(John Kemp is a Reuters market analyst. The views expressed are
By John Kemp
LONDON, July 26 Improvements in energy
efficiency will confer an enormous competitive advantage on the
countries of North America and Europe in the next two decades
relative to the fast-growing but energy-inefficient economies of
Asia and the Middle East.
Rising oil demand in Asia and growing production from North
America's shale formations, among other shifts transforming the
global economy and oil markets, have been extensively analysed.
But the impact of diverging energy efficiency trends has
received much less attention.
In 2035, the advanced economies in the OECD will consume 46
million barrels per day of crude oil and other liquid fuels,
essentially unchanged from today's consumption, according to the
latest version of the U.S. Energy Information Administration's
biennial International Energy Outlook (IEO 2013) published on
By contrast, consumption in developing countries is set grow
more than 40 percent to 63 million barrels per day in 2035.
Developing countries will account for almost 60 percent of
global consumption, which will make them the most vulnerable to
anything that causes an interruption in oil supplies or a sharp
rise in prices.
Developing countries' rising oil consumption is driven
primarily by population growth and rapidly rising incomes. But
unlike the advanced economies, they have so far made little
progress improving their energy efficiency.
Countries in North America and Europe have made enormous
strides curbing projected consumption growth by legislating
tougher fuel-economy standards for vehicles and, more
controversially, by mandating the use of biofuels.
The result has been to bend the oil-consumption curve
sharply lower. In its last set of projections, published in
2011, the EIA predicted the OECD would consume almost 50.5
million barrels per day in 2035. That figure has now been
trimmed by almost 4.5 million barrels (nearly 9 percent).
Rather than recovering after the recession that began in
2008, OECD demand is set to remain subdued and essentially
stagnant over the next two decades, according to the EIA. In
effect, the advanced economies will achieve "oil-less growth"
In contrast, the recession has made almost no difference to
consumption in the emerging economies and there is no sign of
energy efficiency measures slowing its rate of expansion (Chart
Chart 1: link.reuters.com/saw89t
Chart 2: link.reuters.com/vaw89t
Diverging consumption and efficiency trends will transform
the world's exposure to oil shocks.
The biggest impact of oil shocks in 1973, 1979 and 2008 was
felt in the advanced economies of the OECD, which were by far
the largest oil consumers. But improvements in efficiency should
reduce the developed economies' exposure and vulnerability to
sudden changes in the cost of crude. By 2025 or 2035, the
biggest impact will be felt in the emerging world.
Even outside oil shocks, developing-country oil importers
such as India and China will find the high cost of oil a growing
burden on their balance of payments and competitiveness.
The economic and strategic threat to developing economies
has been foreshadowed by the shale gas revolution.
Cheap North American natural gas is already encouraging
steelmakers, chemical manufacturers and some other
energy-intensive industries to transfer some of their operations
back to the United States. Improvements in vehicle efficiency
could eventually have the same impact with oil.
If they are not to end up at a serious economic and
strategic disadvantage, developing economies need to become much
more efficient in the way they use fossil fuels, especially oil.
China's government already understands this: improving
energy efficiency has been one of the top priorities in both the
last two Five-Year Plans.
Outside observers often attribute the government's focus on
energy efficiency to an altruistic commitment to combat global
warming. But energy efficiency is as much a matter of
competitiveness and national security.
(Editing by Anthony Barker)