IEEJ： October 2014ｃ
○ IEEJ 2014

Special Bulletin
A Japanese Perspective on the International Energy Landscape (192)

October 29, 2014

Lower China and India Growth Scenario and Implications for International
Energy Situation
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
Conventional wisdom tends to indicate that the center of gravity of the internationalenergy market will shift to Asia in line with economic growth and development in Asian emerging
countries including China and India. While industrial economies slumped after the Lehman Shock,
China and India maintained high growth serving as the driver of world economic and energy demandgrowth. In this sense, it is no exaggeration that the two countries have persistently increased theirpresence in the world since 2008. In their long-term energy market outlooks, the International
Energy Agency, the Organization of the Petroleum Exporting Countries and the U.S. Energy
Information Administration agree that energy demand growth in China and India will be the largest
factor behind global energy demand expansion.
On October 22, the Institute of Energy Economics, Japan, released the Asia/World Energy
Outlook 2014. The outlook provides the Reference Scenario (for the continuation of present globaltrends for energy policies and technologies) where the average annual gross domestic productgrowth between 2012 and 2040 is assumed at 5.4% for China and 6.2% for India, against the global
average of 3.0%. Under the GDP growth assumption, global primary energy demand will increase by
44% from 13.4 billion tons of oil equivalent (Btoe) in 2012 to 19.3 Btoe in 2040. Of the global
increase at 5.9 Btoe over the period, China and India will account for 2.6 Btoe or nearly a half. Thecombined increase in China and India is equivalent to the present combined U.S. and Japaneseenergy consumption, indicating how large the influence of China and India is on future global energy
demand.
But the two countries’ large share of global energy demand growth means that unexpectedchanges in their future demand growth could have great impacts on global energy supply anddemand as well as on markets. In this respect, possible lower growth in the two countries(particularly China) and its potential impacts on energy markets are attracting attention. This isbecause downside risks for the Chinese economy have become a matter of concern due to theChinese growth rate’s deceleration from more than 10% to the recent levels below 8%, shadowbanking and housing bubble problems, and social and economic inequalities. Given such situation,
the outlook gives a lower economic growth scenario assuming the average annual GDP growth rate1

IEEJ： October 2014ｃ
○ IEEJ 2014

through 2040 at 3.9% for China and 5.3% for India. It also analyzes the Lower Growth and ReformScenario where the two countries will promote a shift to advanced, services-oriented economies(which will have a positive impacts on employment issues) and low-carbon measures regarding
energy supply and demand even under lower growth.
As a result, energy demand growth in China and India could decline remarkably. In theLower Growth and Reform Scenario, the two countries’ combined energy consumption will increase
from 3.7 Btoe in 2012 to 4.5 Btoe (against 6.3 Btoe in the Reference Scenario) in 2040, with thegrowth through 2012 being some 70% less than in the Reference Scenario. Particularly, China’s
energy consumption will peak out around 2020 and decline gradually later. Coal demand, which
accounts for a great share of the two countries’ energy demand, will post far slower growth than in
the Reference Scenario. In the Lower Growth and Reform Scenario, their coal consumption in 2040
will be less than in 2012. Growth will also be reduced remarkably in demand for other fossil fuels
including oil and natural gas.
Naturally, the slower demand growth will largely and structurally affect energy supply anddemand in China and India. Given that the two countries are expected to grow more dependent onenergy imports covering a gap between domestic production and demand due to future demand
growth, any decline in their demand growth will hold down their dependence on energy imports,
contributing to their energy security. Since coal sees the largest demand growth decline among
energy sources, the Lower Growth and Reform Scenario is significant for the two countries’
reduction of greenhouse gas emissions, air pollution and overall environmental load. In this way, thescenario indicates that progress in structural reform of the economy, and energy supply and demand
under lower growth will allow the two countries to maintain employment even under slower growthand improve the quality of economic growth while benefitting from positive effects regarding energy
and environmental problems.
But lower economic growth in China and India will exert great impacts not only on thetwo countries but also on the whole of the world. Lower growth in the two countries as the driver ofglobal economic growth will have negative impacts on the world economy. Particularly, negative
impacts will be greater on net oil and gas exporters that depend heavily on exports to the twocountries, including Middle Eastern oil producing countries and former Soviet republics such asRussia. If net oil exporters reduce exports in a manner to share the decline in the two countries’
demand growth in the Slower Growth and Reform Scenario, the Middle East’s net oil exports in
2040 may be 2.5 million barrels per day less than in the Reference Scenario. If the Middle East alone
serves as a swing supplier to adjust supply in response to the demand growth fall, with other net oil
exporters doing nothing particular, the region’s net oil exports will be 6.9 million bpd less than in theReference Scenario. As for natural gas exports, a negative impact will be particularly large on theformer Soviet Union (including Russia). This point is significant because Russia is deepening
cooperation with China due to the tense Ukraine situation and Western economic sanctions.
2IEEJ： October 2014ｃ
○ IEEJ 2014

As a matter of course, the energy demand growth decline in China and India will have not
only such negative impacts but also positive impacts on energy consuming countries as the demand
growth drop eases the international energy supply-demand balance to lower oil, gas and coal prices.
A substantial decline in global GHG emissions through a substantial drop in growth in demand forenergy including coal in China and India will make great positive contributions to solving theclimate change problem. In this way, the future energy situation for China and India will exertcomplicated and large impacts on the world. It will be very important to figure out these impacts. In
the future, global interests will grow in the two countries’ medium to long-term economic growth asindicated by the present situation.

Contact: report@tky.ieej.or.jp
The back issues are available at the following URL
http://eneken.ieej.or.jp/en/special_bulletin.html

3