Energy Use in Industry
As mentioned above, the rise of the middle class in new economies drives industrial production. The interconnectedness of the world economy, also called globalization, contributes to accelerate this phenomenon as it facilitates the access of new economies to equipment and goods manufactured anywhere. The consequence is a sharp rise in industrial production and therefore of energy consumption.
Energy consumption by industry is about 3400 megatons of oil equivalent (Mtoe) per year, about a third of total energy consumption. About 30 % of this amount corresponds to the “energy used by transformation industries and the associated energy losses in converting primary energy into a form that can be used in the final consuming sectors” (© OECD/IEA, WEO 2012). This means that the “final” energy consumption by industry is around 2400 Mtoe (© OECD/ IEA Explore 2014), about one third of the total final energy consumption. In this chapter, we shall focus on this “final” energy consumption.
The industry sector in Asia (including China) now represents 50 % of world energy consumption, almost double the 30 % two decades ago. The combined share of Europe and North America, which was 40 % in 1990, has dropped to 28 % today (© OECD/IEA, OECD 2012; © OECD/IEA, Non-OECD 2012; © OECD/IEA, WEO 2012). The significant increase of industrial production in Asia (and its energy consumption) is due to the fast development of Asian economies in recent
Fig. 2.5 Worldwide industry consumption (© OECD/IEA, OECD 2012; © OECD/IEA, Non-OECD 2012; © OECD/IEA, WEO 2012)
Fig. 2.6 Energy efficiency in industry (© OECD/IEA, OECD 2012; © OECD/IEA, Non-OECD 2012; © OECD/IEA, WEO 2012)
years as well as the globalization of trade. An economic transition is surely in progress (Fig. 2.5).
Energy efficiency can be measured by the volume of GDP generated by a ton of oil equivalent (toe). It varies strongly between geographies. Europe and North America show much higher energy efficiencies than the rest of the world. The Middle East, Eurasia, China and India have the lowest efficiencies. This ratio does not only demonstrate the efficiency of industrial production, but also that energy efficiency varies strongly across industry segments. The energy required to operate a steel plant is of no comparison to that of a machine or a car production plant. As a result, energy efficiency of the different regions is very much linked to the mix of industrial activities of those regions (Fig. 2.6).
Fig. 2.7 Industry consumption per segment (© OECD/IEA, OECD 2012; © OECD/IEA, Non-OECD 2012)
The main energy-intensive industries are iron & steel, petrochemicals, and mining, metals and minerals (steel, aluminum, various metals, cement, etc.) (© OECD/IEA, OECD 2012; © OECD/IEA, Non-OECD 2012). From an energy standpoint, the mostly energy-intensive operation is the transformation of primary resources to the materials used for the production of goods and equipment (Fig. 2.7).
Almost half of the final energy consumption is used in primary industries such as iron & steel, petrochemicals, and mining, metals and minerals. The steel industry alone represents 18 % of the total final consumption, while petrochemicals consumed 14 % of the total. Other industries are less energy-intensive, but in practice they use the materials and chemicals produced by the transformative industries. Their total energy intensity is therefore dependent on their own consumption of such materials.
The differences in energy efficiency across regions are thus primarily the result of the industrial mix of these geographies. Steel and mineral industries as well as non-metallic minerals industries (cement) dominate in China (© OECD/IEA, OECD 2012; © OECD/IEA, Non-OECD 2012), and account for about half of the associated world energy consumption. The weight of petrochemicals-related energy consumption is more balanced across regions. Regions with high consumption of oil-related products such as China, North America and Europe have a higher number of facilities and therefore sizeable shares of world energy consumption (Fig. 2.8).
Fig. 2.8 Industry consumption per segment & region (© OECD/IEA, OECD 2012; © OECD/ IEA, Non-OECD 2012)
Fig. 2.9 Energy mix per segment (© OECD/IEA, OECD 2012; © OECD/IEA, Non-OECD 2012)
Energy consumption by industry comes in main part from fossil resources, at about 63 % of the total. This share is even stronger when one considers that the electricity used in the various industrial processes is produced essentially from fossil fuels (coal and gas).
The steel segment is highly dependent upon coal (60 % of total primary resources’ consumption); the chemicals and petrochemicals industry uses 30 % of natural gas, and 15 % each of coal and oil (Fig. 2.9).
The development of new economies will bring about a significant increase in industrial activity and therefore of energy consumption (© OECD/IEA, OECD 2012; © OECD/IEA, Non-OECD 2012). The International Energy Agency estimates that it could increase by as much as 45 % in the next 25 years, which corresponds to an annualized growth of around 1.5 %. The transformative industries’ energy consumption is expected to increase at the same time by 24 % to reach 1700 Mtoe, or 33 % of the total industry sector’s energy consumption. All in, the total energy consumption of industry as a whole is set to grow by around 35 %. Other sources present similar forecasts around 32-35 % of growth in the coming decades (Exxon Mobil 2016; Shell 2016) (Fig. 2.10).
As already explained, Asia’s share of total industrial production has risen sharply in the last 20 years while the combined share of Europe and North America has dropped over the same period. This trend will continue during the next two decades, as Asia becomes the “workshop of the world”. Consequently, 73 % of the energy demand in industry shall come from Asia in the next 20 years, with the rest of the demand coming from Latin America, Middle East and Africa. These three regions have rising energy needs, and their competitive positioning will improve while living standards and therefore the cost of living increase in Asia, in particular China.
Primary resources consumption is thus set to increase, even though the energy mix will change. The share of coal will slowly decline (although the demand will increase in absolute value) as it is partially replaced by electricity and gas in heat production processes. The demand for electricity and natural gas will grow significantly in the next 20 years. Also, natural gas will grow its share in overall electricity production vis-a-vis coal (Fig. 2.11).
Fig. 2.10 Evolution of industry energy consumption (© OECD/IEA, OECD 2012; © OECD/ IEA, Non-OECD 2012; © OECD/IEA, WEO 2012)
Fig. 2.11 Evolution of industry consumption per source (© OECD/IEA, OECD 2012; © OECD/ IEA, Non-OECD 2012; © OECD/IEA, WEO 2012)
Rising living standards lead to sharply increasing industrial activity worldwide. Trade globalization engendered the displacement of industrial production to Asian countries (particularly China), which consequently developed a very large base for industrial production and know-how, and which also allowed the absorption of rural populations by cities and therefore the progressive emergence of a middle class. Consequently, industrial production increased considerably. The associated energy consumption is expected to rise by another 45 % within the next 20 years (or 35 % if we include transformative industries). This sharp increase will likely occur mainly in Asia, which will represent 73 % of the total increase. The energy mix of coal, gas, oil, and electricity will transform progressively towards a higher share of electricity and natural gas versus a declining share of coal and oil.