China and India, together, have made the largest contribution to the global incremental energy demand for last several years and they are expected to do the same for next several years. The two haven´t deterred from their contributions irrespective of the level of energy prices - high or low. These days the prices of primary sources of energy have fallen to abysmally low levels, but just five years back these prices were more than thrice the present levels. Crude oil price had reached $147 per barrel in July 20081 coal prices were also ranging around $130 per ton and raring to go much beyond; and that very year the energy demand by Non-OECD nations, for the first time in the history, surged ahead of the OECD energy demand2. Since then, there has been no looking back for the Non-OECD energy demand, despite the world of energy getting shocked by myriad of factors like - US Subprime Crisis snowballing into Global recession; the Arab Spring; the Fukushima disaster; Concerns on global warming; the apathy of PIGS (Portugal, Italy, Greece and Spain); the Shale revolution and the Arabs´ fight for retaining the market share; and continued recession in Japan and EU. The increases in energy demand in China and India have remained intact till now. It must be noted that China accounted for almost 50 per cent of the growth in global energy demand between 2000 and 2014. But, the maturing of Chinese economy and India becoming world´s fastest growing large economy, it is predicted that almost half of the global energy demand increase, towards 2040, will be driven by China and India together3.
China and India are the only ´billionaire nations´, in terms of population, in the world. India with 1.2 billion is not far behind of China with 1.3 billion of population. But, in terms of energy demand, China outweighs India by a huge amount. According to World Bank data, in 2012, the per capita energy consumption in China was 2143 kgoe (kilogram of oil equivalent) and for India it was 624 kgoe4. Figures 1, 2 and 3 give a fair indication of that. Figure 1 shows that in terms of electricity production, China at 5649.6 Twh is almost five times that of India´s production of 1208.4 Twh. Since, there is negligible international trade in electricity and also negligible storage of produced electricity, one can take the production figures as a fair estimate of consumption, deducting, of course, the transmission losses. By July 2015, India´s per capita power consumption had reached 1010 kwh, while that of China was at 4000 kwh5. This huge gap is not just in terms of electricity consumption, but it exists for oil and natural gas consumption too.
If we look at Figure 2, it can be seen that the gap between growth rate of oil demand between China and India has significantly widened after 2002. It is interesting that China joined the WTO on December 11, 2001. During the period 1991 to 2001, China´s oil demand saw an annual growth of 245,000 barrels per day (bpd), while that of India saw annual growth rate of 117,000 bpd. It is amazing to see that during the period 2002-14, this growth rate for China almost doubled to 472,000 bpd, while that for India it remained almost steady at 129,000 bpd.
Figure 3 shows the comparison of Natural Gas demand between China and India. The gap in this case spectacularly widened in favor of China after the year 2002. During the period 1991 to 2001, China´s natural gas demand saw an annual growth of 0.1 Billion Cubic Metres (BCM) while that of India saw annual growth rate 0.14 BCM. But during the period 2002-14 this growth rate for China saw a spectacular rise of almost 13 times to 1.29 BCM, while that for India the growth rate increased less than 2 times to 0.26 BCM. Will the scenario change in future?
Demand growth expectations in India
The reasons that brought the spectacular energy demand growth to China are now being observed more significantly in India. India´s energy demand is almost likely to double in next 25 years as the economy is estimated to expand to $9 trillion by 20406. India´s energy demand is likely to rise from 34 quadrillion British thermal units (qBTU) to 47 qBTUs in 2025 and 63 qBTUs in 2040. During this period, the world energy demand is projected to rise by 26 per cent to 703 qBTUs, with India´s share in world energy demand rising from 6 per cent in 2014 to 9 per cent in 2040. India´s electricity usage is expected to soar, rising 185 per cent during 2014-2040. Its coal-based electricity use may get more than doubled during this period. There has been significant push towards coal production and electricity generation in India. Coal India Ltd achieved record production of 536 million tons (MT) in the 2015-16 fiscal7, thus reducing the fuel availability uncertainty for thermal power plants in India. The electricity generation target for the year 2015-2016 was fixed as 1137.5 Billion Unit (BU), which was achieved up to 97.41 per cent by Feb 20168. As per International Energy Agency (IEA) India consumed 4 million barrels per day (mbpd) of oil last year and is expected to surpass Japan as the world´s third largest oil user this year. It is forecast to be the fastest growing crude oil consumer in world through 2040. It would be adding 6 mbpd of demand compared to 4.8 mbpd for China9.
One of the main reasons for expecting such a huge growth in India´s energy demand is that India has oriented itself towards enhancing the share of manufacturing to total GDP and creating 100 million jobs by 2022 to its large young workforce. With 63 per cent of the 1.2 billion strong population being in the age group of 15-64, India has called upon the world to ´Make in India´. The manufacturing sector´s contribution to GDP is targeted to reach 25 per cent against the present 16 per cent10. There is a very strong thrust to infrastructure sector. The rate of road construction has reached 20 km per day and is expected to reach 30 km per day soon. This is a third more than the previous best of 15 km per day achieved in 2012. During the current financial year, construction of 10,000 km of greenfield highway is targeted11. The rate at which railway tracks are being laid has almost doubled from 4 km per day to 7.5 km per day as mentioned in the Railway Budget 2016. An ambitious plan has been devised to revive the ports in India so that the India´s share in international trade can increase. Electrification of villages has started happening at a rapid pace. About 5279 villages got electrified during the financial year 2015-16, which is part of the overall target of 18,452 villages, found un-electrified when the NDA government took over in 2014, getting electrified in 1000 days12.
Variety of initiatives like Make in India, Jan Dhan Yojan, Start Up India, Mudra Bank, Direct Cash benefit transfer, MNREGA, Swachh Bharat, Reformed Crop Insurance and Health Insurance and Gold Monetisation scheme etc are expected to enhance the velocity of money in the economy leading to increased aggregate demand and thus paving way for increased energy demand. The UDAY scheme through which the discoms are being relieved of the financial distress; separate feeders for rural electricity; 175-GW renewable energy target by 2022; renewed emphasis on acquisition of oil equity; inauguration of TAPI gas pipeline; revived interest from Iranian oil in the form of investment in Charbahar port and sub-sea pipeline; investment in green corridor for renewable energy transmission; enhanced use of smart grids; increased investment in domestic exploration and production (E&P); moving away from fiscal systems like Production Sharing Contract (PSC) to Revenue Sharing Contract; investments in Regasification LNG terminals; and above all the availability of cheap oil and gas will ensure adequate supply of energy into the economy.
As the rising demand will be met by rising supply, the GDP of the nation will further increase fueling more energy demand. ´By 2040, per capita income in India is expected to be more than three times today´s level,´ says ExxonMobil13.
Demand growth expectations in China
The Chinese per capita income is also expected to increase more than three times. By 2025, the Chinese economy would reach $16 trillion and $30 trillion by 2040. At this level, it would constitute almost 20 per cent of the world GDP. Primary energy demand will increase from 116.72 quadrillion BTUs (qBTUs) in 2013 to 153 qBTUs in 2025. The population and the economy is expected to mature and energy demand growth is expected to slowdown further, with demand forecast for 2040 being 154 qBTUs. Oil demand is expected to grow rapidly till 2025 reaching 30 qBTUs and then it will slow down to reach 34 qBTUs in 2040. Natural gas demand will increase to 16 qBTUs in 2025 and then 24 qBTUs in 2040. Coal demand is also expected to increase to 84 qBTUs in 2025 and then, interestingly, it shrinks to 62 qBTUs - a level reached in 2010.
The major factor for slowing energy demand in China is maturing of its economy. It has already slowed down from 9.5 per cent in 2011 to around 7 per cent in 2015. It is expected to grow at an annual average of 5.5 per cent during the period 2010-204014 compared 10.5 per cent recorded during 1990-2010. The maturing of economy implies a massive structural change - away from heavy industry focus to less energy-intensive service sector 15 - in the way China generates income. For instance, it plans to cut 1.13 bn tonne of steel capacity by 202016. In 2014, as can be seen in Figure 4, the growth collapsed in energy intensive sectors like Iron, Cement and Steel - which had thrived during China´s rapid industrialisation17.
Concerned with global warming and changing pattern of economic growth, China will achieve higher energy efficiency reaching the levels of OECD countries. China has already seen decreasing energy intensity from 0.7 (Toe per thousand $2010 GDP) in 1980 to a little less than 0.2 in 2014. ´Aging will also impact China´s potential growth. By 2040, more than 20 per cent of China´s population will be age 65 or older, up from just 9 per cent today18.
As seen in Figure 5, the energy demand in India is expected to almost double in 2040 to 63 quadrillion BTUs, but will remain significantly lesser than China´s 154 quadrillion BTUs. In 2040, Chinese GDP will rise to almost 20 per cent of the world GDP, close to that of the US, while India´s will exceed 5 per cent. Energy demand for a $30-bn Chinese economy would certainly be much higher to India´s $9 bn economy. But, China is expected to see a dual character of energy demand growth in its journey to 2040. It surges fast from 2015 to 2025 but slows down considerably during the period 2025 to 2040.
Slowing population growth; improved energy efficiency; dominance of service sector in the GDP; higher proportion of old age people; rapid urbanisation; and higher proportion of electricity in the energy mix are the main factors altering the energy demand growth pattern in China.
2. BP Statistical Review of World Energy 2009
6. ExxonMobil´s Energy Outlook 2040
9. ´India´s thirst for oil is overtaking China´s´, Business Standard, 10 April 2016
13. ExxonMobil´s Energy Outlook 2040
16. ´China to cut steel capacity to 1.13bn tonne by 2020ö, Financial Express, 10 April 2016
17. BP Statistical Review of World Energy 2015
18. ExxonMobil Energy Outlook 2040
Dr Vikas Prakash Singh, Program Director, PGPM (Energy), Great Lakes Institute of Management, Gurgaon