Energy & Power

Per capita energy consumption will continue
to decline

The past year has seen unprecedented developments in both the world economy and the global energy market. At the onset of 2008, the outlook for the energy sector was quite upbeat. After hovering around $100 per barrel in the final months of 2007, crude oil prices were still rising. There was hardly any sign of a significant correction in the near to medium term. Constrained supply and increased energy demand from developed nations and emerging markets such as China and India were supposed to extend support at those price levels. A weakened dollar and falling interest rates in the U.S. were likely to maintain commodity market investments. Furthermore, energy demand was thought to be sufficiently inelastic to resist any downward pressure from a possible economic downturn. A year later, following the U.S. financial crisis and deepening of the global recession, a diametrically contrasting view appeared – that the shape of the energy sector is critically dependent on the state of the economy. Put in perspective, 2008 was a year of revelation for the major oil producers, if not for those heavily dependent on them.

However, the year may be best remembered for the record tumble in crude prices and the sharp volatility in all forms of traded energy. Crude prices reached a simmering $147.27 a barrel on July 11, 2008, but plummeted below $50 in late November, its lowest point since May 2005. Natural gas prices also retreated sharply by the end of the year.

As world’s largest energy consumer, the U.S. is bound to suffer a considerable drag on its economy from such major swings in oil prices. It was all the more difficult in 2008 as the U.S. government had to tackle both the inflationary and knock-on effects of the crude price rise, standing on the brink of an economic recession. However, the U.S.is also one of the world’s largest producers of all energy forms, and is in the forefront of developing a sustainable energy policy; a global quest that aims to reduce its dependence on fossil fuels. As such, the current global economic downturn should not be allowed to jeopardize the long-term objectives of the U.S. Energy & Power industry: meeting the increasing demand, addressing climate change, and reducing foreign dependence, among others.

Energy consumption tends to vary inversely with energy prices, especially crude oil. In the U.S., despite the steady increase in overall consumption per capita, energy consumption has remained relatively stable since 1980 within the range of 310 to 360 million Btu. According to the Energy Information Agency (EIA) projections, oil prices are expected to remain high over the projection period (2007-30) leading to a drop in per-capita energy consumption below 310 million Btu in 2020 and a slower decline in consumption thereafter until 2030. Also, improvements in energy efficiency and more stringent lighting standards are expected to reduce consumption. Moderate growth in Gross Domestic Product (GDP) and a drop in industrial energy use per dollar of output (assuming that less energy-intensive industries would provide a growing share of GDP) are also expected to contribute to a decline in per-capita energy consumption.