Tuesday, May 8, 2018

Global Energy Consumption Appears to Have Begun The Inescapable Process of Rolling Over

Global primary energy consumption appears to be in the process of a secular roll over in demand...and this very much includes China.  However, due to the multitude of dynamics impacting price (beyond demand), I have no strong sense as to which way the price of energy will be heading.  I'm solely focused on the demand side.  To make the case for decelerating consumption, alongside innovation and conservation, I show total primary energy consumption (by region and by type) as well as the changing 15 to 64 year old population.  Make of it what you will.

Global Primary Energy Consumption (all energy used including oil, coal, natural gas, nuclear, plus renewable sources) is broken down by region in the chart below.  The story since 2005 has been declining consumption in North America, Europe, Eurasia offset by soaring Chinese consumption, rising Asia (x-China) and the Middle East, and far slower growth in Central / South America and Africa.  But since the chart below is too busy to glean much from, I'll break out each region below to show how this narrative is changing...

I show each regions total energy consumption (yellow line, quadrillion BTU's) versus the annual change in the 15 to 65 year old population (blue columns...this is no estimation through 2030 as this population has already been born and will simply take the current generations place.  These numbers also assume current rates of immigration/emigration are maintained).

The quantity and rate of core population growth seems to impact energy consumption and economic activity multiples beyond what the raw numbers would indicate, creating an exponential function in the creation of new housing, new infrastructure, new factories, new suppliers. etc. etc.  As this core population growth decelerates or outright declines, the multiplier effect declines or outright disappears.  Once that population growth multiplier weakens or is gone, a multitude of federal government and central bank activities are undertaken to cut interest rates, incent rising levels of debt, undertake monetization, etc., etc..

North America...Total energy consumption has been stagnating since 2000, when core population growth began decelerating.  Despite ZIRP, all the debt undertaken, and the massive growth in central bank balance sheets...total energy consumption (the best proxy for real economic activity) continues declining.
North America year over year change in energy consumption by energy type, 1984 through 2015.  2008 was just the start of the trouble, according the continually decelerating population growth and likewise for energy consumption.
Europe...Decelerating and now declining core population since '05 going hand in hand with declining energy consumption...and is likely to accelerate on the downside.  The population growth (chart below) already anticipates ongoing trend immigration...and absent a fast growing jobs base, high rates of immigration aren't likely to spur much economic activity or energy consumption growth.  Europe is in trouble with a capital "T".

Europe year over year change in energy consumption by energy type, 1984 through 2015.  The declines since '08 are a secular trend likely picking up speed.
Asia/Oceania (x-China)...again, a deceleration of core population growth being met with a stalling energy consumption.  A stall in total energy consumption is likely while the core population growth continues decelerating and the primary importers of the world (N. America/Europe/Japan) are outright declining.

Asia/Oceania (x-China) year over year change in energy consumption by energy type, 1984 through 2015.  The slowing growth since '08 is pretty clear and given the decelerating domestic and international growth...this decelerating growth is likely to be felt all over the world.
Eurasia...pretty much the former Soviet Union and the post Soviet rebound has ended with the now declining core population.

Eurasia year over year change in energy consumption by energy type, 1984 through 2015.

Middle East...Likely the most dynamic and positive region despite the clear, but relatively smaller, deceleration in core population growth.

Middle East year over year change in energy consumption by energy type, 1984 through 2015.  There does appear to be a little slowing in the growth of energy consumption visible in the year over year chart.  Given the slowing in the other regions and ongoing deceleration of population growth in the region, I'm betting on further relatively minor slowing in the rate of growth...but still growing.

Central and South America...different chart, same dynamics.

Central/South America year over year change in energy consumption by energy type, 1984 through 2015.  Like the Middle East, the situation will almost surely be worsening.

Africa...a miniscule total energy consumption rising in lockstep with a gargantuan population increase (consumption per capita, on a relative basis is incredibly low and shows no signs of  changing).  Africa's population growth simply isn't translating into any significant total level or growth in energy consumption.

Africa year over year change in energy consumption by energy type, 1984 through 2016.  The global secular slowdown seems to be negatively impacting Africa as despite the massive population growth, total energy consumption growth is decelerating.

China...China domestic dynamics are very clear (and adding in that the importers of 90% of China's exports are now likewise in decline)...and the clear deceleration in energy consumption in China is likely just getting started.

China year over year change in energy consumption by energy type, 1984 through 2016.  Clearly, China is attempting to reduce coal consumption by substituting renewable and natural gas but it is clear that the offsets are just replacing coal...as growth in energy consumption appears to have begun the topping process.  This is not likely to be a straight line but China has already deluged it's corporations and local governments with bad debt beyond belief...and the excess capacity is epic.  So, given this, perhaps a straight line fall should be the base case?!?
I'll be very curious given the significantly higher oil prices (dashed red line, chart below) if China maintains its commitment to reducing coal...or if relatively cheaper coal makes a comeback in China?
Lastly, perhaps it's worth mentioning there is quite probably a linkage between slowing energy consumption and slowing foreign held US Treasury debt (BLICS are Belgium, Luxembourg, Ireland, Cayman Island, Switzerland).  While the US continues to run twin massive trade and budget deficits...it sure isn't foreigners purchasing US debt any longer.  The story of who isn't buying, HERE, and who is, HERE.  This probably matters, a lot.
Just for reference, the charts below suggest which regions paired to which energy types are most likely to fall or sustain their consumption.

Coal consumption by region, 1980 through 2015.  Despite the goals to reduce carbon emissions...I'm betting on a resurgence in coal consumption if oil prices maintain (or surpass) the current $75/barrel Brent crude level.
Oil consumption, by region 1980 through 2015.  I've previously made the case for decelerating demand HERE.

Natural Gas consumption by region, 1980 through 2015.

Nuclear & Renewable energy consumption by region, 1980 through 2015.