Asia, Not U.S., to Shape Energy Demand for Foreseeable Future

In the wake of the shale revolution, the U.S. is well on its way to becoming the world’s top oil and gas producer and a major exporter of both products. However, the U.S. will play second fiddle to the developing world, especially Asia, which will shape energy demand for the foreseeable future, according to experts at the Center for Energy Studies at Rice University’s Baker Institute for Public Policy.

Anna Mikulska, a nonresident fellow in energy studies at the Baker Institute, and Michael Maher, a senior program adviser at the Center for Energy Studies, outlined their insights in a new issue brief, Energy Over the Next 20 Years: It’s Not All About the U.S. The brief explores the challenges current energy demand trends pose for policymakers around the globe in trying to meet two often-contradictory goals, according to the authors: raising the economic prospects for billions in the less-economically developed world, which implies an increase in demand for energy, the most affordable and accessible of which today comes from fossil fuels, and decreasing the use of fossil fuels as part of a global climate change effort.

The authors examine the trends in energy demand patterns that have been highlighted by three 2018 energy outlooks prepared by the U.S. Energy Information Administration (EIA), the International Energy Agency (IEA), and BP. “Despite differences in assumptions, all outlooks see the developing world and its policies, economies, and energy consumption patterns as the leading driver affecting future global energy use,” the authors write. “The outlooks also agree that fossil fuels—coal, oil, and natural gas—will play a significant role in driving economic growth in the developing world through 2040.

In this context, “policymakers and stakeholders should take into account that the future of the U.S. fossil fuel sectors will increasingly depend on foreign demand,” the authors assert. “This includes the need to invest in infrastructure that is conducive
to energy exports. Thus, a careful consideration of the negative consequences of retreating from multilateral and bilateral free trade policies should be of utmost importance. Mercantilist policies could significantly hamper and/or disadvantage the United States’ position as a global energy exporter, slow global economic growth and, in effect, decrease demand for U.S. oil and gas.”

The authors see Asia Pacific nations as the main source of demand growth. For example, China and India will account for between two-thirds, per EIA, and three-fourths, per IEA and BP, of the expected growth. Countries in Southeast Asia— treated in an aggregate—are the other main sources of growth in energy demand.

Per IEA, the region will register more than 400 million tonnes of oil equivalent in additional demand through 2040. This amounts to more than half of China’s or 40% of India’s absolute energy demand growth. “It is imperative that the needs, challenges, and limitations of the developing world are considered when planning for a cleaner and sustainable future,” the authors write. “This includes focusing on sustainability in a much broader sense besides environmental impact. Accordingly, basic human needs—many of which are underserved in the least-developed parts of the world—have to be carefully considered and incorporated into de-carbonization and energy-transition plans.”

Mikulska and Maher conclude, “Technological change and the speed of innovation provide for potential alternatives to the strictly non-fossil-fuel energy policy to which the developed world is often so eager to commit. Moreover, technologies that improve energy efficiency in buildings, air conditioning, appliances, etc. can be critical elements to providing the developing world with the conveniences that richer nations enjoy today. There is also something to be said about a concerted research-and-development effort aimed at making zero-carbon emission technology cost-effective so that the market, rather than government policies—which are especially ineffective in nations with poor governance structures—drives the change.”

“This new investment builds on the huge investment we made in bringing U.S. shale gas to Europe and will ensure the long-term future of our European chemical plants.”

(SOURCE: The Weekly Propane Newsletter, July 16, 2018. Subscription available at BPNews.com)