INSIGHT: Gazing into the energy crystal ball

30 March 2012 17:53  [Source: ICIS news]

By Lane Kelley

China textile factory in Shandong provinceHOUSTON (ICIS)--A recent Texas energy conference attracted some of the most powerful and influential people in the world of oil and gas and the utility industry and turned up a gold mine of predictions about the future.

Panelists were startling and entertaining enough, but corporate handouts and brochures, some with Future Shock-style bold statements, also provided plenty of surprising footnotes.

Should we be concerned, for instance, that the world will add almost 2bn more people over the next 25 years? Actually, in the next 23 years, because this prediction – cited in a Celanese brochure – begins in 2010. Sources are the World Bank and the International Energy Agency (IEA).

The institutions’ logic is understandable, but doubtful. The global population now, according to a number of reputable sources, is about 7bn. Twenty-five years ago, in 1987, it was 5bn

The World Bank and the IEA apparently see population growth in terms of simple arithmetic: 5bn+2bn=7bn in 2010, so 7bn+2bn=9bn in 2035. But it seems a safe bet that they are wrong.

The world has added 2bn people in the past quarter century, but it took almost three-quarters of a century before that to add the same number. A safe bet is that it will take either not as long or longer than the institutions’ prediction to add another 2bn.

For what it’s worth, the United Nations Population Division projects that the world population will not reach 9bn until after 2050, or at least 15 years later than the World Bank’s projection. Why?

A recent column by David Brooks in the New York Times postulated that the world is in the midst of a “fertility implosion,” with nearly half the global population living in countries with birthrates below the replacement level.

Brooks cited a prediction from the US Census Bureau that the rise in global manpower between 2010 and 2030 will be just half the increase in the two decades just ended.

Another prediction is that more than 4bn of the world’s population will by 2035 ascend to the middle class, mostly in the developing world.

This is really about China and India, which each have 1bn-plus populations and are in the midst of rapid development.

Forbes magazine recently said the middle class in China is already larger than the entire population of the US, and that it will grow to be four times as large as the American middle class by 2030. Some predictions about the future are startling until you ask the first question, which in this case should be, what is middle class?

Put a number on whatever it is you consider to be the cost of a middle-class lifestyle. Now consider the IEA’s definition of middle class, which is someone who lives on $10 (€7.50) to $100 a day for living expenses.

Who lives on $10 a day, or $3,650 a year, and claims to be middle class? A few hundred million people in China, according to a study last year by the Asian Development Bank (ADB). It estimated that 300m Chinese live on $10–20 a day. To speak of a global middle class and billions of people rising into it requires a broad expansion of the category.

China’s middle class is expected to grow exponentially by 2035. But what is startling about this projection is that China’s total population growth may be just 4% to 1.387bn in the quarter century to 2035.

The rising tide that lifts all ships will be at work economically speaking, but China’s overall population will see little or no growth.

In the latest issue of urban-policy magazine, City Journal, demographer Joel Kotkin says China now has a fertility rate below the replacement level, at 1.6, which is even lower than Western Europe. (Demographically, replacement level is what it takes to replace the people who die and is generally considered to be 2.1. Demographers say a couple have to produce two children to replace themselves, allowing for the possibility that one of the children will die.)

Brooks refers to a “grey tsunami” of those aged 60 and older overtaking the world, and China may face the brunt of the wave. According to the United Nations and the US Census Bureau, by 2025 China will be home to almost 25% of the world’s over-65 population, but with less than 20% of the world’s total population.

Another eye-opening fact from the conference put the energy required for food production into context.

Each calorie of food we consume requires an average input of five calories of fossil fuel, and for high-end products like beef this rises to an average of 80 calories.

This statement, from the World Economic Forum, is one of those statistics that seems to convey the message in spite of the way it is written. The idea is that we use up so much energy – and that we had better keep producing fuel (of the fossil variety) because we use so much – simply to eat.

Fossil fuels provide the fertilizer, run the machines and refrigerate the food. But this is something that gets lost in translation when the talk turns to an average input of five calories of fossil fuel.

Thanks to lower natural gas prices, US households will save an average of $926 per year in disposable income between 2012 and 2015, according to information provider IHS. This is one to remember, based on falling natural gas prices in the US.

Front-month natural gas futures prices have dropped 38% in the past year and 23% year to date in 2012, according to the US Energy Information Administration (EIA). Natural gas is a major power source for the utility industry.

The average cost of natural gas delivered for electric utilities in December 2011 fell 22% from the cost in December 2010, according to the EIA. So the trend is in place.

($1 = €0.75)

Read Paul Hodges’ Chemicals and the Economy blog
Bookmark John Richardson and Malini Hariharan’s Asian Chemical Connections blog

By: Lane Kelley
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