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Challenges in Meeting Future Global Energy Demand

Asia's demand for energy will triple over the next 25 years, creating a host of unique challenges, says LEE R RAYMOND

In addressing global energy trends, the place to start is with economic growth, because economic growth depends on having adequate and reliable amounts of affordable energy, and at the same time economic growth tends to lead to increases in energy demand.

Each year, my company's economists and planners take a long-term look at world economic trends and energy growth.   Overall, we project just under 3 percent annual economic growth through 2030.   Now of course this will fluctuate as business cycles come and go, but we think this is a reasonable long-term forecast for growth.

Energy use will also rise, but by less, because we expect that continued progress will be made in improving the efficiency of energy use.  We place energy growth at a bit less than 2 percent annually, reflecting this improvement in energy efficiency.

This efficiency gain is actually an ambitious estimate, in that we expect the pace of improvement to accelerate and exceed that of recent decades.  But even with this efficiency gain, the world will see total growth in energy demand of about 50 percent by 2030.

This will be a huge amount of energy. The increase in demand alone will be equivalent to more than 100 million barrels of oil per day, or about ten times Saudi Arabia's current oil production.

What type of energy will be demanded in the future?

Without a doubt, for many decades most growth in energy will be for oil, natural gas and coal. Put simply, these are abundant and affordable and we have established technologies for finding and using them.

We project that oil and gas demand will each grow by close to 40 million barrels a day oil equivalent by 2030 and coal by almost 30 million oil equivalent barrels per day.  The remainder will come from other sources.

These increases will come despite an improvement in global energy intensity, which is the amount of energy used per unit of economic output.  That improvement we forecast to average about 1.1 percent per year, or about one-third faster than the pace since 1970.

And, the increase in petroleum and coal energy demanded will come about even as alternative energy sources grow even more rapidly.  For example, we believe wind and solar energy may grow at about 10 percent per year, but because they are such small contributors today, they will remain less than 1 percent of total energy in 2030.

The limitations and dilemmas presented by these alternative energy sources are serious, and can be overcome only with research, significant investments and time. Therefore, we are left with the reality that for many decades the vast majority of energy that we will use will be hydrocarbon energy.   That is why we must face seriously the issues that arise when obtaining energy from hydrocarbons.

How much and what types of energy will Asia need?

Turning more specifically to Asia, we need to ask how much energy will this region need, and what type of energy will it be?

The short answers are much more, and of all types.  Let me explain.  Because most Asian economies are growing more rapidly than countries in other regions of the world, their energy requirements will grow faster.  Specifically, we foresee average annual economic growth of 5 percent on average through 2030, with China a bit higher at about 6 percent per year.  With significant improvements in the efficiency of energy use, it may be possible to limit energy growth to slightly under 3 percent per year, but as my earlier comments should have made clear, this growth will still add up rapidly.

For example, for Asia's most rapidly growing countries -- which I call emerging Asia -- oil needs will likely more than double by 2030, largely due to increases in the numbers of cars and trucks.   Electricity demand will likely triple, and in turn drive a tripling in natural gas demand.  Coal, which today represents 35-40 percent of emerging Asia's energy, and about 55 percent in China, will continue to grow and likely double by 2030.

What are the implications of this energy growth for Asia?

If we are close to the mark on energy developments and energy growth, what will the implications be for countries in emerging Asia, including particularly China?  Let me offer some thoughts.

First, we expect there will be many more cars.  By 2030, Asia's car population could rise from about 60 million to over 400 million, which is an enormous increase and in fact would surpass the car fleet of North America by nearly 100 million vehicles.  Regardless of the precise level, there will be much more need for automotive fuel.

Second, electricity use will also increase rapidly, and about two-thirds will be supplied from coal power plants.   Coal will be gradually relinquishing share to natural gas, which by 2030 will fuel nearly one-fifth of power generation needs.  Regionally, nuclear and hydropower growth is also expected, though their combined shares of power generation will likely remain well under 10 percent.

Third, the increase in the number of trucks and automobiles will generate a very large demand for investment in constructing the roads to accommodate them, while the much-increased electricity demand will impose very significant power sector investment burdens.  To give you an example, the International Energy Agency estimates that 60 percent of the world's energy investment needs through 2030 will be in the power sector.

Fourth, with so many more cars and trucks, with rapid industrial growth, and with much greater electricity generation from coal, air quality and pollution concerns will become ever-greater public issues.  This is already a major issue for Hong Kong as a result of rapid growth in the surrounding Pearl River Delta; so clearly, balancing between cost and cleaner fuels will be a factor for consideration for this region.

Fifth, the dual pressures from increasing energy needs and greater environmental emissions will give an ever-stronger impetus for China to focus greater attention to the efficiency with which energy is used.  China will have the benefit of being able to adopt technologies that have earlier been developed overseas, but clearly the importance of economic investments to enable efficient and wise use of energy cannot be overestimated.

Finally, the large increase in oil and gas that will be needed even with conservation and efficiency gains will mean that this region will require a very large increase in imports.

For example, a recent estimate by the International Energy Agency placed Chinese import dependence in 2030 at more than 80 percent for oil and about 30 percent of natural gas.  Statistics like this have evidently attracted notice in Beijing, leading to discussion of plans to address import dependence.

If this demand and import growth materialises, the bulk of the imports will need to be supplied from Africa and the Middle East.

Overall, meeting Asia's energy needs will be quite challenging in the next several decades.  It will be necessary for Asian countries to adopt a full array of energy options, including more hydropower, more nuclear, more coal -- as well as importing more LNG and facilitating oil and gas production in the region.

Moreover, Asian countries will have to compete for these supplies with both North America and Europe.  No country has a preferential right to specific energy supplies.  Every country or company must compete for those supplies in the global marketplace.

Steps needed to meet longer-term energy needs and improve environmental quality

But there are other important considerations that are more general and relate to the more distant energy future.

First among these is the development of sufficient energy resources to meet future energy needs and support economic progress.  As time goes on, energy needs will grow.  Eventually, the resources we use now will prove insufficient, or will entail costs that we would wish to mitigate.

We hope to identify the most promising technologies for low-emissions, high-efficiency energy supplies.  We wish to identify the barriers to the application of these technologies on a worldwide basis.  

At the same time, we should not delude ourselves into thinking that this pursuit of next-generation energy will be an easy endeavour.  The issues that present themselves are very hard problems to solve, there are no clear near-term answers, and no one has yet found a way to resolve the problems without risking serious economic consequences.

Successfully overcoming future energy challenges will require strong cooperation between companies and government to establish the necessary investment climate and to help balance the economic and environmental concerns of the public.

Abridged from a speech by Lee R. Raymond, Chairman and Chief Executive Officer, Exxon Mobil Corporation, at a joint HKGCC-AmCham Distinguished Speaker Series Luncheon on November 4.

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