Between 2016 and 2035, China's aggregate energy demand will grow by 650 Mtoe, India's by 760 Mtoe, and the wider Asia Pacific region by approximately 1,000 Mtoe. With the expansion of manufacturing, accelerating urbanisation and rising incomes, the region's energy consumption will also rise dramatically. In this second article in our hydrocarbons report series, we explore how we expect the energy sector to meet Asia-Pac's tremendous energy appetite over the next 20 years.
Asia-Pacific is expanding more quickly — and to a far greater extent — than anywhere else in the world. While China has historically been the dominant regional force, we expect India and Southeast Asia to take the lead in driving future demand growth in Asia. Their share of total regional demand growth will rise from around 30% between 2000 and 2015 to around 75% between 2022 and 2035.
We asked Paul McConnell, Research Director for Global Trends, to talk more about how the region will reconcile its aggressive growth with its Paris Agreement targets and the focus on renewables.
After growing at an average of 2.8% in the last 20 years, oil demand in Asia will only grow by half that rate in the next 20 years. Even with this slowdown, Asian oil demand is expected to account for more than 75% of the global oil demand growth in the next 20 years. A growing middle class and increasing vehicle fleets will drive this demand, with India's car stock ballooning from 25.5 million in 2014 to 170 million in 2035 and China's from 116 million in 2014 to 400 million in 2035.
In Asia, competition from coal and a general lack of stringent environmental policies will limit the growth of gas in the power sector. Because China's demand for coal has already peaked and is now in terminal decline, India will become the single most important market for this commodity in Asia-Pacific. Historically a stalwart of carbon emission restrictions, Japan will see a resurgence of coal generation (compensating for nuclear power lost post-Fukushima), which will threaten gas growth.
China will be the first to transition away from heavy hydrocarbon use. As the economy evolves and industrial services are replaced by consumer services, demand growth for hydrocarbons will wane, and in the case of coal, go into terminal decline. China will become increasingly electrified, and the fuels used to generate that electricity will become more "clean" — hydro, nuclear and renewables. Other emerging markets will follow this trend at different speeds and to different degrees, and greater efficiency will cause energy intensity to decrease. India, the largest of the emerging markets after China, will see energy intensity drop by approximately 35% between 2016 and 2035.
The shift towards a consumption economy will result in a natural decline in energy intensity, putting Paris Agreement CO2 targets within easy reach for India and China. Both targets relate to emissions intensity, which will allow growth in absolute emissions over the coming years. Other emerging markets in Asia-Pac will easily meet their targets as well.
Although the region will not necessarily need to make the switch to renewables for emissions purposes, solar in particular will become an integral part of Asia-Pacific's power supply. The modular nature of solar makes it suitable for small-scale installations that can provide power at lower investment costs and with shorter lead times than centralised, grid-connected generation. In India alone, more than 300 million people do not have consistent access to electricity, and the Indian government aims to boost total renewable capacity to 175 GW by 2022, from 36 GW in 2014, to connect these rural areas.
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