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Meeting growing demand

People use energy in many ways every single day. These needs will grow in coming decades as populations and living standards continue to rise.

Income growth and urbanization in developing economies are expected to spur demand for fuels used in the home, as well as the energy needed to produce and ship all types of manufactured goods. The number of cars on the world’s roads will rise by 80 percent.

But, we see the biggest growth coming from electricity, the invisible energy that the modern world expects 24/7 to provide light, heat and power to our homes, buildings and industries. By 2040, the generation of electricity is expected to account for 40 percent of all the energy used in the world.


We want this to go there. We want that to come here. I need to go there. You need to come here.

Such are the patterns of modern life that stimulate demand for the energy that allows us to drive to work, take the train to visit friends, or fly to another city to close a business deal or spend time with loved ones.

Modern living also drives demand for the energy that fuels global commerce. It is the energy that delivers raw materials to a manufacturing plant, and the energy that makes it possible for food, medicine or the latest modern conveniences to travel thousands of miles to a local market or even directly to your home.

In the coming decades, advances in technology will continue to create cleaner, more efficient transportation and significant fuel savings. Even so, we see global demand for transportation continuing to rise as a growing middle class and higher incomes mean more cars on the road and increased commercial activity. Global energy demand for transportation is projected to increase by about 30 percent from 2014 to 2040.

Essentially all of this growth is projected to come from non-OECD countries, where transportation demand will likely rise by about two-thirds. In these countries, more cars and increased use of heavy-duty vehicles is likely to more than offset the impact of better fuel efficiency, while increased economic activity will promote a rise in marine, aviation and rail transportation.

In OECD32 countries, transportation demand is expected to decline about 10 percent through 2040, reflecting relatively mature levels of economic development, modest population growth, and the rising use of advanced technologies that boost fuel efficiency without sacrificing mobility.

More cars on the road, but more miles per gallon

Today, there are close to 1 billion light-duty vehicles (LDVs) in the world.

OECD32 nations have about 570 cars per 1,000 people, a level that reflects relatively high incomes, mature automobile markets and modern road networks. But in less-developed nations, vehicle penetration is far lower – at only about 70 cars per 1,000 people on average. As incomes rise in these countries, people are likely to purchase a lot more cars, many for the first time. In fact, we expect the global light-duty fleet to rise by close to 800 million vehicles by 2040 with about 90 percent of this growth outside the OECD32 countries.

Even so, vehicle penetration in developing countries is projected to be only about one quarter of OECD32 levels by 2040. Lower incomes account for much of this gap, but other factors include extensive and growing use of motorcycles in non-OECD countries, as well as access to expanding public transportation networks.

In general, cars and other light-duty vehicles are becoming much more fuel efficient, thanks to changes in personal preferences and ongoing advances in technology, stimulated in part by regulations such as stricter fuel economy standards. The average car on the road will likely travel about 45 miles per gallon (mpg) in 2040, compared to about 25 mpg in 2014.

Because of this improved fuel economy, demand for fuel for light-duty vehicles is expected to decline by about 40 percent in the OECD32 even as its number of cars rises by about 95 million (about 15 percent). In developing countries, however, light-duty demand is expected to rise by about 50 percent, as better fuel economy only partially offsets a near tripling of cars on the road. Globally, energy demand for light-duty vehicles will likely peak around 2020, then decline close to 10 percent to 2040.

Improved fuel economy is tied to advances in technology. Examples include vehicle light-weighting through durable plastic components, better tire liners, and advanced engine and powertrain systems.

Customer preferences drive innovation as well. Today’s new cars offer a wide range of functionality and performance, and buyers continue to seek vehicles that best meet their needs. Conventional (non-plug-in) hybrid-electric vehicles tend to be the most practical and affordable of the advanced models, providing about 30 percent better fuel economy compared to conventional gasoline-powered cars, even as these cars also improve. In fact, improving fuel economy in gasoline-fueled cars is one of the most cost-effective ways to reduce GHG emissions, especially when compared to electric cars.

We expect conventional hybrids to jump from about 2 percent of new-car sales in 2014 to more than 40 percent by 2040. In contrast, plug-in hybrids and fully electric cars are likely to account for less than 10 percent of new-car sales globally in 2040.

Heavy-duty transport grows with trade

Driving the growth in energy for transportation – in every region – is commercial transportation.

We see heavy-duty vehicles becoming the largest energy-consuming segment of the transportation sector by 2030. This is not surprising given the role of trucking in sustaining modern life, and the projected growth in economic activity and trade. Global energy demand for heavy-duty vehicles is expected to increase by about 45 percent from 2014 to 2040, with about 85 percent of the growth coming from non-OECD32 countries, where economic activity is increasing most rapidly.

We anticipate demand in China increasing by about 50 percent, while demand in India more than doubles. Key Growth countries’ demand is expected to increase by more than 50 percent. To put this in perspective, the expected increase in these 12 countries is more than the current demand in North America.

Aviation, marine and rail - the fastest-growing subsectors

Just as economic growth and trade will spur demand for energy for heavy-duty vehicles, we also expect the world to see more demand for ships, planes and trains to carry supplies to factories and goods to markets. In total, energy demand from these three subsectors will likely grow by about 65 percent.

In fact, the use of aviation, marine and rail transportation will likely increase to such an extent that their combined energy demand is expected to equal about 85 percent of the amount used by light-duty vehicles in 2040, up from about 50 percent in 2014.

We expect over 90 percent of the demand to be met by oil through 2040, reflecting its advantages as a practical, energy-dense and cost-effective source of fuel to meet the needs in these sectors.

Growing diesel demand

The vast majority of transportation energy needs today are met by oil, with gasoline being the most prominent fuel.

We expect that oil will still be predominant in 2040 – close to 90 percent of transportation energy – though we expect the product mix to shift significantly toward diesel fuel, driven in large part by strong growth in commercial transportation and relatively flat gasoline demand. Today, diesel accounts for about 35 percent of the total energy used for transportation. By 2040, we expect this share to be about 40 percent, surpassing gasoline, reflecting growth of about 8 MBDOE or close to 45 percent.

Most of the diesel fuel used for transportation – about 80 percent – is consumed by heavy-duty vehicles. Diesel engines are well-suited to pulling heavy loads, and for the foreseeable future, we expect diesel to remain predominant in the heavy-duty sector.

Diesel also is used to power some light-duty vehicles, as well as marine vessels and trains. Among these uses, the most significant growth is likely to occur in the marine sector, where new emission standards will encourage greater penetration of low-sulfur diesel fuels in place of fuel oil. Partially offsetting this growth will likely be a decline in diesel use among light-duty vehicles, reflecting growing favor toward conventional and hybrid gasoline cars.

The promise of natural gas fuel

Natural gas holds great promise for the transportation sector due to its potential to reduce fuel costs and also help meet emerging emission requirements. Today, natural gas represents about 2 percent of total transportation demand, but this share is likely to rise to about 5 percent in 2040.

Most of this growth will come from heavy-duty vehicles, a segment where natural gas may present a practical option to reduce fuel costs. Although trucks designed to run on natural gas are significantly more expensive than diesel trucks, economic opportunities to use compressed natural gas (CNG) or liquefied natural gas (LNG) may exist in regions where supply is abundant. We expect natural gas use in trucking will increase by almost 300 percent from 2014 to 2040, with its share of global heavy-duty vehicle demand rising to about 7 percent, up from 3 percent. We expect China and the United States to account for about 50 percent of this global demand in 2040.

We also anticipate natural gas demand in the marine sector to increase significantly, stimulated by new emission standards. By 2040, gas is likely to account for about 10 percent of total marine fuels, up from less than 1 percent now, with about two-thirds of the growth in developing countries.

Residential and commercial

Every time we turn on the lights, turn on a computer, or turn up the thermostat, we create demand in the residential and commercial sector.

Residential and commercial energy demand is the energy we consume at home and in commercial buildings – places like offices, stores, shopping centers, schools, churches and hospitals.

Even with increases in efficiency, the world will need much more of this energy to serve population growth and rising prosperity around the world. Combined residential and commercial energy demand is projected to rise by nearly 25 percent from 2014 to 2040.

More homes = more energy

A boom in households in Asia and other developing regions will likely be the largest driver of demand growth in the residential sector. Over The Outlook period, the total number of households worldwide is expected to increase by almost 40 percent, with 90 percent of this growth occurring in developing countries. This growth will create new demands for energy used in the home, including heating and air conditioning, televisions and other appliances, and electricity to power computers and smartphones.

As consumers gain wealth, they typically seek new and larger homes. And they can afford to buy energy-consuming technologies that improve their standard of living. Consider that in 1990, virtually no Chinese homes had air conditioners or water heaters. Today, almost every urban home in China has a water heater and there is on average more than one air conditioner for every household.

More efficient homes

While the future will be filled with bigger cities populated with more households, many of these households will be more energy-efficient. Were it not for projected efficiency gains, global residential energy demand growth would have been twice the current projection.

According to the Energy Information Administration (EIA), the energy intensity for a detached home in the U.S. declined by nearly 20 percent from 1980 to 2009. This decline occurred despite home size increasing by almost 25 percent. Developing countries also are making strides in residential energy efficiency. For instance, China has design standards that vary by climate zone and seek to improve insulation and window efficiency.

More diverse fuels at home

An unfortunate fact is that many parts of the world, particularly Africa and India, continue to rely on biomass fuels like wood and charcoal for their residential energy needs. Biomass accounted for nearly 40 percent of global residential energy demand in 2014.

By 2040, however, that share will likely drop to 30 percent as millions of people entering the middle class – and moving from the country to the city – gain access to modern fuels like electricity, natural gas and liquefied petroleum gas (LPG). We anticipate renewable sources like solar to play a greater role in meeting residential energy needs.

This shift is positive for people and the environment, because modern fuels like electricity and natural gas are about five times more efficient than traditional biomass fuels.

More commercial needs

We see rising prosperity and increased urbanization creating demand for more commercial buildings, and all of these buildings will require energy. By 2040, commercial energy demand is expected to increase by 40 percent. Most of this growth will occur in non-OECD countries, where commercial energy demand is expected to double, including an increase in electricity demand of more than 150 percent.

Lighting is one of the biggest consumers of energy in commercial buildings. The introduction of compact fluorescent lights –and, more recently, LED lights – has helped reduce growth in demand in this sector. Through 2040, energy savings from expanded use of LED lights should help slow the growth in energy demand due to increased commercial floor space, especially in developing countries.

China and Africa: a closer look

From 2014 through 2040, we expect China and Africa to lead the world in gains in residential and commercial energy demand; each will account for about 30 percent of global growth in this sector. But while the increases are similar, the reasons behind them are very different, and illustrate how many factors can influence demand in the residential and commercial sector.

In China, key drivers are income growth and urbanization. By 2040, China’s GDP per capita is expected to exceed $40,000 per year – similar to OECD32 levels today.

In the residential subsector, urbanization and rising incomes encourage people to start new, less crowded households with more amenities that require energy and electricity. By 2040, almost 75 percent of China’s residents are expected to live in cities. As that occurs, China’s total number of households is expected to grow by 30 percent to 2040 even as its population grows by less than 5 percent. By 2040, the average household in China is anticipated to have just over two residents.

While we see residential energy demand in China rising by 25 percent from 2014 to 2040, even faster growth is expected in China’s commercial subsector, where we see energy use nearly tripling to meet demand for retail, medical, educational and other services tied to personal income levels.

In Africa, on the other hand, we see the main driver as population growth. We anticipate that the vast majority of gains in residential and commercial energy demand in Africa to 2040 will come from the residential subsector, where the number of households is expected to double to nearly 500 million.

Africa’s population is projected to grow by 75 percent. By 2040, the continent of Africa will have surpassed both China and India, and have a total population of nearly 2 billion. Nearly 50 percent of Africa residents are expected to live in cities, about the same rate as China today. But at a projected $6,500 per year, Africa’s GDP per capita will be one-sixth the level of China in 2040, which is one reason why its household size will continue to be relatively high, with more than four people per household in 2040.

Urbanization and income trends also help explain the difference between China and Africa in terms of the fuels used in homes and businesses. In general, China’s higher incomes allow it to rely more on electricity and less on biomass used directly in homes. And electricity is essential for commercial buildings such as schools and hospitals. We expect electricity to account for most of the growth in China’s residential and commercial demand through 2040, but only 30 percent of Africa’s.


Toyota, GE, Samsung, Bayer… and thousands more. The industrial sector represents the companies that manufacture the wide array of goods that characterize modern life.

Industry makes steel, cement and asphalt for our cities. It makes the appliances, vehicles and electronics that serve people and their families, and the agricultural products that safely feed a growing population. The industrial sector also includes companies that produce energy, such as ExxonMobil.

Given the scale of global industry, it is no surprise that the industrial sector is the largest direct user of energy. Globally, industrial activity accounts for 30 percent of primary energy demand and 50 percent of electricity demand.

And given the growth in urbanization and the global middle class in the coming decades, it also is not surprising that industrial energy demand is expected to grow significantly. Industrial energy usage is projected to rise by about 30 percent from 2014 to 2040. Most of this growth will come from two subsectors: heavy industry and chemicals.

China manufacturing shifts focus

China has dominated the industrial sector since around 2000, when it began to rapidly expand its economy and build out its infrastructure, particularly in its coastal cities. From the 1970s to 2000, global industrial energy demand grew at about 1.6 percent a year; but from 2000-2014 it accelerated to an average of 2.3 percent a year, with more than half that growth coming from China.

Over the past decade China accounted for about half the world’s steel and cement production. These two industries are among the most energy-intensive. The majority of this steel and cement was used domestically to build roads, bridges, apartment buildings and factories as China’s urban population expanded and its middle class grew. In fact, from 2000 to 2014, 70 percent of the growth in China’s end-use energy demand was attributed to industrial activity.

China’s economy continues to grow at a relatively strong rate, about 2.5 times that of the OECD32. However, China’s economy is maturing and energy demand from its industrial sector is expected to peak around 2030.

Over The Outlook period, we expect gains in industrial demand to be led by India and the Key Growth countries – especially Brazil, Indonesia and Saudi Arabia. We forecast global industrial growth averaging 1 percent a year from 2014 to 2040, with two-thirds of the growth occurring before 2025.

Making more with less energy, cleaner fuels

Just as today’s new cars and homes are more energy-efficient than ones from previous generations, industries continue to “make more with less” through new technologies and processes. For example, the World Steel Association estimates it takes about 60 percent less energy to produce a tonne of crude steel today than it did in 1960. According to the International Energy Agency (IEA), the energy intensity for producing cement will improve by 0.5 percent per year as optimization and modified production processes continue to be more widely adopted.

Industrial efficiency has improved in all regions. But the most dramatic change has been in China; the energy intensity of its industrial sector has improved markedly over the past 20 years.

The energy and emissions saved through efficiency is positive for the environment, as is the fact that the mix of fuels used by industry continues to grow less carbon-intense.

Consider the trends underway in heavy industry, a category that includes iron, steel, cement, aluminum and general manufacturing. Through 2040, heavy industries are likely to derive a greater share of their energy from natural gas and electricity, and less from oil and coal. Coal, which accounted for over 35 percent of global heavy industry energy demand in 2014, will have dropped to around 25 percent by 2040. In China, the world’s largest user of coal, heavy industry will get about 45 percent of its energy from coal in 2040, down from more than 60 percent in 2014.

The versatility and ease of use that natural gas provides are expected to help gas increase its share of heavy industry demand from 15 percent today to over 20 percent by 2040. Using electricity to power motors, control systems and robotics has the dual benefit of improving efficiency while also increasing productivity through modern manufacturing methods, especially in the many non-OECD countries that today rely on coal.

Chemicals and the middle class

Chemicals are a part of modern life. They are the building blocks for plastics, which are found in nearly every consumer product. For example, today’s new cars are about 50 percent plastic by volume. Plastics also are used in packaging, electronics, building materials and medical supplies. Energy demand in the chemical sector is expected to rise by about 50 percent from 2014 to 2040, driven by rising living standards in developing economies.

Most of this increase is expected to occur in China, India and the Key Growth countries. The United States also is likely to see demand growth as its chemical industry expands to capture the benefit of rising shale gas and tight oil production. This benefit is twofold, since chemical producers use oil and natural gas in two ways: as a fuel, and also as a feedstock.

Globally, about 60 percent of the energy in the chemical sector is used as feedstock. Naphtha, an oil derivative, had been the world’s primary feedstock for decades, and still accounts for about 55 percent of the market. But relatively strong growth in natural gas production is helping to shift the global feedstock mix toward ethane and other natural gas liquids (NGLs).

NGLs account for more than 40 percent of chemical feedstock today, and by 2040 they are expected to be nearly equal with naphtha on a global basis. Regional differences will remain, however; North America and the Middle East will continue to rely on natural gas liquids for chemical feedstock, while Asia Pacific will continue to use mostly naphtha.

Electricity generation

Thomas Edison probably could not have envisioned all the ways people would use electricity in the 21st century.

Electricity powers the factories that make the world’s goods. It provides light, heat and air conditioning for homes and commercial buildings. And electricity runs the Internet and everything that connects to it.

Today, power generation accounts for more than 35 percent of global energy use. That percentage will continue to grow as technology evolves, and more people in developing nations gain access to electricity. Global demand for electricity is expected to rise by 65 percent from 2014 to 2040.

Electricity demand driven by non-OECD growth

The need for electricity is rising in all parts of the world, but growth is being led by non-OECD countries, many of which are entering (or already have entered) a period much like what the OECD experienced in the 20th century – modern fuels are replacing traditional ones, people are moving from rural settings to modern cities with the latest technologies, and more people are gaining access to electricity.

About half of global electricity usage comes from the industrial sector, driven in part by the spread of advanced manufacturing and processing. The other half comes from residential and commercial buildings. While electric cars are available, even by 2040 we expect that only about 2 percent of global electricity demand will come from the transportation sector.

Natural gas expected to pull even with coal in electricity generation

Electricity is a secondary form of energy, meaning it must be generated through the use of some other energy source. Today, on a global basis, the fuels used to generate electricity are (in order): coal, natural gas, hyrdroelectric power, nuclear and modern renewables like wind and solar. But much variation exists among nations and regions. For example, China gets about 70 percent of its electricity from coal, while Europe about 25 percent.

Each nation and region will continue to choose the mix of fuels that best suits its needs. These decisions will be based on a host of factors, including: energy security, the cost and availability of fuels, air quality and emissions. Many regions will seek to lower their carbon emissions, often by switching from coal to gas. By 2040, we expect the share of electricity generated by natural gas to rise to about 30 percent and be about even with coal-fired generation. We also anticipate coal to remain important in some areas, especially where gas is not readily available and bottom-line economics are most important. For example, the amount of electricity generated from coal in India is seen rising 150 percent from 2014 to 2040.

The world’s continued reliance on coal for power generation will keep up pressure to reduce power sector emissions. As nations look for ways to curb emissions, particularly from coal, some are considering capturing CO2 and storing it underground; however, carbon-capture-and-storage technologies continue to face substantial economic and practical hurdles that will likely limit their deployment.

Nuclear, wind, solar also grow

The amount of electricity from nuclear power is expected to more than double from 2014 to 2040. Much of this growth is projected to come from China, which is expanding nuclear to reduce its reliance on coal.

We also expect wind and solar to see strong growth, aided by policies that favor or mandate their use. We see wind and solar accounting for more than 10 percent of global electricity generation in 2040, up from 4 percent in 2014. It is important to remember that these are global averages – the use of wind and solar will vary widely by region.

While wind and solar energy may seem free, significant investment is required to build the facilities that turn this energy into electricity. Moreover, because wind and solar energy are intermittent, these facilities use only a fraction of their capacity and must be backed up by other sources – typically gas – to ensure a reliable flow of electricity. Although battery costs have fallen considerably, they remain too expensive to be considered with renewables as a replacement for reliable baseload generation.

Nations choose different paths on emissions

The generation of electricity is the world’s single largest source of CO2 emissions, so it’s not surprising that nations are looking for ways to curb emissions in this sector. While many options are available, the best are usually the ones that deliver the most emissions-savings at the lowest cost to consumers.

We believe that in some countries, such as the United States, the best option right now is natural gas. The U.S. EIA found that of the 1.6 billion metric tonnes of CO2 emissions avoided in the U.S. power sector from 2005 to 2013, more than 60 percent came from substituting natural gas for coal and petroleum, while less than 40 percent came from growth in non-carbon generation, particularly renewables such as wind and solar.

The idea that natural gas, a fossil fuel, would be a powerful tool for reducing emissions might seem counterintuitive, but reliable gas avoids the intermittency issue and emits up to 60 percent less CO2 than coal when used for power generation.

In the United States, utilities and other power generators increased their use of natural gas over the past decade as they took advantage of the rapid growth in domestic unconventional gas production. During this period, the attractive economics of gas-fired power generation encouraged U.S. power generators to substitute natural gas for coal, and this fuel-switching helped produce a 15 percent drop in CO2 emissions from the power sector.

Other nations have taken a more top-down approach – favoring certain technologies over others – to change the mix of fuels used to generate electricity. For instance, Germany has implemented strong policy measures to increase use of renewables, while also phasing out nuclear power.

Both the U.S. and Germany have seen a drop in emissions. Based on government data, by 2012, the CO2 intensity of delivered electricity in the U.S. was lower than that of Germany because the U.S. saw an improvement about three and a half times that of Germany between 2005 and 2012. While these transitions were occurring, electricity costs have risen much faster in Germany than the U.S. over the past decade.

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