Emerging economies to drive surge in global energy demand by 2050

PHILLIP ISAKPA 

Global energy demand is growing faster than projected and a surge in this demand by 2050 is expected to be driven by emerging economies, a recent report by McKinsey & Company, the international management consultancy has stated.

The report, “Global Energy Perspective 2024”, which it describes as presenting a data-driven view of the possible road ahead as the global energy transition enters a new phase, noted that the growing energy demand will continue to increase to 2050.

Two global energy demand growth trajectories of 11 percent and 18 percent are projected in the ‘Continued Momentum’ scenario and in the ‘Slow Evolution scenario’, respectively, the report stated.

According to McKinsey in the report, “Global energy demand is growing faster than expected and a more challenging geopolitical landscape — combined with the emergence of new sources of demand and smaller-than-expected efficiency gains — means the evolution of demand growth could see rapid changes in unexpected directions.”

The McKinsey report said emerging economies will be responsible for most of the projected growth, noting that this would be because these are places where growing populations and a strengthening middle class will result in higher energy demand. 

It also stated that the relocation of manufacturing industries from mature to emerging economies will further shift demand to these economies.

Developments in emerging economies, particularly ASEAN countries, India, and the Middle East, are critical, given that these regions are projected to drive between 66 and 95 percent of energy demand growth to 2050, depending on the scenario, the McKinsey report disclosed.

ASEAN countries will account for a substantial part of this growth, the report authors wrote, adding that this will cement the region as a key energy demand centre, which is then expected to further reshape global energy trade flows and increase the region’s geopolitical importance.

“In mature economies, as well as in China, overall demand is projected to flatten in the short to medium term. However, there are several forces at work that could affect the demand trajectory in different regions. In the United States, industrial resurgence would drive demand growth through electrification, while in Europe, by contrast, continued deindustrialization would lead to declining demand in the region,” the McKinsey report stated.

The rise in energy demand is expected to present challenges to the energy transition, in terms of how the world will meet the projected increase, the report stated. 

According to the report, both RES (Renewable Energy Systems) and new fossil fuels build-out will be required to ensure demand is met by supply, and nuclear power could play a bigger role in the years beyond 2050. 

“However, for all these energy sources, lengthy project timelines and higher interest rates could add costs and put project execution at risk,” the report noted.

The report also identified the growth in electricity demand, which has been on for decades. According to the McKinsey report, electrification is accelerating, noting that, “Our analysis suggests that, between 2023 and 2050, electricity consumption could more than double in slower energy transition scenarios, and nearly triple in faster scenarios.”

The report authors noted that this is in comparison to total energy consumption growth of up to 21 percent over the same period. Electricity is projected to become the largest source of energy by 2050 across scenarios, with consumption coming from traditional sectors (for example, electrification of buildings), as well as newer sectors (such as data centres, EVs, and green hydrogen).

McKinsey noted that while electrification is accelerating, its analysis suggested that, between 2023 and 2050, electricity consumption could more than double in slower energy transition scenarios, and nearly triple in faster scenarios. 

“This is in comparison to total energy consumption growth of up to 21 percent over the same period. Electricity is projected to become the largest source of energy by 2050 across scenarios, with consumption coming from traditional sectors (for example, electrification of buildings) as well as newer sectors (such as data centres, EVs, and green hydrogen),” the report stated.

The report explained that of the new demand centres for energy consumption, the most striking is the rise of artificial intelligence (AI) and the associated boom in data centres.

“The effect that AI could have on future energy demand could vary substantially depending on the growth trajectories of its many applications, as well as those of other technologies. Our research estimates that the rise of cloud solutions, cryptocurrency, and AI could see data centres accounting for 2,500 to 4,500 terawatt hours (TWh) of global electricity demand by 2050 (5 to 9 percent of total electricity demand),” said the report.

It noted that data centres are mostly powered by electricity (with backup generators) and have constant demand, creating greater need for gas or other firming sources of energy to balance out the intermittency of renewable energy sources (RES).

McKinsey also explained that under the “Continued Momentum scenario,” global green hydrogen consumption is projected to increase to 179 megatons per annum (Mtpa) by 2050, up from less than 1 Mtpa today and 5 Mtpa in 2030. This could lead to a growth in power consumption of 20 percent per year for the sector.

Also, the report said electricity consumption in transport could grow by around 10 percent annually in the Continued Momentum scenario, driven by increased penetration of EVs. 

Battery electric vehicles (BEVs) are projected to account for most global passenger car sales by 2050, up from 13 percent today, it explained.