Global energy demand: false ceiling?

Can GDP decouple from energy demand? Wealthier countriesโ€™ energy use has historically plateaued after reaching $40k of GDP per capita. Hence could future global energy demand disappoint? This 15-page report argues it is unlikely. Adjust for the energy intensity of manufacturing and imports, and energy use continues rising with incomes.


Some commentators argue that energy demand will naturally plateau as GDP rises in the future โ€“ or at least the beta between energy use and GDP will fall dramatically. As evidence, the energy consumption within developed world countries has hardly increased over the past 20-years, even as GDP per capita rose by 25%. But can this really be right?

Our outlook for global energy demand is re-capped, with charts illustrating different nations’ energy demand versus incomes, on pages 2-3.

The debate about whether energy demand plateaus with income also matters as markets are starting to price in a re-acceleration of energy, and especially electricity, in many regions, linked to the rise of AI.

At the micro level, there is a strong correlation between income levels and different underlying forms of energy consumption, within wealthy nations, as shown on pages 5-6.

At the macro level, there is also a strong correlation between income levels and underlying forms of energy consumption between nations, where demand markers are still rising steadily, as shown on pages 7-8.

We argue that a shift in global Manufacturing almost fully explains the apparent slowdown in energy demand in wealthier countries. This argument is illustrated in six different ways on pages 9-14.

Manufacturing GDP is 8x more energy intensive than Services GDP. Underlying energy demand is still rising steadily with incomes in the developed world, once we factor in the energy that is embedded in an ever-increasing share of imported products, whose manufacturing we have found convenient to outsource to the emerging world, especially China.

Can GDP decouple from energy demand? Only if you are comparing apples and oranges. Underlying energy demand clearly rises with incomes. Global energy demand will continue rising with global GDP. But where the energy is used depends on which countries do the manufacturing.

Manufacturing activity is thus the crucial variable for the future of energy demand. We see this in our breakdown of global energy demand. And we do see more global manufacturing ahead amidst the largest manufacturing project in human history, aka energy transition.

Many factors drive global energy demand from one year to the next: macro conditions, weather, prices and policies. We still think that efficiency gains (for converting primary energy into useful energy) will step up from 0.8% pa historically to 1.2% pa globally as part of the energy transition. But we do not find much evidence that energy use flatlines beyond some magic income threshold.

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