Energy Transition Supply-Demand Models

Global energy: supply-demand model?

This global energy supply-demand model combines our supply outlooks for coal, oil, gas, LNG, wind and solar, nuclear and hydro, into a build-up of useful global energy balances in 2022-30. We fear chronic under-supply. This is masked by economic weakness in 2023, rises to 3% shortages in 2025, and 5% shortages in 2030. Numbers can be stress-tested in the model.

Useful global energy demand grew at a CAGR of +2.5% per year since 1990, and +3.0% per year since 2000. Demand would ‘want’ to grow by +2% per year through 2030, due to rising populations and rising living standards (model here). We have pencilled in +1.75% pa growth to this model to be conservative.

Combustion energy is seen flat-lining. This includes global coal use peaking at 8.4GTpa in 2024 then gently easing to 2010 levels by 2030 (model here). It includes oil demand, rising to 101Mbpd in 2023 (data here), then plateauing (model here) as OPEC and US shale (model here) offset the decline rate impacts of conventional under-investment. It includes risked LNG supplies rising +70% from 400MTpa in 2022 to almost 700MTpa by 2030 (model here). While our roadmap to net zero would need to see global gas growing at +2.5% per year through 2050 (model here), this data-file has pencilled in flat production in 2022->30, as we think that latter scenario currently looks more likely to transpire.

Renewable energy is exploding. Our model of wind and solar capacity additions is linked here and discussed here. In our roadmap to net zero, solar more than doubles from c200GW of new adds in 2022 to 450GW by 2030, while wind doubles from 110GW of new adds in 2022 to 220GW by 2030. But in this model, we have assumed higher growth again, with 2030 supply growth approaching 900GW. We do not want to be accused of under-baking our renewables numbers in this global energy supply-demand model.

Other variables in the model include rising energy efficiency (note here), the need for a nuclear renaissance (note here) and other variables that can be flexed.

What is wrong with this balance is that it does not balance. The assumptions pencilled into the model see an under-supply of global energy of about 3% in 2025, rising to 5% in 2030. I.e., by 2050, the world will be “half a Europe” short of energy. The first law of thermodynamics dictates that energy demand cannot exceed supplies. So what would it take to restore the balance? Well, pick your poison…

(1) Slower demand growth could re-balance the model. Very high energy prices might mute demand growth to only +1.25% per year, although this would be the slowest pace of demand growth since the Great Depression, lower even than during the oil shocks (useful data here). Unfortunately, our view is that pricing people out of the global energy system in this way is in itself an ESG catastrophe.

(2) Ramping renewables faster could re-balance the model, although it would require an average of 1 TW pa of wind and solar capacity additions each year in 2024-30, and over 2 TW pa of wind and solar additions by 2030 itself, which is 3x higher than in our roadmap to net zero (discussion here). For perspective, this +2TWpa solution requires primary energy investment to quadruple from $1trn pa to at least $4trn pa, which all needs to be financed in a world of rising rates. It means that global wind and solar projects will consume over 200MTpa of steel, which is 2x total US steel production, and yet steel would not even qualify as a ‘top ten’ bottleneck, in our wind bill of materials or solar bill of materials. This scenario also requires a 3x faster expansion of power grids and power electronics than our base case estimates (see the links). Is any of this remotely possible?

(3) Continue ramping coal? The main source of global energy demand growth is the emerging world. The emerging world is more likely to favor cheap, dirty coal. Thus another way to ameliorate under-supply in our global energy supply-demand balance is if global coal continues growing, reaching a new peak of 9GTpa in 2030. Unfortunately, this scenario also sees global CO2 hitting a new peak of 54GTpa in 2030.

(4) Pragmatic gas? Another means of re-balancing the global energy system is if global gas production rises at 2.5% per year, which is the number required, and that is possible, on the TSE roadmap to net zero (model here). This scenario does see global CO2 falling by 2030. The main problem here is that pragmatic natural gas investment has become stranded in no man’s land, within a Manichean duality of fantasies and crises.

(5) Some combination? The world is complex. It is unlikely that a single lever will be pulled to resolve under-supply in our global energy supply-demand balance. In 2023, we think economic weakness will mask energy under-supply, mute energy prices, and lure many decision makers into looking at spot pricing and thinking “everything is fine”. Please download the model to stress-test the numbers, and different re-balancing solutions…

Global coal production: supply outlook in energy transition?

Global coal production likely hit a new all-time peak of 8.3GTpa in 2022, of which 7GTpa is thermal coal and 1GTpa is metallurgical. The largest countries are China (4GTpa), India (1GTpa), other Asia (0.5GTpa), Europe (0.6GTpa) and the US (0.5GTpa). This model explores what is required to meet our energy transition aspirations.

Coal can be the cheapest thermal energy source on the planet. In normal times, coal costs $60/ton (coal mining model here) and contains 6,250 kWh/ton of thermal energy, implying a cost of 1c/kWh-th.

Coal-fired power can thus cost 2-4c/kWh (model here) and an existing coal plant is cheaper than other levelized costs of power.

Coal is the highest-carbon fossil fuel, with an average CO2 intensity of 0.37 kg/kWh-th (data here), which is 2x more than gas (note here).

The CO2 disparity is amplified further when considering coal’s Scope 1+2 emissions, as often coal mining leaks more methane than gas itself. And Rankine steam cycles fueled by coal have efficiency drawbacks (note here) and also relatively low flexibility (data here).

Hence our Roadmap to Net Zero would need to see coal consumption flat-lining from 2022, then declining at 8% pa in the 2030s and 17% pa in the 2040s, to well below 500MTpa (which in turn is abated by CCS or nature-based solutions).

This is sheer fantasy, unless wind, solar and natural gas ramp up enormously, especially in China, India and other parts of the Emerging World. Coal-to-gas switching economics are profiled here.

Some encouraging precedent come from the US, where coal production peaked at 1GTpa in the 2010s, before shale gas ramped to 80bcfd. Thus US coal declined to 500MTpa in 2021. Although questions about the continued phase-back of US coal are now being raised, due to pipeline bottlenecks from the Marcellus, and energy crisis in Europe, requiring a substitution of Russian energy supplies (oil, coal and gas).

There is always a danger of drawing lines on charts, which simply reflect aspirations, blindly projected out to 2050. The real world may not follow a straight line of pragmatic progress, but instead fluctuation between fantasy and crisis.

During times of energy crisis, such as 2022, international coal prices have spiked to $340/ton. Remarkably, this took thermal coal prices above metallurgical coal, and even above oil on a per-btu basis. Western coal producers are screened here.

Metallurgical coal may be particularly challenging to substitute. We have reviewed the costs of green steel here. We have seen some interesting but smaller-scale options in bio-coke. We have been less excited by hydrogen or syngas from gasification of coal.

Around 1GTpa of new coal projects are in planning or under construction, of which half are in China. Chinese coal production is something of a ‘wildcard’, explored in our short note here, and often defying expectations to the upside, despite rising renewables (chart below). Helping China to decarbonize might require 300bcfd of gas (roadmap here).

“China’s coal demand has peaked” or “China’s coal demand is peaking”. Past forecasts for peak Chinese coal demand have not always proved entirely correct.

India’s coal use has also doubled since 2007, rising at 6% pa. It remains “the engine of global coal demand”, according to the IEA, rising +70MTpa, to 1.1GTpa in 2022 and 1.2GTpa in 2026.

Please download the data-file to stress-test assumptions around coal mine additions, decline rates, phase-downs and coal-to-gas switching.

Global oil demand: breakdown by product by country?

This data-file breaks down global oil demand, country-by-country, product-by-product, month-by-month, across 2017-2022. The goal is to summarize the effects of COVID, and the subsequent recovery in oil markets. Global oil demand is hitting new highs, even though several product categories are still not fully recovered.

Overall, global oil demand fell by -22Mbpd at trough in April-2020; and by an average of -9Mbpd YoY in 2020 overall. In 2021, two thirds of the lost demand recovered, but global oil demand was still -3Mbpd below 2019 levels. However, 2022 demand most likely hit all-time highs (chart above).

Comparing 2022 versus 2019. We think total oil demand was around 100Mbpd in both years. But strikingly, air travel is nowhere close to having fully recovered. Jet fuel demand remains -2Mbpd below 2019 levels, portending possible upside in 2023+. Relatedly, gasoline demand remains -0.8Mbpd below 2019, of which the decline is entirely in the developed world, and probably also linked to travel activity remaining somewhat disrupted.

All other categories are making new highs. In 2022, distillate demand was +0.6Mbpd above 2019 levels (-0.6Mbpd in the OECD, +1.2Mbpd in non-OECD, and a lot of the charts in the data-file show a trend like the one below).

Likewise, in 2022 versus 2019, naphtha use was +0.5Mbpd above, LPG use was +0.4Mbpd above and NGL use was +0.4Mbpd above (all three of these lines feed into global plastics demand). Fuel oil use was +0.4Mbpd above (chart below).

Overall this data-set confirms our fears that renewables, EVs and other new energies would all need to ramp about 3-5x faster than their likely run-rate in the 2020s to stop oil demand (and even coal demand) from continuing to rise (note here).

This matters because in 2020, many commentators were stating that 2019 would have been the all-time peak for fossil fuels, that demand would never recover to pre-COVID levels, and that the world should therefore “stop investing” in hydrocarbons. Even today, we worry that some commentators are still materially over-estimating future efficiency gains in the global energy system (note here). A lack of pragmatism worries us (note here). Long-term energy shortages worry us (note here). Our LT oil demand model is here.

However, there is some uncertainty in this data-set, as the original data-source (JODI) only covers 80% of the oil market. We estimate the remaining countries by taking a proxy from “analogous countries” (the methodology is described in our original report here). Meanwhile some of the reported data look suspect. Most notably, “other product demand” in China is a very large and erratic data-line.

Global energy demand: by region and through 2050?

This model captures global energy demand by region through 2050, rising from 70,000 TWH in 2019-22 to 120,000 MWH in 2050. Population rises 1% pa. Energy use per global person rises at 1% pa, from 9.3 MWH pp pa to 12.6 MWH pp pa. So total demand rises c2% pa. Meeting the energy needs of human civilization is crucial in the energy transition.

Total global energy consumed by human civilization has averaged 70,000 TWH over the past five years, from 2018-2022, on a useful energy basis. This comprises an average of 9.3 MWH pp pa of useful energy across 7.7bn people.

Global energy demand growth averaged 2.6% per annum from 1990 to 2019, of which 1.3% per annum is due to population growth and 1.2% per annum is due to rising energy consumption per capita.

Our outlook through 2050 is that total global energy consumption will surpass 120,000 TWH, on a useful energy basis. This represents a 1.6% growth rate.

0.8% is from population growth, as the World Bank sees global population reaching 9.7bn people by 2050. An interesting nuance in the population forecasts is that the growth rate slows over time, from 0.9% pa in the next decade to 0.6% pa in the 2040s. In turn, this suggests energy demand growth through 2050 will be somewhat front loaded.

0.9% is from rising useful energy demand per person. But these are not aggressive numbers. Small tweaks in our model of global energy demand by region and through 2050 can yield another 10-30% upside again.

Inequalities and catch-ups are a tension in the model. Today, useful energy consumption runs at 20MWH pp pa in Europe and Japan, and as much as 40 MWH pp pa in North America. Conversely, the poorest 4bn people in the world, especially in Africa, India and other Asia, consume an average of 2.5 MWH pp pa today (more here). Even by 2050, this group is only seen consuming 6 MWH pp pa of useful energy, which is 60-80% below Western levels. This sits uncomfortably with other goals for human development.

Electrification is another theme in the data-file. Total useful electricity consumption has averaged 27,500 TWH pa over the past half-decade, equivalent to 3.6 MWH of useful energy per global person, or 38% of all useful energy consumption. In other words, 62% of useful energy has been consumed directly as heating fuel or in combustion engines.

We see the growth rate of electrification doubling, from 2% pa in the past decade to 4% pa in the next decade, as part of the energy transition. Thus by 2050, we think that electricity will comprise 60% of total useful energy consumption (please see our power grids research). Our recent research explores $2trn of medium-term upside for capital goods companies as a result of electrification in the energy transition.

What share for wind and solar? Our forecasts for wind and solar step up to provide 30,000 TWH of useful energy by 2050 (note here). This would be 25% of total global energy demand. We also see nuclear re-accelerating and growing more than 2.5x. The remaining c65% will need to be sourced from somewhere, and we think the best candidate is low-carbon natural gas, combined with CCS and CO2 removals.

Different regions are represented in the data-file. China is worth a passing mention: energy demand per capita is apt to look higher than it is, because a remarkable 60-65% of all China’s energy is used for heavy industry and manufacturing, creating products that are ultimately exported and consumed elsewhere. Assumptions and growth-rates for different regions can be stress-tested in the data-file to run your own scenarios.

Global gas: is there enough gas for energy transition?

Our roadmap to ‘Net Zero’ requires doubling global gas production from 400bcfd to 800bcfd, as a complement to wind, solar, nuclear and other low-carbon energy. This data-file quantifies global gas production forecasts by country, what do you have to believe about global gas reserves, and is there enough gas?

Global gas production already doubled in the c30 years from 1990-2019, rising at a 2.5% CAGR, which is the same trajectory that needs to be sustained to 2050 on our long-term energy market supply-demand balances.

Amazingly, from 1990-2019, global gas reserves increased from 4,000 TCF to 7,000 TCF, for a reserve replacement ratio of 190%, although the numbers have been cyclical and have fallen below 100% in recent years (chart below).

On our numbers through 2050, a reserve replacement ratio of 107% is needed, while the ‘reserve life’ (RP ratio) will likely also decline from around 50-years today to 25-years in 2050. Please download the data-file for reserve numbers and production numbers by country.

Onshore resource extensions are seen primarily coming from shale, with continued upside in the US, and vast new potential in the Middle East, North Africa and possibly even European shale as a way of replacing Russian gas.

Another offshore cycle is also seen to be necessary, discovering and developing an average of 45 TCF of offshore resource each year in 2023-2050. These are big numbers, equivalent to discovering a large new gas basin (e.g., an “entire Mozambique of gas”) every 3-5 years.

Our best guesses for how a doubling of global gas production might unfold is captured in this model of global gas production forecasts by country/region and global gas reserves.

Energy transition: the top ten commodities?

Commodities needed for energy transition

This data-file summarizes our latest thesis on ten leading commodities with upside in the energy transition. We estimate that the average commodity will see demand rise by 3x and price/cost appreciate or re-inflate by 100%.

The data-file contains a 6-10 line summary of our view on each commodity, and ballpark numbers on the market size, future marginal cost, CO2 intensity and pricing.

Covered commodities include aluminium, carbon fiber, cobalt, copper, lithium, LNG, oil, photovoltaic silicon, sulphuric acid, uranium.

Nuclear capacity: forecasts, construction times, operating lives?

How much nuclear capacity would need to be constructed in our roadmap to net zero? This breakdown of global nuclear capacity forecasts that 30 GW of new reactors must be brought online each year through 2050, if the nuclear industry was to ramp up to 7,000 TWH of generation by 2050, which would be 6% of total global energy.

Our outlook for nuclear energy is evolving. Adding 30GW pa of new nuclear capacity per year would be a massive escalation from, as the world has only added around 6 GW per year of new capacity in the past decade.

However, there is precedent, as the world installed 25-30 GW pa of new nuclear reactors at peak, during the mid-1980s, and after a wave of project-sanctioning that followed major energy crises in 1973-74 and 1979-80.

The total base of active, installed nuclear capacity is around 400 GW today, for perspective. Leading countries include the US, with c100 GW of capacity, France with 60GW, China with 50GW and Russia with 30GW. Japan’s nuclear capacity is presently around 45GW, but a large portion of the installed base remains offline post-Fukushima.

Moreover, the average nuclear plant in the world today has been running for 36-years, which means that 10GW of reactor capacity could shut down each year through 2050.

Underlying the analysis is a database of 700 nuclear reactors, including c440 in operation, c200 that have been shut down or decommissioned and around 60 that are in construction. A helpful source in compiling our forecasts is publicly available data from the IAEA, which we have aggregated and cleaned.

The data also show operating lives of nuclear plants, and construction times of nuclear plants, which average 7.5 years from breaking ground through to first power; across different reactor designs and across different countries.

Finally, this breakdown of global nuclear capacity data-file allows you to filter upon individual countries, such as the US, Germany, France of China.

Power grids: global investment?

This simple model integrates estimates the global investment in power grids that will be needed in the energy transition, as a function of simple input variables that can be stress-tested: such as total global electricity growth, the acceleration of renewables, and the associated build-out of batteries, EV charging, long-distance inter-connectors and grid-connected capital equipment for synthetic inertia and reactive power compensation.

Global investment into power networks averaged $280bn per annum in 2015-20, of which two-thirds was for distribution and one-third was for transmission. This is a good baseline.

Our base case outlook in the energy transition would see total global investment in power grids stepping up to $400bn in 2025, $600bn in 2030, $750bn in 2035 and $1trn pa in the 2040s.

Our scenario is also not particularly aggressive around renewables, which are seen accelerating by 10x to provide around 20-25% of all global energy in 2050. You can realistically reach $2trn pa of global power network investment in a scenario that relies more heavily upon renewables and batteries.

Amazingly, these numbers can actually become larger than the total spending on producing all global primary energy. Whereas in the past, transmission and distribution were a kind of side-show, equivalent to c30% of total primary energy investment, the energy transition could see them become comparable, at 50-100%.

Definitions. By ‘power networks’ we are referring to the grid, which moves electrical energy from producers to consumers. Please note that our classification of power grids excludes (a) investments in primary energy production, such as renewables, nuclear, and hydro (b) investments in large conventional power-generating plants (c) downstream investments made by customers, such as in switchgear, power electronics and amperage upgrades.

The model can be downloaded to stress-test simple numbers, inputs and outputs. Please contact us know if the work provokes any questions, or further numbers that we can helpfully pull together for TSE clients.

Power electronics: market size in energy transition?

The purpose of this data-file is to summarize the main challenges in power electronics, products offering solutions, and how their deployment will evolve amidst the ramp-up of renewables and electrification. Hence we have attempted to quantify power electronics’ market size, product by product. Spending ramps from $360bn pa to over $1trn pa by 2035 as part of the energy transition.

We describe c15 problems that are incurred by power consumers, all of which will be amplified amidst the build-out of renewables, some more than others.

In turn, this means we expect c$100bn pa growth in the market for compensatory power-electronics solutions by 2030 (this number excludes grid-scale batteries). Different devices, examples, market sizes and costs are summarized in the equipment tab.

Increasing electrification, safely, reliably, amidst the build-out of renewables is going to require ramping up the use of power electronics commercial and industrial customers. We think a $360bn pa market for power electronics in 2021 could expand to around $1trn pa by 2035. Our numbers are also broken down in this data-file.

Categories of equipment covered in the data-file include switchgear, variable frequency drives, inverters, batteries, meters, logic controllers, harmonic filters, sensors, surge arresters, EV charging, capacitor banks, STATCOMs, other voltage regulators, synchronous condensers, and other categories that matter in commercial and industrial power.

Power electronics is a complex topic. To help decision-makers save time and quickly gain a good understanding, we have published a primer into energy, a primer into electricity, a primer into power quality, and an overview of renewables volatility.

Back-up data follows from technical papers in the final tab.

Wind and solar capacity additions?

This model aims to calculate global wind and solar capacity additions. How many GW of new capacity would be needed for renewables to reach c25% of the global energy mix by 2050, up from 4% in 2021? In total energy terms, this means a 10x scale up, to 30,000 TWH of useful wind+solar energy in 2050. Gross global wind and solar capacity additions will surpass +1,000 GW by 2040.

Total net solar capacity growth is seen accelerating, and ultimately peaking at 500 GWe in 2040. This is a net number, as 650 GWe of new solar installations must counter-act 150GWe of retirements of past installations. In turn, adding 650 GWe of new solar installations, on an AC-basis, likely requires around 780 GWe of new solar panels on a gross, DC-basis. These forecasts are informed by our solar research.

Total new wind capacity growth is seen accelerating, and ultimately peaking at 250GWe in 2040. Again, this is a net number, as 330GWe of new wind installations must counter-act 80GWe of retirements of past installations. These forecasts are informed by our wind research.

The data-file also contains breakdowns across four regions (US, Europe, China and ‘rest of world’), a tracker of past growth forecast revisions (which have been revised up by 10x for solar and 3x for wind over the past decade), projections of future load factors, and data on the lifetime of solar assets from technical papers.

Bottlenecks that need to be overcome to reach these incredible growth numbers are not considered in the file, but in our other research, into metals, materials and power grids.

We would also like to highlight that our projections are simply informed guesses. Everyone is guessing at global wind and solar capacity additions. But we hope it is at least useful to have an auditable data-file of our own guesses.

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