Industrial energy markets
Industrial energy markets refer to the sectors engaged in the production, distribution, and consumption of energy for industrial purposes, heavily influenced by global trends, regulation, and technology. As industrial energy demand is projected to shift from developed to developing nations, these markets will continue to rely significantly on fossil fuels while seeking improvements in energy efficiency. The evolution of deregulation since the 1980s has transformed energy purchasing practices, allowing more competition and alternative energy sources to emerge. In response to environmental regulations and fluctuating fossil fuel prices, industries must adapt to changing technologies and market conditions.
The industrial sector accounts for a substantial portion of global energy consumption, with varying needs depending on the specific economic activities, such as manufacturing, mining, or agriculture. Energy efficiency is vital for maintaining competitiveness, particularly as energy costs rise. For instance, the U.S. industrial sector has made advancements in reducing energy intensity over the decades. In Europe, the move towards an integrated energy market aims to foster competition and enhance consumer choice, while also promoting cleaner energy sources. Despite the growth potential of renewables, fossil fuels are expected to remain predominant in the industrial energy landscape for the foreseeable future.
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Industrial energy markets
Summary: In the future, industrial energy demand is expected to shift from the developed world to the developing one. Industrial energy markets will remain heavily dependent on fossil fuels and competition will intensify the search for fuel and for improvements in energy efficiency.
Since the 1980s, deregulation has altered the ways in which energy is bought and sold. In 1970, natural gas and power utility prices were regulated. Energy was a fixed cost, and management of energy was a matter of paying bills to avoid late fees. Air quality regulations in the 1970s reduced demand for high-polluting fossil fuels and boosted demand for environmentally friendly sources. Periodic disruption of world fuel supplies intensified the domestic search for alternatives. Industrial energy users today must be aware of changing technology, volatile markets, and environmental restrictions. Furthermore, energy independence hinges on efficient and maximized use of internal sources as the world market becomes more competitive and supply stretches thinner compared to demand. Environmental demands for reduced emissions of carbon dioxide hit industry most conspicuously. Countries that are part of the Organization for Economic Cooperation and Developed (OECD) countries use more energy than other countries. Experts predicted that from 2012 to 2040, OECD's industrial energy use would grow by 1.5 percent a year, compared to 0.5 percent a year for non-OECD countries.
The United States uses more than 93.5 trillion British thermal units (Btu) of energy annually, 35 percent for industry. In 2023, the US industrial sector consumed 26.1 quadrillion Btu. Electricity was a major source of energy in fabrication and assembly, and coal use was less than biomass and other renewables. The primary energy sources remained fossil fuels, especially natural gas and petroleum.
According to the US Energy Information Administration (EIA) in 2023, world industrial energy consumption was expected to increase by more than 30 percent between 2018 and 2050, ultimately reaching a peak of approximately 315 quadrillion Btu. Energy use varied by sector—whether manufacturing, agriculture, construction, or mining—and industrial demand varied depending on level and variety of economic activity, technological development, and so on. Industry used energy to process materials, assemble parts, create a comfortable and well-lighted work space, and conduct the other activities needed to generate its products. It used gas and petroleum as feedstocks for plastics and other nonenergy products. The industrial market consumed roughly half of the total energy used by the world.
As energy prices increase, manufacturing competitiveness with the world becomes an issue. Since the 1970s, OECD manufacturing output has doubled, while energy use has remained constant, but most of the improvement came between 1973 and 1986 in response to high oil prices.
Efficiency is critical in the energy-intensive industrial sector, because energy prices have trended upward since the oil embargo of 1973, when gasoline prices spiked during the Arab oil embargo; more significant, this crisis served as a wake-up call for heavy industrial users. Since that time, US industry has been making significant strides in energy efficiency, reducing the amount of energy used per dollar’s worth of goods (energy intensity) by 50 percent between 1970 and 2003 (from 9.13 to 4.32 thousand Btu) and achieving an estimated end-use efficiency of 80 percent by 2015. These increases come from both improved efficiency and changes in the economy, such as consumers buying fewer energy-intensive products and manufacturers moving energy-intensive manufacture offshore.
In 2001, Germany had the most energy-intensive industry in Europe. It quickly and completely liberalized its energy markets. The liberalization was seen as a potential model for the rest of Europe. Clearly, it provided business opportunities for international providers of energy. Almost half of industrial users either switched electricity suppliers or were expected to do so. For natural gas, one-third switched or were prepared to do so. Especially volatile were chemicals, metallurgy, paper, and automotive. The preference for specialized rather than multienergy providers was strong for a time, with 57 percent desiring the specialized and 43 percent the multienergy option. Even so, 78 percent of users were receptive to proposals. Outsourcing of energy management occurred in 15 percent of industrial users, particularly in glass and metallurgy. Increasingly, the customer expected service along with an energy supply as deregulation made possible more options for power generation.
The European Union (EU) gradually embraced an integrated energy market design. That design, which includes a cross-border infrastructure allowing energy produced in one country to be delivered to consumers in other countries, is intended to maximize flexibility and competitiveness and make operations as customer-centered as possible. It accomplishes all this by encouraging clean energy, promoting competition to keep prices in check, allowing customers to choose their energy suppliers, and improving transparency and regulation.
Texas’s natural gas is also among the most expensive in the world. Natural gas is feedstock and fuel for the chemical industry. Texas energy-intensive industries east of the Interstate 35 corridor, chemical manufacturing and refining in particular, are significant generators of air pollution, specifically nitrogen oxides. High fuel prices and costly pollution controls mean that Texas’s chemical producers are hard-pressed to compete in a deregulated world market. To better compete, Texas and other states joined the BestPractices subprogram of the Department of Energy’s Industrial Technologies Program. BestPractices coordinated research and development and dissemination of information about energy-saving practices for industry.
The Industrial Technologies Program also provides grants, such as the one for waste energy recovery and energy-efficient industrial energy-generating technology. Cogeneration is emphasized because it maximizes fuel efficiency—up to 80 percent—by allowing energy production while also repurposing what would otherwise be waste energy for heating and cooling.
In 2023, solar power constituted just over 5.5 percent of world energy. Solar was not yet competitive with conventional energy, lacking grid parity. The market was expected to grow with increasing worldwide demand. Another forecast for world energy markets has emphasized nanotechnology, using microgeneration with storage in thin film batteries. Improvements in renewable energy generation and storage mean that wind and solar power could supplement power from the grid. Costs have remained prohibitive for industry (nearly three times the level that would make it competitive), so solar power has remained primarily a residential or vehicle option.
Because fuel prices determine fuel choice, the share of more expensive liquids will decrease as the share of electricity generated from cheaper sources grows. Over time, the total OECD liquid use for industry will fall and non-OECD will rise, as will the coal component.
In 2035, OECD countries were expected to use 38 quads for industry, while non-OECD countries were predicted to use 26 quads. Renewable energy would increase from the 13 quads for nonelectricity-generation worldwide. That would be 7 percent of the total, which should rise to only 8 percent, meaning that the industrial energy markets would remain heavily dependent on fossil fuels and competition would intensify the search both for fuel and for improvements in energy efficiency.
Bibliography
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Kahan, Ari. “EIA Projects Nearly 50% Increase in World Energy Usage by 2050, Led By Growth in Asia.” US Energy Information Administration. September 24, 2019.
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