. The president’s call for an “energy revolution”, the “fight against pollution” and the transition towards a more services-based economic model is moving the energy sector in a new direction—with the emphasis in energy policy now firmly on electricity, natural gas and cleaner, high-efficiency and digital technologies.
Demand growth slowed markedly from an average of 8% per year from 2000 to 2012 to less than 2% per year since 2012, and in the New Policies Scenario it slows further to an average of 1% per year to 2040. Energy efficiency regulation explains a large part of this slowdown.
Without new efficiency measures, end-use consumption in 2040 would be 40% higher. Nonetheless, by 2040 per-capita energy consumption in China exceeds that of the European Union.
China’s choices will play a huge role in determining global trends, and could spark a faster clean energy transition. The scale of China’s clean energy deployment, technology exports and outward investment makes it a key determinant of momentum behind the low-carbon transition: one-third of the world’s new wind power and solar PV is installed in China in the New Policies Scenario, and China also accounts for more than 40% of global investment in electric vehicles (EVs).
China provides a quarter of the projected rise in global gas demand and its projected imports of 280 billion cubic metres (bcm) in 2040 are second only to those of the European Union, making China a linchpin of global gas trade.
China overtakes the United States as the largest oil consumer around 2030, and its net imports reach 13 million barrels per day (mb/d) in 2040.
But stringent fuel-efficiency measures for cars and trucks, and a shift which sees one-in-four cars being electric by 2040, means that China is no longer the main driving force behind global oil use—demand growth is larger in India post-2025. China remains a towering presence in coal markets, but our projections suggest that coal use peaked in 2013 and is set to decline by almost 15% over the period to 2040.
The era of oil is not yet over
With the United States accounting for 80% of the increase in global oil supply to 2025 and maintaining near-term downward pressure on prices, the world’s consumers are not yet ready to say goodbye to the era of oil.
Up until the mid-2020s demand growth remains robust in the New Policies Scenario, but slows markedly thereafter as greater efficiency and fuel switching bring down oil use for passenger vehicles (even though the global car fleet doubles from today to reach 2 billion by 2040).
Powerful impetus from other sectors is enough to keep oil demand on a rising trajectory to 105 mb/d by 2040: oil use to produce petrochemicals is the largest source of growth, closely followed by rising consumption for trucks (fuel-efficiency policies cover 80% of global car sales today, but only 50% of global truck sales), for aviation and for shipping.
Once US tight oil plateaus in the late 2020s and non-OPEC production as a whole falls back, the market becomes increasingly reliant on the Middle East to balance the market. There is a continued large-scale need for investment to develop a total of 670 billion barrels of new resources to 2040, mostly to make up for declines at existing fields rather than to meet the increase in demand.
Even greater upside for US tight oil and a more rapid switch to electric cars would keep oil prices lower for longer. Extra policy and infrastructure support pushes a much more rapid expansion in the global electric car fleet, which approaches 900 million cars by 2040. Along with a favourable assumption about the ability of the main oil-producing regions to weather the storm of lower hydrocarbon revenues, this is enough to keep prices within a $50-70/barrel range to 2040. However, it is not sufficient to trigger a major turnaround in global oil use.
A new order for global gas markets
Natural gas grows to account for a quarter of global energy demand in the New Policies Scenario by 2040, becoming the second-largest fuel in the global mix after oil. In resource-rich regions, such as the Middle East, the case for expanding gas use is relatively straightforward, especially when it can substitute for oil. In the United States, plentiful supplies maintain a strong share of gas-fired power in electricity generation through to 2040, even without national policies limiting the use of coal.
But 80% of the projected growth in gas demand takes place in developing economies, led by China, India and other countries in Asia, where much of the gas needs to be imported (and so transportation costs are significant) and infrastructure is often not yet in place. This reflects the fact that gas looks a good fit for policy priorities in this region, generating heat, power and mobility with fewer carbon-dioxide (CO2) and pollutant emissions than other fossil fuels, helping to address widespread concerns over air quality.
Investment, guided by policy, can write a different story about the future
The large-scale shifts in global energy that characterise WEO-2017 projections also reshape the outlook for energy investment. Electricity accounts for nearly half of total energy supply investment in the New Policies Scenario and almost two-thirds in the Sustainable Development Scenario, up from an average of 40% in recent years. Clean energy technologies and energy efficiency likewise take an increasing share of the $60 trillion incumulative investment in supply and end-uses in the New Policies Scenario, and the bulk of the $69 trillion in the Sustainable Development Scenario.
Nonetheless, upstream oil and gas investment remains a major component of a secure energy system, even in the carbon-constrained world of the Sustainable Development Scenario. Getting pricing signals and policy frameworks right would include phasing out subsidies that promote wasteful consumption of fossil fuels (at an estimated $260 billion in 2016, these are almost double the subsidies currently going to renewables). Along with a proliferation of community, municipal and private sector initiatives, well-designed policy remains essential to pursue a brighter energy future.
