3 Drivers Of Global Energy Demand Everyone Must Know
What is driving global energy demand?
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Every year, the world consumes a significant amount of energy. This energy is used not just to power our homes but also to power our transport and the fuels used for industrial purposes. Beyond the energy used by different sectors—household, industry, transport—regional trends also play a significant role in energy demand—a term used interchangeably with energy consumption to refer to the energy used, often varying across key countries. For instance, China and India were the top two countries with the most significant growth in energy demand in absolute terms in 2024.
Last week, the International Energy Agency released its Global Energy Review 2025— a flagship document that helps us understand these dynamics more closely. The review by the IEA is the first global assessment of trends across the energy sector. The data is sourced from trusted sources such as power system operators worldwide, statistical releases from national energy administrators, etc., making the insights from the report significant to understanding how energy is consumed across the work. This publication is distinct from the World Energy Outlook, which the IEA releases annually, a long-term outlook based on future scenarios.
Among the many insights in the new report, three trends in global energy demand particularly stand out. They are interesting because they impacted last year's trends and offer a glimpse into the hotspots of energy demand in the coming years. Therefore, experts, innovators, policymakers, and the private sector should watch out for these areas to help address future challenges in energy demand.
The past year was the hottest year the world experienced. In addition to the gradual increase in temperatures due to climate change, the increase in extreme heat can also be attributed to El Nina, which causes the warming of the waters in the Pacific Ocean every few years.
People use more air conditioners to cope with the heat, increasing energy demand. Cooling needs were roughly 20% higher last year compared to the long-term average between 2000 and 2020, according to the new IEA report. India, China and the US were three regions with high cooling demand.
There is a direct connection between cooling demand and coal use. The increase in temperature accounted for almost the entire growth in coal demand last year, according to the new IEA report. This increase in demand happened because some countries rely on coal-fired power plants to meet the surge in power demand on hot days.
The increase in coal use to meet the surge in energy demand for cooling underlines the need to think of innovative ways to make cooling needs more clean. There is potential to make cooling more efficient. India and China will account for over half of the total stock of air conditioners by 2040. Some older estimates of IEA suggest that by the year 2050, efficient cooling can reduce the global energy demand for cooling by 45%.
Data centers are emerging as significant consumers of global energy demand, with growth concentrated in a few countries. The installed capacity of data centers has increased by 20% in the last year, mainly in the United States and China, according to the report.
Although the IEA report released last week does not explore energy used by data centers in as much detail, earlier reports by IEA raise concerns about the potential impacts of energy demands from these centers for the power sector and the need to keep a closer watch on how they evolve. A report released last year by IEA mentioned that large hyper-scale data centers have an annual electricity consumption equivalent to the annual energy consumption of 350,000 to 400,000 electric cars.
These centers account for only about 1% of global electricity consumption today, but the impact can be significant at a local level—something to watch out for. In some countries, such as Ireland, electricity use from data centers is already a big part of total electricity demand, accounting for over 20% of all electricity consumption, according to last year's report. On the other hand, data centers in large economies like the United States, China and the European Union account for only around 2-4% of total electricity consumption today. However, their local impact can be pronounced because they tend to be spatially concentrated. The sector has already surpassed 10% of electricity consumption in at least five US states.
Although overall oil demand slowed, petrochemical feedstock emerged as a key driver in the sector. Oil came down to less than 30% of the energy demand 50 years after peaking at 46%, according to the report. The slowing down is attributed to many reasons, such as post-pandemic ease-out and the increase in the impact of electric vehicles. Petrochemical demand in oil consumption, increased by 12% over the previous five years, with growth primarily concentrated in China. Petrochemicals are used in products around us: plastic packaging is used for food, ammonia is used in fertilizers, synthetic rubber is used for tires, and many laundry detergents are used.
The Chinese petrochemical industry is driving the growth of global oil demand. From being nonexistent in the market, it now accounts for 50% of industrial growth in the space, according to a 2023 IEA report that analyzed the Chinese petrochemical industry.
The above petrochemical trend points to an interesting phenomenon: the future of oil is in petrochemicals. This a direction that some academic journals, such as this one in Energy Research & Social Science, have already started to point towards.
The dominance of petrochemical demand in driving oil demand also raises a crucial issue: fossil-based plastics may continue expanding as the energy system decarbonizes. Thus, the problem that needs to be tackled is gradually moving away from fossil use in the chemical industry towards greener alternatives. At present, options such as green feedstock are either unavailable or not yet cost-competitive at scale.
The three areas discussed above, from cooling and data centers to petrochemicals, are fascinating areas to keep on the radar for those interested in learning about the drivers of energy demand and the energy transition space. Addressing the challenges in these areas will lead the course of the future of energy transition and our ability to meet global climate goals.
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