International Energy Outlook 1998

Growth in energy use is projected worldwide through 2020. The demand for electricity in homes, business, and industry is growing in all regions, as is the demand for petroleum-powered personal transportation.

The International Energy Outlook 1998 (IEO98) reference case forecast indicates that by 2020, the world will consume three times the energy it consumed 28 years ago in 1970 (Figure 2). Much of the projected growth in energy consumption is attributed to expectations of rapid increases in energy use in the developing world—especially in Asia. Although the economic downturn in Asia that began in mid-1997 and continues into 1998 has lowered expectations for near-term growth in the region, the forecast still suggests that almost half the world’s projected increase in energy consumption will be in developing Asia (Figure 3). Strong long-term economic growth in the Asia Pacific is expected to result in improved standards of living which, in turn, will mean increased use of energy for a variety of residential and commercial purposes and for personal transportation. By 2020, the projected energy consumption in developing Asia (including China and India, but excluding Japan, Australia, and New Zealand) surpasses that of all North America by more than 50 quadrillion Btu (36 percent).

Sources: History: Energy Information Administration (EIA), Office of Energy Markets and End Use, International Statistics Database and International Energy Annual 1996, DOE/EIA-0219(96) (Washington, DC, February 1998). Projections: EIA, World Energy Projection System (1998).

Total world energy consumption in the IEO98 reference case is projected to reach 639 quadrillion Btu in 2020, an increase of almost 274 quadrillion Btu (75 percent) over 1995 levels (Figure 2). The developing world will account for 174 quadrillion Btu (64 percent) of the world’s increment in energy use. In 1995, energy consumption in the industrialized countries exceeded that in the developing countries by 86 quadrillion Btu (76 percent), but by 2020 the developing countries surpass the industrialized countries by 16 quadrillion Btu (6 percent) (Figure 4). Developing Asia accounted for only 20 percent of the world’s energy use in 1995, but its share grows to over 30 percent by 2020 in the IEO98 reference case (Figure 5), with an increment of 128 quadrillion Btu (178 percent) projected for the countries of that region over the forecast.

Two developments in 1997 may substantially impact future energy demand levels: the deep economic recession in Southeast Asia and the potential consequences of the Kyoto Climate Change Protocol. The Asian economic downturn has resulted in some short-term reductions in expectations for the energy use there. No adjustments were made to the projections to account for the effects of the Kyoto Protocol, however, because the IEO98 forecast is based on current laws and regulations.

Sources: 1995: Energy Information Administration (EIA), Office of Energy Markets and End Use, International Energy Annual 1996, DOE/EIA-0219(96) (Washington, DC, February 1998). Projections: EIA, World Energy Projection System (1998).

Figure 4. Energy Consumption in Industrialized and Developing Regions, 1970-2020

None of the participating counties had ratified the treaty at the time this report was prepared for publication.

The Kyoto Protocol could profoundly affect energy growth in the industrialized countries. For the emissions targets specified by the Protocol to be achieved by industrialized countries solely through reduction of fossil fuel use, projected energy demand in 2020 would have to be scaled back by 40 to 60 quadrillion Btu—equivalent to between 20 and 30 million barrels of oil per day. The expectation is that, with fuel-switching opportunities, emissions trading, and other offsets allowed under the Protocol, such as reforestation, a more modest reduction in fossil fuel use will be needed.

The economic crisis in Southeast Asia may put some of the projected increase in energy use for developing Asia at risk. The countries most harmed by Asia’s currency and debt crisis include South Korea, Indonesia, Thailand, and Malaysia, which currently account for just under 20 percent of the energy use in developing Asia. The recession has already caused delays of many energy projects in those countries, and a quick economic recovery will be needed to support their completion.

If world energy consumption reaches the levels projected in the IEO98 reference case, annual carbon emissions will increase by 4.6 billion metric tons between 1995 and 2020 (Table 1). According to this projection, world carbon emissions would exceed 1990 levels by 81 percent at the end of the forecast period. By 2010, emissions in the developing world are projected to be nearly equal to those of the industrialized nations (Figure 6). Between 1990 and 2010, 78 percent of the world’s increment in carbon emissions is attributed to the developing countries. If the Annex I countries that are parties to the Kyoto Protocol were able to achieve the proposed target reductions, the forecast for their emissions would be altered; but emissions levels worldwide would continue to increase. Should the Annex I countries meet their targets exactly, their projected level of emissions could be reduced by as much as 700 million metric tons. Many issues remain to be resolved, however, with regard to credits for controlling greenhouse gases other than carbon dioxide, sequestering carbon through forestry and other activities, and trading emissions rights with countries whose emissions are below the caps set by the Kyoto agreement and related protocols.

The long-term projections for world oil prices in the IEO98 reference case remain virtually unchanged from those in last year’s report (Figure 7). The long-term trend in this year’s forecast shows oil prices rising slowly in real terms, reaching about $22.00 (constant 1996 U.S. dollars) per barrel in 2020 from the current price of $17.00. The year-end 1996 price was $24.00 a barrel. General perceptions are that near-term price risks are more heavily weighted on the downside, rather than theupside; many analysts have lowered their near-term projections by $1.00 or more per barrel over at least thenext year, a sharp reversal of the views held in early 1997. In the next year or so, prices are expected torecover from present levels as the demand for oil begins to grow more rapidly, especially in developing regions.

Over the longer term, oil prices are expected to remain relatively low throughout the projection period. The recent expansion of non-OPEC oil production is expected to continue in the short term, given that technological improvements have expanded non-OPEC production possibilities. Nevertheless, OPEC producers are projected to gain share in the world oil production market, providing about 52 percent of the world’s oil supply in 2020, compared with 39 percent in 1996.

There is now agreement among many analysts that resources are not a key constraint in satisfying substantial increases in oil demand through 2020. Rather more important to the development of oil markets are political, economic, and environmental circumstances. Uncertainties with regard to the final settlement of sanctions in Iraq and the development of suitable transportation infrastructure for the marketing of oil from the Caspian region are two obvious examples; the future behavior of OPEC is another. OPEC recently increased its output quota by 10 percent, from 25 million barrels per day to 27.5 million barrels per day. While some argue that the adjustment—led by Saudi Arabia—signals a determination by the Saudis to improve their share of the world oil production market, others suggest that it merely reflects an effort by OPEC to develop a path for future production levels that will accommodate the continued expansion of world oil markets.

Two current developments are likely to contribute to a situation of excess supply in world oil markets in the short term. On the demand side, the onset of the Asian recession portends a slowing of oil demand growth in a region that currently accounts for one-fourth of the world’s oil consumption. On the supply side, the Iraqi crisis—if settled peacefully—could lead to an acceleration of oil exports even as oil prices decline. That is, since allowable Iraqi exports are defined in dollars, as the oil price declines, more oil supplies can enter the market. Increases in the dollar allowance for export earnings also raise the prospect of oversupply.

Large increases in oil consumption are expected in the IEO98 reference case. Between 1995 and 2020, oil demand grows at an average rate of 2 percent annually, resulting in an increment of more than 45 million barrels per day. Even given this growth in demand, oil’s share of total energy use declines over the projection period, falling from 39 percent in 1995 to 37 percent in 2020, as natural gas becomes an increasingly powerful competitor to oil in all end uses except transportation (Figure 8). In the industrialized countries, oil use grows by 1.1 percent per year—mainly in the transportation sector, where it has limited competition. Oil use in the developing countries is projected to grow by 3.5 percent annually, increasing in all end-use sectors. Higher standards of living are expected to encourage increased demand for personal transportation and larger and better equipped homes in the world’s developing countries, many of which do not have natural gas distribution infrastructures that would allow competition with oil.

Natural gas demand more than doubles over the projection period, reaching 172 trillion cubic feet in 2020. Worldwide, gas use grows faster than any other primary energy source, 3.2 percent per year compared to about 2 percent for oil and coal. On a Btu basis, worldwide gas consumption surpasses coal consumption by 2005 in the reference case. By 2020, natural gas demand is 11 percent higher than coal demand (Figure 9). Much of the increment in gas usage will fuel electricity generation, particularly in the industrialized countries, where natural gas can replace the other, relatively more carbon-intense fossil fuels.

Gas demand is expected to grow most quickly in the world’s developing countries. In developing Asia, natural gas consumption grows by 7 percent annually even given the region’s recent economic turmoil. Central and South America also are expected to experience fast-paced growth in gas demand, by 7 percent annually between 1995 and 2020. In Brazil alone, gas use increases by 14 percent per year in the reference case. There is robust activity in the region to develop the infrastructure needed to deliver natural gas to industrial consumers and electric power generators. Construction on several major pipelines began in 1997, including work on the $2 billion Bolivia-Brazil pipeline.

Coal’s role in energy use worldwide has shifted substantially over the decades, from a fuel used extensively in all sectors of the economy to one that is now used primarily for electricity generation and in a few key industrial sectors, such as steel, cement, and chemicals.

Coal consumption is expected to increase by about 3.5 billion short tons over the next 25 years (an increase of about 69 percent).

The coal share of total energy consumption decreases only slightly, from 25 percent in 1995 to 24 percent in 2020, mostly because of large increases projected in developing Asia. Coal use is expected to decline in Eastern Europe and the former Soviet Union (EE/FSU) and grow slowly in the industrialized world. The relatively stable outlook portrayed for coal in the IEO98 forecast could change substantially as a result of the reductions in carbon emissions targeted in the Kyoto Protocol. If the proposed reductions occur, the coal industry could face a rapidly declining market for its product in the years ahead.

Worldwide nuclear capacity is projected to increase from 351 gigawatts in 1995 to 356 gigawatts in 2005, before declining to 304 gigawatts in 2020. Aggressive plans to expand nuclear capacity, mainly in the Far East, drive the near-term increase; but retirements of existing units—particularly in the United States, where replacement by new nuclear units is not expected—outweigh the expected development in Asia.

Nuclear power provided 17 percent of total electricity generation in 1996. In nine countries it provided more than 40 percent of electricity generation. Nevertheless, market competition from natural gas, public concern about the safety of nuclear reactor operations, and problems associated with the disposal of nuclear waste are constraining the expansion of nuclear power programs in many nations. The widespread trend toward privatization and deregulation of the electric utility sector has also undermined the viability of the nuclear option, because of the high costs associated with building and operating nuclear power plants. It is possible, however, that ratification of the Kyoto Protocol could change the outlook for nuclear power. Industrialized countries could conceivably extend the lives of their nuclear plants in efforts to constrain greenhouse gas emissions.

Low fossil fuel prices are expected to continue to hamper the development of renewable energy sources. Again, however, the impact of the Kyoto Protocol on renewables initiatives is not yet known, and many of the industrialized Annex I countries may turn to renewables to help meet their carbon emissions reduction targets. Although the IEO98 projections do not address the potential of hydroelectricity and other renewable energy sources under the terms of the Protocol, consumption of renewables in the reference case is projected to grow by 67 percent, to about 50 quadrillion Btu in 2020. While renewable energy sources are not expected to gain market share, they are projected to retain an 8-percent share of world energy use in 2020. Large-scale hydroelectric projects in developing Asia, such as China’s 18.2-gigawatt Three Gorges Dam project scheduled for completion in 2009, support expectations that the use of renewables for electricity generation will more than double in that region over the next 25 years.

Net electricity consumption exceeds 23 trillion kilowatthours in the IEO98 reference case in 2020, a 97-percent increase from the 1995 level of 12 trillion kilowatthours. Growth in electricity demand in developing countries is projected to more than triple between 1995 and 2020, and even though growth is expected to be slower in the industrialized countries, per capita consumption is expected to rise as new uses for electricity proliferate among residential, commercial, and industrial consumers (Figure 10). Per capita electricity consumption in the industrialized countries grows from 7.2 thousand kilowatthours per person in 1995 to 10.3 thousand kilowatthours per person in 2020, a 42-percent increase. The greatest gains are expected in developing Asia and in Central and South America, where rising standards of living are leading to greater electrification and intensive use of modern appliances, space heating, air conditioning, and lighting.

Region	Energy Consumption (Quadrillion Btu)				Carbon Emissions (Million Metric Tons)
Region	1990	1995	2010	2020	1990	1995	2010	2020
Annex I Countries
Industrialized^a	179.8	193.7	238.7	260.5	2,807	2,851	3,535	3,907
EE/FSU^b	73.6	53.2	69.0	80.4	1,290	866	1,072	1,223
Total	253.4	246.8	307.6	340.9	4,097	3,717	4,607	5,130
Non-Annex I Countries
Asia	51.4	71.8	137.4	199.4	1,065	1,427	2,603	3,835
Other	39.0	46.9	74.7	99.1	624	692	1,120	1,482
Total	90.4	118.7	212.0	298.5	1,689	2,121	3,723	5,317
Total World	343.8	365.6	519.6	639.4	5,786	5,841	8,330	10,447
^aExcludes Mexico. Mexico is included in Non-Annex I Other. ^bIEO98 does not project separately for countries in the EE/FSU. However, emissions from Annex I countries in the EE/FSU region currently account for 87 percent of total regional emissions. Hence, this number is slightly overstated. Sources: History: Energy Information Administration (EIA), International Energy Annual 1996, DOE/EIA-0219(96) (Washington, DC, February 1998). Projections: EIA, World Energy Projection System (1998).

Report#: DOE/EIA-0484(98)

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