A changing energy future in Asia, but still reliant on imports

Asia has been the engine of global economic growth for more than a decade. According to the Energy Information Agency’s (EIA) International Energy Outlook forecast, economic growth in the area is expected to outpace that of the Organization for Economic Cooperation and Development (OECD) nations through 2050. In all, GDP growth in Asia is expected to exceed 4% through 2050, driving up energy demand in the region. As a group, the non-OECD countries are forecast to increase energy usage by more than 70% between 2018 and 2050, compared to 15% for OECD countries.

Shanghai Skyline

China and India: A league of their own

Within the non-OECD block, China and India are expected to outpace all other nations in GDP growth, energy demand, and CO2 emissions. Both have pledged as part of the Paris Climate Accords to limit the growth of CO2 emissions by increasing their investments in renewable energy sources. Yet each country will continue to be heavily reliant on coal for power generation for the foreseeable future.

In fact, there are indications that China may already be falling behind on those commitments, having recently restarted construction of several coal plants that were shuttered in the wake of the Paris Agreement; and have also this year issued several new licenses for both new coal-fired plants and new coal mines. Nonetheless, the latest forecast from the EIA indicates that coal-fired generation in China is expected to peak around the year 2020, then slowly decline through 2050 to a level slightly higher than that of 2010. The country currently meets more than 90% of its coal needs from domestic sources and could conceivably meet all its future needs for coal from domestic production in the future as demand declines. However, the EIA forecast does indicate that China is expected to continue to import about 5-10% of its coal requirements through 2050.

China’s energy transformation

Even as coal-fired generation is forecast to decline slowly in China after 2020, electricity demand is expected to grow substantially, albeit at a slower pace than in the early 2000s. To meet growing power demands while simultaneously limiting CO2 emissions, huge increases in renewable energy generation will be required, and the EIA estimates that China will grow the share of power provided from wind and solar generation from 12% in 2018 to 42% in 2050.

Notably, there is some uncertainty regarding China’s ability to meet CO2 emission targets. Still, the country clearly is committed to additional investments in renewable power sources to address air quality concerns and improve energy delivery across the country. As such, it’s expected that China’s renewable energy industry will begin to substantially displace coal as a primary power source between the years 2025 and 2030.

In addition to renewables, China will need to more than double the nation’s gas-fired generation capacity from a little over 2% currently to more than 7% in 2050 to meet its growing industrial and consumer demand. The EIA forecast indicates China’s increased natural gas requirements will likely be met by a combination of increased domestic production, pipeline-based imports (primarily from Russia), and imports of LNG.

India’s energy demand on the rise

Oil Rig at night

China isn’t alone in catapulting Asia to the forefront of energy demand. In fact, India’s rate of economic growth is projected to continue to surpass China’s for the foreseeable future.

Like China, the South Asian country relies heavily on coal as a source of power generation. Unlike China, India will continue to rely on coal as its principal fuel source for power generation through 2050.

The EIA expects coal imports for both power generation and industrial use (primarily steel production) will grow 300% from 2020 to 2050. Specifically, coal-fired power generation will more than double from 1.1 trillion KW in 2020 to 2.3 trillion KW in 2050. However, coal’s overall share of India’s power supply is expected to fall from about 70% to less than 40% over that same period.

To address India’s growing consumer, commercial, and industrial demand, power generation from renewable energy sources are expected to increase dramatically, with solar growing from 0.06 trillion KW in 2020 to more than 1.7 trillion KW in 2050, and wind growing from 0.1 trillion KW to 1.4 trillion KW during that period. Together solar and wind are expected to provide more than 50% of India’s power production in 2050, up from about 10% in 2020. Though natural gas use for power generation is expected to grow threefold between 2020-2050, gas’ contribution to the power supply mix will continue to be relatively small compared to other sources and comprise less than 3% of total generation capacity.

The future of petroleum demand in Asia

Petroleum demand is expected to increase in both countries as well, particularly transportation fuels, including gasoline, diesel, and jet. With the proliferation of electric vehicles in the OECD countries and higher fuel efficiency standards, demand in those countries is expected to decline. However, in non-OECD countries, petroleum fuel demand will increase, particularly in Asia, with India showing the greatest increase, growing from 10.4 quadrillion Btu in 2020 to 22.9 in 2050. China’s increases are more moderate, growing from 29.9 quadrillion Btu in 2020 to 33.8 in 2050. The rest of the Asian market, outside of OECD countries Japan and South Korea, are expected to grow 18.7 quadrillion Btu in 2020 to 30.9 in 2050.

Asian energy market and unlimited potential

Power sources

In all, energy demand throughout the Asia region is expected to grow from 239 quadrillion Btu in 2020 to more than 416 quadrillion Btu in 2050. While much of this increase will be met with massive investments in renewable power sources — primarily solar and wind — and modest increases in nuclear power generation, the region’s reliance on imported coal and natural gas for power generation, and petroleum products for transportation, will continue and grow for the foreseeable future. Coal demand in Asia is expected to increase from 5.8 trillion short tons in 2020 to 7.3 trillion short tons in 2050, and demand for natural gas is expected to more than double from 20.5 quadrillion Btu in 2020 to 46.9 quadrillion Btu in 2050.

While some of this increased energy demand can be met through investment in domestic production, particularly coal, there is no doubt that the Asian markets will continue to be a center of growth for global coal, LNG, and oil producers, even as OECD nations, particularly those in Europe and North America, continue to move away from hydrocarbons for power generation and transportation fuels.

How to capitalize on opportunity and mitigate risk in the growing Asian energy market

Global exporters of all commodity classes looking to capitalize on this market opportunity while mitigating the associated risk need a game plan today. Commodity organizations need the right information, insights, and data in order to make the decisions that help their businesses grow.

This is where an enterprise commodity trading and risk management (CTRM) system with advanced analytics that drive profit across entire organizations can help. Learn how ION Allegro and ION FEA can help your organization today.

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