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This article describes a concept which could impact a variety of companies, countries or industries. To see what companies and articles reference this concept page, click here. |
The 2008 World Energy Outlook, published by the International Energy Agency, predicts that world demand for oil (often used as a proxy for world demand for energy) will increase from 85 million bpd to 106 million bpd.[1] The same report estimates meeting this demand growth, much of which will come from China, India, and the Middle East, will require spending $26.3 trillion by 2030[2] - a tremendous investment opportunity if there ever was one.
[edit] What is driving the increase in worldwide energy demand?
(1) Industrialization, especially in emerging markets. Businesses, and factories in particular, require significant amounts of energy in the form of both electricity and petroleum-based fuels in order to operate. As economies industrialize, energy demand increases.
(2) Increasing wealth in emerging markets, especially China and India. When economies grow, their energy needs grow. Consumers want cars, air conditioners, refrigerators, and other energy hogs that those of us in the developed world take for granted. And one thing China and India are doing a lot of is growing.
(3) Globalization. Transportation is one of the largest consumers of energy in the world, accounting for 58 percent of liquid fuel consumption in OECD countries in 2004. As we move more often, further, and with greater speed, the energy we use in transportation will inevitably increase. Air travel in particular is a heavy user of fuel.
(4) Concerns over energy security. While energy demand is typically driven by short-term considerations (e.g., GDP growth, weather, transport needs), long-term concerns over energy security around the world have led to what some might consider an irrational premium paid for energy assets. This is most apparent in the very favorable deals struck by China with host governments in countries around the world to explore for oil & gas, one of the contributing factors to the increasing premium paid per barrel of proven oil reserves in the oil exploration and production industry.
[edit] Demand for Various Sources of Energy
1) Liquid fuels such as oil and natural gas are the slowest growing energy source, and their consumption is projected to increase at an annual rate of 1.2 percent from 2005 to 2030.[3] Nonetheless, world demand for oil is projected to increase 37% over 2006 levels by 2030 (118 million barrels per day from 86 million barrels per day).[4] This increase is mainly due to projected increases in oil demand for transportation and increasing demand for energy in developing countries. Oil consumption in China, for example, has increased 8% annually since 2002, doubling from 1996-2006.[5]
2) Renewable energy is the fastest growing source of energy, with projected consumption increasing by 2.1 percent annually from 2005 to 2030.[3] High projected prices of oil in the long run, increasing costs of finding and extracing oil, and environmental concerns have made renewable energy a fast-growing source of energy. Renewable energy is generally more expensive to produce than energy from fossil fuels, so it is less often used in developing countries which demand cheap and widely available sources of energy, such as coal and oil.The five primary sources of renewable energy include:[7]
- Solar
- Wind
- Biomass (municipal solid waste, biogas, ethanol, and biodiesel)
- Hydropower
- Geothermal
3) Coal is a combustible sedimentary rock rich in hydrocarbons. It is the most abundant fossil fuel produced in the United States and is used to generate nearly half of all electricity in the United States. The United States has the world's largest known coal reserves, 263.8 billion short tons, which is projected to sustain the U.S. demand for electricity for 225 years.[8] The consumption of coal is expected to increase at an average annual rate of 2 percent from 2005 to 2030.[3] Countries such as China, India, and the United States have vast reserves of coal and can extract coal relatively cheaply, making it an economically attractive source of energy.
4) Nuclear energy refers to the controlled process of nuclear fission which produces electricity in nuclear power plants. Uranium used to drive the fission reaction is nonrenewable, though it is a common metal in rocks worldwide. Nuclear power accounts for nearly 19 percent of the total net electricity generated in the United States[9] and 15% of electricity globally. In the 1980s, a period of rapid growth for nuclear power, 218 nuclear reactors were built (roughly one every 17 days). The World Nuclear Association estimates that with the economies of China and India rapidly expanding, nuclear energy could grow at a rate of one new 1000 mega-watt power plant every 5 days.[10]
[edit] The 2008 Financial Crisis and Resulting Global Recession are Slowing Growth in Demand for Energy
The 2008 World Energy Outlook, published by the International Energy Agency, predicts that world demand for oil (often used as a proxy for world demand for energy) will increase from 85 million bpd to 106 million bpd - a decrease of 10 million bpd from the 2007 WEO prediction.[11]
The 2007 Credit Crunch saw the beginnings of a crisis, as credit markets began to shrink and industry found it harder to secure capital for expansion. The global proliferation of this issue that came with the 2008 Financial Crisis meant that nations that were previously insulated from the credit crunch, like China and India, suddenly saw capital flows dry up. Since much of the increases in demand for energy over the last few years have come from the industrial growth of emerging economies (indeed, the 2008 WEO predicts that China and India will account for half of incremental energy demand by 2030[12]), slowing growth in these nations means slowing growth in demand for energy.
The 2009 report of the International Energy Agency (IEA) predicted that global electricity consumption will fall by 3.5% in 2009, the first time electricity demand has decreased since 1945.[13] Consumption is predicted to be 2% lower in China than in 2008, 10% lower in Russia, and 5% lower on average in other members of the Organization for Economic Co-operation and Development.[13] It is important to note that three-quarters of the global decline in electricity consumption is accounted for by industrial rather than household demand, reflecting the fall in demand from China’s manufacturing-heavy economy.[13] Global oil demand, which is more sensitive to consumer sentiment than electricity, has fallen several times since 1945. The IEA forecast for oil consumption is 3% lower in 2009 than in 2008.[13]
[edit] How will we mitigate rising energy demands?
The worldwide increase in demand energy for energy has put ever-increasing pressure on identifying and implementing ways to save energy. In fact, the world has consistently improved its energy efficiency (in terms of energy required to produce one dollar of GDP). However, going forward the world will need even more improved energy efficiency measures.
More efficient buildings -- Reflective roofing, better use of daylight, and other green-friendly and energy-friendly improvements can drastically reduce energy demands from electricity-guzzling commercial buildings.
Light bulbs -- Seriously, this is one of the least cost, highest impact ways to save on energy bills. Newsweek estimates that each $2 spent on new compact flourescent lamps (CFLs) bulb can save more than $30 in power and replacement costs. It helps that they last 10 times longer than standard bulbs.
Demand-side management (DSM) -- For years, utilities have been trying to convince their consumers to reduce their power consumption during peak usage periods (think: 105-degree summer day in Phoenix). These efforts fall under the general category of demand-side management. As electricity becomes more expensive, consumers and utilities will have a mutual interest in finding new ways to manage demand for electricity so as to reduce the cost to the end-user. For example, programs to turn off idle appliances, rather than let them "sleep" in low-power mode, or to automatically turn off the heat or air conditioner during the wee hours of the night in corporate headquarters.
Fuel efficiency -- Sure, everyone you know drives a Prius, but there are myriad other ways to improve fuel efficiency. One of the most obvious involves ensuring proper inflation of one's tires. In fact, automobile manufacturers are exploring electronic remote monitoring of tire pressure as one methods to ensure fuel efficiency. Another method, less likely to win over road warrior Americans, is to limit frequent and intense stopping and starting, the most fuel-intensive driving activities.
[edit] Companies who stand to benefit
ESCO Technologies (ESE) and Itron (ITRI) are two leading manufacturers of "smart" meter readers, and should benefit from the boost in DSM brought on by the rising worldwide demand for energy.
Johnson Controls (JCI), which helps design and maintain more energy-efficient buildings, is well-poised to benefit from the need of corporate customers to reduce energy consumption, as well as the need to reduce greenhouse gas emissions as a result of a possible carbon trading regime in the U.S.
Koninklijke Philips Electronics, N.V. (PHG) has already announced that it is phasing out incandescent bulbs and moving to fluorescent bulbs.
[edit] References
- ↑ FinFacts: "World Energy Outlook 2008: Even with demand static over next 22 years, 4 new Saudi Arabias needed to make up decline in existing oil fields"
- ↑ FinFacts: "World Energy Outlook 2008: Even with demand static over next 22 years, 4 new Saudi Arabias needed to make up decline in existing oil fields"
- ↑ 3.0 3.1 3.2 Energy Information Administration: World Energy Demand and Economic Outlook
- ↑ "World oil demand 'to rise by 37%'". BBC News. 2006-06-20
- ↑ "International Petroleum (Oil) Consumption Data". U.S. Energy Information Administration
- ↑ Global Energy Network Institute
- ↑ Energy Information Administration: Renewable Energy Sources
- ↑ Energy Information Administration: Coal Energy
- ↑ Energy Information Administration: Nuclear Energy
- ↑ World Nuclear Association: World Energy Needs and Nuclear Power
- ↑ FinFacts: "World Energy Outlook 2008: Even with demand static over next 22 years, 4 new Saudi Arabias needed to make up decline in existing oil fields"
- ↑ FinFacts: "World Energy Outlook 2008: Even with demand static over next 22 years, 4 new Saudi Arabias needed to make up decline in existing oil fields"
- ↑ 13.0 13.1 13.2 13.3 Financial Times: Global electricity use forecast to fall
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