A new report from oil major Exxon Mobil Corporation (NYSE:XOM) titled “The Outlook for Energy: A View to 2040” offers an assessment of the current global energy landscape and some fascinating future projections. One highlight of the report is the projection that global energy use will only increase by around 35% by 2040 thanks to a slew of conservation and energy efficiency initiatives. Moreover, global energy use would have skyrocketed by 140% without this significant improvement in energy efficiency.
Future global energy use trends
Not surprisingly, China and India are expected to account for half the growth in global energy demand as these two developing economies lead the way in terms of population size and rate of economic growth (and related improvements in standard of living).
The report also highlights that another group of 10 key growth countries will take up an increasingly significant share of the global energy market because of their rising populations and living standards. This group includes Brazil and Mexico in the Americas; South Africa and Nigeria in Africa; Egypt and Turkey in North Africa/Mediterranean; Saudi Arabia and Iran in the Middle East; and Thailand and Indonesia in Asia.
The OECD is a good yardstick for measuring developed economies. Among the 34 member countries in the OECD, ExxonMobil includes Mexico and Turkey in their key growth category because their energy and economic growth resemble that of developing economies. This OECD32 group will continue to show income growth over the next couple of decades, but have relatively modest changes in energy demand due to continued improvements in energy efficiency.
Growth in the middle class will drive global energy use
The Brookings Institution estimates that the number of people who have enough income to be considered “middle class” will top 4.7 billion by 2030, more than doubling from 1.9 billion in 2010. In general, when people enter the middle class, they have enough income to enjoy spending power beyond daily necessities. Crossing this threshold means they will be looking to buy durable consumer goods such as electric appliances and cars. Middle class also means being able to afford services ranging from dining out to travel, as well as modern medicine and higher education. People in the middle class can improve their living conditions with less densely populated homes and heating and cooling systems.
Middle class consumers also are concerned about the quality of the products and services they purchase. In addition, higher incomes means savings and access to financing, which offers opportunities to smooth out spending over time. This makes purchasing homes and cars much easier.
Virtually all of these improvements in quality of life, however, depend on the availability of affordable energy. Moreover, the rise of a middle class leads to other societal changes that drive increased energy use such as improved infrastructure, electrification and urbanization.