Global energy markets are set to grow over the next 20 years, but a more complex and competitive landscape will develop, slowing structural demand growth and introducing new challenges to producers and consumers alike. We examine common themes that are likely to emerge as growth slows, prices recover, and supply-demand dynamics shift.
As the energy boom of the past decade winds down, energy markets are entering a new phase of supply-demand dynamics that will grow increasingly complex by 2035.
The days of the China-driven commodity boom are largely behind us, but we expect emerging markets to consolidate their influence on global development and energy demand over the next 20 years. Non-OECD markets will drive oil demand growth, while coal consumption will concentrate in Asia Pacific. Gas, however, will see increased demand worldwide, making it the fastest-growing of the hydrocarbon fuels.
Renewable energy sources will also find new markets globally, but the focus of nuclear power shifts to China as demand for this form of power generation declines long-term across Europe, North America and Japan.
Trade patterns will evolve as commodity demand growth shifts to emerging markets. North America will disrupt traditional trade flows as it becomes an energy export province, with oil imports declining and eventually going into reverse. North America will also compete with Russia and the Caspian to become the world's foremost natural gas supplier.
Coal supply and demand will become more concentrated in Asia Pacific markets, as will trade. Gas will also flow more extensively into Pacific markets and see greater global demand as LNG supply increases.
As the Middle East reinforces its position as the world's top oil supplier, Europe will remain the only region in which indigenous energy production declines over the long term. The gap between demand and indigenous supply will grow there as well as in Asia Pacific, leaving these two regions increasingly import-dependent.
Slowed energy demand growth
Our analysis suggests that global energy demand growth will slow to 1.4% per year between 2015 and 2035, compared to 2.2% per year seen from 2001 to 2015. The fundamental shift in trend will be China's slowing energy demand growth — a force which has dominated commodity markets since the early 2000s. With developed markets' energy demand levels at or nearing their peaks, we can expect a worldwide downshift in energy demand growth, despite the continued expansion of emerging economies.
Complex inter-fuel competition
Energy markets are more crowded than ever, with traditional hydrocarbon fuels competing against each other as well as with increasingly affordable renewables in the face of ubiquitous weak demand. Adding further complexity, government policies are shaping that demand by promoting consumption of certain fuels and restricting consumption of others.
New market conditions
Our analysis reveals that over the medium term, structural oversupply is likely for the oil, gas and coal markets — but recovery is in sight. With 40% of production from new oil developments in 2025 requiring a Brent oil price of more than $70 per barrel (real), US tight oil producers will be back in their comfort zone while OPEC suppliers will see some relief from high fiscal breakevens.
As these new market forces unfold over the coming decades, they will shape how producers adapt to slower demand growth, set the stage for emerging markets to fundamentally re-route commodity trade, and affect how governments respond to climate change.
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We provide strategic analysis and insight on global trends and geopolitical issues, from supply and demand forecasts across all fuels and sectors of the energy industry, to analysis of evolving macroeconomic trends. Our research into the threats and opportunities for natural resources helps to identify and understand scenarios for key global risks and uncertainties.
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