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Leonard Hyman & William Tilles

Leonard Hyman & William Tilles

Leonard S. Hyman is an economist and financial analyst specializing in the energy sector. He headed utility equity research at a major brokerage house and…

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Downplaying Energy: Will The Trend Continue?

Power

Since the trough in the Great Recession, the world economy has recovered smartly. But according to the latest calculations from energy giant, BP, global energy usage has not kept pace with economic growth. The U.S. seems to be leading the way in economic growth while consuming little additional energy and actually reducing carbon dioxide emissions.

The U.S. has become more energy efficient. And natural gas, by virtue of its lower cost, has displaced a portion of coal consumption. Renewables, although still a relatively small part of the country's energy mix, also ate into all fossil fuel consumption.

The switch from coal to natural gas and renewables accounted for a big chunk of the reduced carbon emissions. Considering that renewables still make up a small fraction of energy production and coal still accounts for a significant fraction of electricity generation, there is room for more improvement. (See figures 1 and 2.)

Figure 1. USA —Real Gross Domestic Product, Energy Consumption and Carbon Dioxide Emissions (2009=100)

(Click to enlarge)

Figure 2. USA— Electricity, Coal, Natural Gas and Renewables (Excluding Hydro) Consumption (2009=100)

(Click to enlarge)

The world, as a whole, interestingly seems to have pulled back less in terms of energy usage, but glob-al figures are heavily influenced by Chinese energy demand. Whereas energy consumption rose at one fifth the rate of GDP growth in the USA, it rose at half of the rate of GDP in the world as a whole. (Keep in mind that worldwide economic comparisons tend to vary from source to source and method to method of calculation.)

China accounted for less than half of the increase in world GDP, for roughly half the increase in world carbon emissions and electricity consumption, and two-thirds of the increase in coal consumption. A closer look at the data would demonstrate that many other major economies have made economic progress similar to the United States but that China has lagged in terms of improvement. But that may change now that China has prioritized clean energy in an attempt to economically dominate that sec-tor. (See figures 3 and 4.) Related: Iraq Dethrones Saudi Arabia As India’s No.1 Oil Supplier

Figure 3. World— Real Gross Domestic Product, Energy Consumption and Carbon Dioxide Emissions (2009=100)

(Click to enlarge)

Figure 4. World— Electricity, Coal, Natural Gas and Renewables (Excluding Hydro) Consumption (2009=100)

(Click to enlarge)

The decline in the importance of energy to the economy both in the US and globally since at least 2009 is part of a decades old trend. Large commercial and industrial consumers of electricity as well as indi-vidual homeowners have become more efficient in their energy usage while the domestic economy transitions from industrial to more service-oriented industries.

But the post-Great Recession period takes this already worrisome trend in declining electricity demand to a new extreme. What next? Related: Is $40 Oil On The Horizon?

Based on recent trends and projections, the U.S. economy could grow 2-3 percent per annum. Given that growth in electricity usage has been only a fraction of overall economic growth, that suggests electricity and total energy consumption might rise by less than 1 percent per year. (Renewables, on the other hand, could experience 9-10 percent growth annually.)

With flattish forecast electricity consumption levels, significantly more renewables, and natural gas continuing to displace coal, the U.S. might actually keep its carbon emissions close to or below current levels.

World real GDP might grow 3-4 percent per year, causing overall energy demand to increase 1.5-2 per-cent per year, and electricity demand 2-3 percent annually. As the world's energy consumers become wealthier, they will tend to substitute electricity for other less desirable energy sources such as burn-ing wood. If China and India, despite significant coal reserves, implement their recently stated goals with respect to the promotion of renewable resources at the expense of coal, growth in carbon emis-sions could be reduced even further.

With the present economic expansion appearing somewhat long in the tooth so to speak, and renew-able energy prices continuing to decline, prudent energy executives might want to plan for continued, minimal growth at best. Perhaps the age of energy is transitioning into something else.

By Leonard Hyman and William Tilles

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Leave a comment
  • Nick on June 23 2017 said:
    But if electric car sales jump like they're expected to over the next decade plus, you're going to see a lot more electricity needed.
  • Adrian on June 23 2017 said:
    What is the vertical scale on the graphs? TWh? Percent growth?
  • Leonard Hyman on June 23 2017 said:
    To answer the above question and comment.

    All charts were indexed to 2009 = 100. As for units indexed, primary energy, coal, renewables are in millions of tons of oil equivalent and electric generation in terawatt hours.

    As for the electric car, my quick calculation is that if all cars in the USA were electric, that would raise demand for electricity by over 30%. But reaching that level could take a long time, and by the time it happens, electric cars might be more efficient than they are currently. At the same time, rising electric car demand does not bode well for oil sales. Either way, we'd bet that overall demand growth for energy will be slow.

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