Rabu, 01 Juli 2009

A Brief Note on World Energy Demand

{This article is basically English version of my June 19, 2009 posting with some refinement}

“Current global trends in energy supply and consumption are patently unsustainable – environmentally, economically, and socially. But that can – and must – be altered; there’s still time to change the road we’re on.”
— WEO2008-IEA/OECD

Energy in its original form provided by nature is called primary energy. Included in types or primary energy are crude oil, natural gas, coal, nuclear, biomass, hydro mechanical energy, geothermal, solar heat radiation, wind speed, and ocean waves. In this opportunity I would like to give a brief note on world energy demand.

According to World Energy Outlook 2008 (WEO 2008), a report published by International Energy Agency (IEA) – a body under the umbrella of OECD (Oganisation for Economic Cooperation and Development) countries, the world annual primary energy consumption in year 2008 was at the level of 12,000 MTOE (million tons of oil equivalent); comprising oil, coal, gas, biomass, nuclear, hydro, and other renewable energy.


Projecting to year 2030 the world energy consumption will hit the level of 17,000 MTOE per annum. This projected figure has accounted for all policies made and implemented by countries all over the world until 2008. Meaning, if there are no longer substantial new policies that can trigger actions for further saving and diversifying energy, then the projected figure in reference scenario will be very likely happen.

The incremental of world energy demand within next 20 years will be dominated by non-OECD countries, nota benne the developing countries in Middle East, Africa, Eastern Europe (Eurasia), Latin America, and other Asia including Indonesia, plus the two emerging giant economies China and India. This is quite understandable since the process of industrialization and the process of improving life quality will require more energy supply from year to year until supply-demand curve of energy reaches a certain point of equilibrium. Half of the incremental in world energy demand will be consumed by China and India.

Fossil-fuel energy will take 80% portion of world energy mix in 2030; with coal takes the most of incremental of utilization among fossil energy. Oil demand will increase from a level of 85 million barrel per day in 2008 to a level of 106 million barrel per day in 2030 − 30% of world energy mix. It is expected that future additional oil will come from OPEC countries that still have a lot of oil reserves and relatively low production cost compared to other parts of the world.

In electricity generation sector, it is predicted that soon after 2010 the renewable energy will become the second largest source of electricity behind coal. However in transportation sector the utilization of renewables will still face a lot of challenges and constraints. In spite of having introduced non conventional oil (biofuel for example), the crude oil-based fuel will still dominate the energy consumption for transportation sector.

OECD countries in the other hand show much less of energy incremental compared to non-OECD countries. The OECD is predicted to succeed in reducing their oil consumption by around 2.7 million barrel per day in 2030. Since OECD is basically a group of industrialized countries, the OECD has a good potential for being able to save and diversify energy due to the following factors:
  • efficient culture,
  • supply-demand curve of energy may have reached equilibrium, yielding very small value of energy elasticity – in some West European countries the energy elasticity even shows a negative figure,
  • strong financial resources, and
  • high capabilities in science and technology.
Based on reference scenario in WEO 2008, world oil production will adequate to supply energy demand for next 20 years provided (if only) additional investment for exploration and for technology improvement – including deep water and EOR (Enhanced Oil Recovery) for the oil fields that will undergo production decline. With this additional investment it is expected that the new sources of oil reserves will be found and more oil can be produced.

But there are at least three phenomena during last one year that we all have to anticipate:
  • Soaring energy prices to mid 2008 where oil price hit the level of USD 147 per barrel, followed by world economic collapse.
  • Oil price dropped down to lower than USD 40 per barrel.
  • After first semester 2009 the early signs of economic recoveries have been observed. Stock markets in world financial centers are slowly returning to their shapes. Currently crude oil prices are in the range of USD 60 – 70 per barrel. In the countries that rely more in real transaction for their economy, the signs towards economic recoveries have been earlier identified.
What should we learn from the above phenomena? First, the crash of oil prices followed by global financial crisis has caused a decline of investment in petroleum sector. The declining investment means a decrease in exploration activities and a very limited number of technology innovations to find out new sources of oil reserves.

Second, by the time the economy is back on its feet the world energy demand will step up. However, due to the decline of investment in petroleum sector in last one year, it is unlikely that the hike in oil demand can be immediately balanced by an increase in supply – at least in the near future. It means, theoretically, according to supply-demand law the world will face a situation where the era of cheap oil prices (despite fluctuation) will be over. This is really alarming!

The current supply-demand model of world energy demand is indeed very unsustainable – environmentally, economically, politically, and socially. The existing scenario of energy demand must be altered. It requires some additional breakthroughs and commitments from the globe to significantly reduce dependency on fossil type of energy, especially crude oil-based fuel. There must be somekind of “energy revolution” (borrowing Green Peace’s terminology) through (1) efficiency of energy utilization, (2) conservation of energy sources, and (3) energy diversification.

How much is annual primary energy consumption in Indonesia? According to tabulation in BP Statistical Review of World Energy 2008, Indonesia’s primary energy consumption in 2007 was 114.6 MTOE. Until to-date I have not seen any official publication yet on how much Indonesia’s annual energy consumption was last year. But it can be estimated. With an energy elasticity of 1.84 and – let’s say – economic growth of 6%, then Indonesia’s annual primary energy consumption in 2008 was 127 MTOE – around 1% of world energy consumption.

Indonesia is blessed with a bunch of varieties of primary energy – fossil types and renewables. But it is observed that the utilization of renewables is lagging behind. The vast majority of energy management resources in Indonesia is only devoted to oil, gas, and coal. Once a friend of mine joked, the renewables in Indonesia are still lacked of seriousness because viewed as “not sexy” things. Yes, because renewable energy mostly cannot be treated as a sale-and-purchase commodity – must be directly utilized on sources sites – and does not require long logistics chains then it attracts barely minimum commitment from decision makers. Geothermal, for instance, Indonesia has a potential resource of 27,000 MWe, around 40% of total world geothermal potential, leaving Indonesia as the country with the biggest geothermal potential in the world. But current utilization is only 1024 MWe.

As a closing remark, I would like to state that the capability of each country to secure its energy supply in the future may be dictated by the following factors:
  • economic strength,
  • the degree of mastering science and technology,
  • adequacy of own in-house reserve and production to fulfill its own demand,
  • strength in international lobbies, and – up to some extent –
  • military strength.
Now, the question is, from the five factors above where is Indonesia’s position: strong, moderate, or weak?

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