Asia to Drive Growth in Oil Demand Through 2035, Analyst Says

TOKYO – Global petroleum demand will grow 15% over the next two decades due mainly to increased consumption in China and India, a leading Tokyo-based energy forecaster predicts.

Ken Koyama, chief economist at the Institute of Energy Economics Japan, estimates demand will rise to 97 million barrels per day, up 13 million barrels, with Asia accounting for nearly three fourths of growth.

Koyama predicts Japan, but not China, India and Southeast Asia, will witness a slight decline in oil consumption due to its aging population and improvements in technology, including increased usage of hybrid, battery-electric and fuel-cell vehicles in the automotive sector.

Meanwhile, the IEEJ forecasts global primary energy use (in addition to petroleum, coal, natural gas, nuclear and hydropower) will swell to 17.5 billion tons (oil equivalent) from 11.7 billion tons in 2010, with China and India accounting for 60% of growth.

Demand in industrialized countries is likely to decline or increase only marginally because of slowing economic growth and aging populations, Koyama says.

In the 2012 edition of the institute’s Asia/World Energy Outlook, the IEEJ estimates fossil fuels will account for most of Asian energy demand in 2035,with coal at 46%, petroleum 26% and natural gas 17%.

The report says the world’s population will grow to 8.6 billion in 2035, up from 6.8 billion in 2010, with Asia accounting for 52% of the total. India’s population will reach 1.6 billion and China’s will hit1.4 billion.

As a result, competition for energy resources likely will intensify, with dependence on petroleum and other fossil fuel imports rising.

Crude prices are projected to rise to $115/barrel in 2020 and $125 in 2035, not adjusted for inflation.

“Factoring in inflation, we assume crude prices will rise to $200,” Koyama says. “Although we assume a smooth trajectory, no one really knows what will happen to price in the short term.” 

He cites the $145/barrel peak price in July 2008, followed by the plunge to $30 levels shortly after the Lehman Brothers bankruptcy in September 2008, then the gradual recovery back to current levels of $105.

Global economic growth will average 2.9% over the next two decades, with Asian countries excluding Japan registering 5.2% yearly growth.

The IEEJ also reports motorization is spreading throughout Asia as income levels rise. The institute forecasts vehicle ownership will grow from 240 million units in 2010 to 686 million in 2035.

The global tally includes 315 million in China and 147 million in India, up from 78 million and 21 million, respectively, in 2010.

The IEEJ forecasts worldwide vehicle ownership will grow to 1.9 billion units, up from 1.0 billion in 2010.

The organization’s chief economist is bearish on hydrogen as a petroleum alternative because of cost and infrastructure problems, and the group has issued no hydrogen forecast.

However, Koyama says there has been renewed interest in the fuel since the Fukushima nuclear disaster in March 2011.

In the auto sector, for instance, 13 Japanese energy companies including market leaders Nippon Oil and Tokyo Gas joined forces in 2009 to develop a hydrogen-refueling infrastructure for fuel cell vehicles.

Supported by Japan’s Ministry of Economy, Trade & Industry, the consortium hopes to have a network of 100 hydrogen fueling stations in place by 2015, focusing on the four major metropolitan markets of Tokyo, Osaka, Nagoya and Fukuoka. The number is projected to increase to 1,000 stations by 2025.

“Hydrogen is still a longterm strategic option,” Koyama says.

Concerning nuclear power, the IEEJ economist still won’t say what is an appropriate level in the nation’s power portfolio. “But probably 20%-25% should be nuclear,” he says. “This is substantially lower than the government’s previous target which was well above 50% in 2030.

“Clearly, zero nuclear is not feasible,” he says. “Without nuclear power, Japan’s three E’s of energy security, economic efficiency and environment protection would be adversely affected. Japan simply can’t give up on nuclear energy from an energy security perspective.

Koyama is more bullish about natural gas, which he regards as a workable alternative to petroleum. “In North America and Asia, natural gas has become increasingly important,” he says.

The IEEJ expects world natural-gas demand to grow to 141 trillion cu.-ft. (4 trillion cu.-m) in 2035, up from 106 trillion cu.-ft. (3 trillion cu.-m) in 2010. Asia’s share: 42 trillion cu.-ft. (1.2 trillion cu.-m).