In the reference case projections for the International Energy Outlook 2000 (IEO2000), world energy consumption increases by 60 percent over a 23-year forecast period, from 1997 to 2020. Energy use worldwide increases from 380 quadrillion British thermal units (Btu) in 1997 to 608 quadrillion Btu in 2020 (Figure 2 and Table 1). Many developments in 1999 are reflected in this years outlook. Shifting short-term world oil markets, the beginnings of strong recovery for the economies of southeast Asia, and a faster than expected economic recovery in the former Soviet Union (FSU) have all influenced the mid-term forecast for the worlds energy markets.
World oil prices recovered substantially in 1999 from their record lows of 1998, mostly because members of the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC producersnotably, Mexico and Norwaywere able to sustain the oil production cuts set by the cartel in March 1999, and because oil demand began to recover among the Southeast Asian nations that had been stuck in economic recession since mid-1997. Many Asian countries had strong economic growth and a corresponding rise in energy demand in 1999 that seemed to mark the ending of the recession. In South Korea, for example, energy consumption in 1999 exceeded pre-recession levels.
High oil prices also helped the Russian economy post positive economic growth in 1999. In fact, Russias gross domestic product (GDP) grew more in 1999 than it had since the late 1980s. There are, however, many current events in Russia that add considerable uncertainty to the projections for the FSU, including the upcoming presidential elections following the resignation of Russian President Boris Yeltsin, the banking scandal uncovered in 1999 at the Bank of New York and the resulting delay of International Monetary Fund credits, and the ongoing Russian war in Chechnya. Nevertheless, stronger economic performance in Russia and Ukrainethe regions largest economieshas led to a 12-percent upward revision in the IEO2000 projection for FSU energy demand in 2020, as compared with last years Outlook. The projections for the transitional economies of Eastern Europe where economic recovery has been sustained for the most part since 1993remain largely unchanged from those in last years report.
In the IEO2000 reference case, much of the growth in worldwide energy use is projected for the developing world (Figure 3). In particular, energy demand in developing Asia and Central and South America is projected to more than double between 1997 and 2020. Both regions are expected to sustain energy demand growth of more than 3 percent annually throughout the forecast, accounting for more than one-half of the total projected increment in world energy consumption and 83 percent of the increment for the developing world alone.
In the industrialized countries, one of the primary sources of uncertainty in the forecast is the potential impact of the Kyoto Climate Change Protocol, which would require reductions or limits to the growth of carbon emissions within the Annex I countries2 between 2008 and 2012, resulting in a combined 4 percent reduction in emissions relative to the 1990 levels. As of January 2000, 83 countries and the European Commission had signed the treaty; however, none of the Annex I countries had ratified it by the time the IEO2000 was prepared for publication. Should the Kyoto Protocol enter into force, it could have profound effects on the use of energy in the industrialized world.
The industrialized countries are expected to account for about 30 percent of the increment in worldwide energy use over the 1997-2010 time period in the reference case. Achieving the Protocols targets solely by reducing fossil fuel use in the industrialized world might mean a reduction of between 30 and 60 quadrillion Btuequivalent to between 15 and 30 million barrels of oil per daydepending on the mix of fossil fuels used to achieve such a reduction. On the other hand, it is more likely that fuel-switching opportunities will be used and that a more modest reduction in total fossil fuel use will be required. Emissions trading and other strategies such as conservation measures, reforestation, and joint implementation programs, among others allowed under the Protocolcould further lower the need for fossil fuel reductions, although the specific mechanisms for such offsets have not yet been established.
World carbon emissions are projected to rise from 6.2 billion metric tons in 1997 to 8.1 billion metric tons in 2010 and 10.0 billion metric tons in 2020 in the reference case projections, which do not take into account the potential impact of the Kyoto Protocol. In this forecast, world carbon emissions exceed their 1990 levels by 40 percent in 2010 and by 72 percent in 2020 (Figure 4). Emissions in the industrialized world grow by 1.1 billion metric tons between 1990 and 2020, with nearly one-half of the increment attributed to an increase in natural gas use. Natural gas is increasingly seen as a fuel of choice among the industrialized countries for new electric power generation. Gas-fired power plants run more efficiently than other fossil fuel generators, and natural gas, as the least carbon intensive of the fossil fuels, is an attractive alternative to coal or oil for electricity generation and industrial uses.
Much of the increase in carbon emissions is expected to occur in the developing world, where emerging economies produce the highest growth rates for energy use in the forecast. Emissions in the developing countries accounted for about 28 percent of the world total in 1990, but they are projected to make up 44 percent of the total by 2010 and nearly 50 percent by 2020. As a result, even if the Annex I countries were able to meet the emissions limits or reductions prescribed in the Kyoto Protocol, worldwide carbon emissions still would grow substantially (Figure 5). The increase is expected to be caused both by rapid economic expansion, accompanied by growing demand for energy, and by continued heavy reliance on coal (the most carbon intensive of the fossil fuels), particularly in developing Asia. Coal accounts for 41 percent of the projected increment in carbon emissions in the developing world between 1990 and 2020, followed closely by oil’s contribution of 36 percent. Gas accounts for 22 percent of the developing world’s increase in emissions.
The crude oil market rebounded dramatically in 1999, with prices rising from the low monthly average of $9.39 per barrel (nominal U.S. dollars) in December 1998 to $25 per barrel in January 2000. Prices were influenced by the successful adherence to announced cutbacks in production by OPEC and key non-OPEC members, notably, Mexico and Norway, along with strong growth in oil consumption in the industrialized countries (which accounted for 60 percent of the growth in demand in 1999) and the recovery of demand in Southeast Asia as the economies began to recover from the recession of 1997-1998. World oil prices are expected to reach $22 per barrel in constant 1998 U.S. dollars ($36 per barrel in nominal dollars) at the end of the projection period— about the same as in last year’s forecast (Figure 6).
For the near term, the IEO2000 projections are substantially altered by the strong recovery of world oil prices in 1999. Incorporating the recent price turbulence into the construction of an intermediate- and long-term oil market outlook is, however, impossible. Oil prices have been quite volatile in the past, and volatile price behavior can be expected in the future, principally as the result of unforeseen political and social circumstances. The IEO2000 projections do not attempt to predict volatility. Because of these assumptions, short-term price movements do not affect the long-term price projections in this report, and the price path largely converges with last year’s projections by 2005.
Worldwide oil demand reaches almost 113 million barrels per day by 2020 in the reference case—about 2 percent higher than in last year’s forecast, based primarily on more optimistic expectations for economic recovery in the FSU—requiring an increment of almost 40 million barrels per day relative to current capacity. OPEC producers are expected to be the major beneficiaries of increased production requirements, but non-OPEC supply is expected to remain competitive, with major increments of supply coming from offshore resources, especially in the Caspian Basin and deepwater West Africa. Deepwater exploration and development initiatives are generally expected to be sustained worldwide, with offshore West Africa emerging as a major future source of oil production. Technology and resource availability can sustain large increments in oil production capability at the reference case prices. The low price environment of 1998 and early 1999 did slow the pace of development in some prospective production areas, and especially in the Caspian Basin region.
Oil currently provides a larger share of world energy consumption than any other energy source and is expected to remain in that position throughout the forecast period. Its share of total energy consumption declines slightly, however, from 39 percent in 1997 to 38 percent in 2020, as countries in many parts of the world switch to natural gas and other fuels, particularly for electricity generation. World oil consumption is projected to increase by 1.9 percent annually over the 23-year projection period, from 73 million barrels per day in 1997 to 113 million barrels per day in 2020. Petroleum is used heavily in the transportation sector and also to provide heat, power, and feedstocks for industry.
In the industrialized countries, most of the growth in oil use is projected for the transportation sector, where few alternatives are currently economical. In the developing countries, the transportation sector also shows the fastest projected growth in oil use; however, in contrast to the industrialized countries, oil use for purposes other than transportation is projected to contribute 42 percent of the total increase in petroleum consumption in the developing countries. The growth in nontransportation oil use in the developing countries is caused in part by the substitution of petroleum products for noncommercial fuels (such as wood burning for home heating and cooking) as incomes rise and the energy infrastructure matures.
Natural gas remains the fastest growing component of primary world energy consumption. Over the IEO2000 forecast period, gas use is projected to more than double in the reference case, reaching 167 trillion cubic feet (Figure 7). The gas share of total energy consumption increases from 22 percent in 1997 to 29 percent in 2020. Moreover, natural gas accounts for the largest increment in electricity generation (increasing by 33 quadrillion Btu or 41 percent of the total increment in energy used for electricity generation). Combined-cycle gas turbine power plants offer some of the highest commercially available plant efficiencies, and natural gas is environmentally attractive because it emits less sulfur dioxide, carbon dioxide, and particulate matter than does oil or coal. In the industrialized world, natural gas consumption has the largest projected increase among the major fuels, increasingly becoming the choice for new power generation because of its environmental and economic advantages. Increments in gas use in the developing countries are expected to supply both power generation and other uses, such as town gas and fuel for industry. In China, for example, natural gas use is projected to grow at a robust rate of 11.2 percent per year over the forecast period.
In the IEO2000 reference case, coals share of total energy consumption falls only slightly, from 24 percent in 1997 to 22 percent in 2020 (Figure 8). Its historical share is nearly maintained, because large increases in energy use are projected for the developing countries of Asia, where coal continues to dominate many national fuel markets. Together, two of the key countries in the regionChina and Indiaare projected to account for 97 percent of the worlds total increase in coal use (on a Btu basis). Coal continues to be a major fuel source for electricity generation worldwide, and virtually all of the projected growth in the worlds consumption of coal is for electricity. The exception is China, where coal continues to be the primary energy source in a rapidly expanding industrial sector because of the nations abundant coal reserves and limited access to alternative sources of energy.
The prospects for nuclear power to continue its role of meeting a significant share of worldwide electricity consumption are uncertain, despite projected growth of 2.5 percent per year in total electricity demand through 2020. In the IEO2000 reference case, worldwide nuclear capacity is projected to increase to 368 gigawatts in 2010, then begin to decline, falling to 303 gigawatts in 2020. Aggressive plans to expand nuclear capacity, mainly in the Far East, lead to the near-term increase, but plant retirements in the United States and other countries exceed total new additions worldwide and produce a decline later in the forecast. Developing Asian countries are projected to add 30 gigawatts of new nuclear capacity by 2020, while the industrialized countries overall lose 64 gigawatts. Nuclear safety issues moved to the forefront in Asia in 1999 after several leaks at nuclear power plants in South Korea and China, as well as the serious accident in a reprocessing facility in Tokaimura, Japan. These incidents are likely to cause further public concern about the aggressive plans for nuclear capacity expansion in the Far East.
The development of renewable resources is constrained in the IEO2000 reference case projections by expectations that fossil fuel prices will remain relatively low over the forecast horizon and that, as a result, renewables will have a difficult time competing. Failing a strong worldwide commitment to environmental programs, such as the limitations and reductions of greenhouse gases outlined in the Kyoto Protocol, it is difficult to foresee significant widespread increases in renewable energy use. Modest growth in renewable energy is projected to continue, maintaining an 8-percent share of total energy consumption over the forecast horizon. Most of the increase is expected from large-scale hydroelectric projects that are under construction or planned, particularly in developing Asia. For environmental reasons, higher growth rates are expected for alternative renewable energy sources—notably, wind—in the industrialized countries. In addition, in developing countries such as China and Brazil renewables are expected to be used to reach rural populations that do not have access to national electricity grids.
Electricity consumption worldwide increases by 76 percent in the reference case, from 12 trillion kilowatthours in 1997 to 22 trillion kilowatthours in 2020. Long-term growth in electricity consumption is expected to be strongest in the developing countries of Asia, followed by those of Central and South America. Those two regions alone account for 52 percent of the world’s net electricity consumption increment in the IEO2000 reference case (Figure 9). Rapid growth in population and income, along with greater industrialization and more widespread household electrification are responsible for the increase.
To a large degree, future growth in the world’s electricity generation will depend on progress made in connecting more of the world’s population to national electricity grids. Electricity demand and investment in the electric power sector infrastructure have responded positively to the recent net improvement in global economic conditions, and to the movement toward privatization in many parts of the world. Many developing countries have been motivated to encourage various forms of private investment to raise the capital necessary to meet rapidly growing demand for electricity. In the developing world, $142 billion in private capital has flowed into electricity projects since 1990.
Transportation remains the most important oil-consuming sector throughout the projection period. With little present competition from alternative fuels, oil is projected to be the primary energy source fueling transportation around the globe. Road transport retains the largest share of energy use in the transportation sector, and the projections indicate strong growth in demand for personal motor vehicles over the next two decades, particularly in the developing world (Figure 10). As per capita income expands in the emerging economies and standards of living rise, fast-paced growth in the demand for personal transportation is expected.
In urban centers of the developing world, car ownership is often seen as one of the first symbols of emerging prosperity. Per capita motorization in much of the developing world is projected to more than double between 1997 and 2020, although population growth is expected to keep motorization levels low relative to those in the industrialized world. For example, the U.S. per capita motorization level in 2020 is projected at 797 vehicles per thousand persons, but in Chinawhere motorization is expected to grow fivefold over the forecast horizonthe projected motorization level in 2020 is only 54 vehicles per thousand persons.
The IEO2000 projections, like all forecasts, are accompanied by a measure of uncertainty. One way to quantify the uncertainty is to consider the relationship between energy consumption and GDP growth (that is, energy intensity) over time. In the industrialized countries, history shows the link between energy consumption and economic growth to be a relatively weak one, with growth in energy demand lagging behind economic growth. In the developing countries, the two have been more closely correlated in the past, with energy demand growing in parallel with economic expansion.
In the IEO2000 forecast, energy intensity in the industrialized countries is expected to improve (decrease) by 1.1 percent per year between 1997 and 2020, slightly slower than the 1.3-percent annual improvement for the region from 1970 to 1997. Energy intensity is also projected to improve in the developing countriesby 1.0 percent per yearas their economies begin to behave more like those of the industrialized countries as a result of improving standards of living that accompany the projected economic expansion (Figure 11). The EE/FSU has always maintained a much higher level of energy intensity than either the industrialized or the developing countries. Over the forecast horizon, energy intensity is projected to improve in the EE/FSU region in concert with expected recovery from the economic and social declines of the early 1990s; however, it still is expected to be twice as high as in the developing world and five times as high as in the industrialized world.
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March 31, 2000
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