Energy Shots #114:

Downstream from Deregulation

2024’s US election outcome signaled a ‘rebalancing’ shift towards energy policies that prioritize cost and security — basic components of the Hierarchy of Energy Needs.

The collapse of ‘transition-only’ governments like Germany’s Traffic Light Coalition shortly after the US election suggests these balanced policies will likely filter through to more nations within the wealthy, western world.

Meanwhile, a regulatory environment centered around the Hierarchy of Energy Needs likely poses the greatest downstream benefit to the ~7 billion of Earth’s inhabitants that lack reliable access to basic necessities and social infrastructure like clean water, electricity, healthcare, education, and transportation.

As longtime Energy Shots readers are familiar, incremental changes in the access to these basic needs on a per capita basis translates into substantial resource demand growth when multiplied across nations with hundreds of millions or billions of constituents.

• For example, India’s per capita oil consumption grew from 0.41 barrels/year in 1985 to 1.39 barrels/year in 2023. That 1 barrel/capita per year change translates into total oil consumption gaining from fewer than 900,000 barrels per day in 1985 to 5.4 million bpd in 2023.

The ‘accessibility gaps’ in developing markets are increasingly relevant considering near-term efforts to strip regulatory hurdles from US energy markets — sustainably expanding the US’ capacity to export energy molecules requires the multiplier effect of per capita demand growth in large developing nations.

In line with this theme, Energy Shots #114 takes a closer look at another underappreciated source demand growth in developing regions: air conditioning.

Crossing the Air Conditioning Gap

As shown below, the U.S., Japan, and Korea are home to approximately 1.25 air conditioning units per person. However, over 70% (5.67 billion) of the world’s population live in regions with fewer than 0.25 AC units per capita.

Approximately 91% of Japanese households, 90% of US households, and 86% of Korean households have access to air conditioning. This drops to an estimated 9% for Indonesian households and 5% for Indian households — two countries that represent nearly 22% of the world’s population.

While some regions have low AC adoption due to mild weather, many of the countries with the greatest cooling demand have the lowest access to air conditioning.

• Less than 20% of inhabitants have access to air conditioning in nine of the top ten countries with the highest population-weighted cooling demand.

Why it matters:

Many of the countries driving global economic growth are also located in equatorial, hot/humid climates. India and Indonesia are among the fastest-growing markets for air conditioning adoption and (therefore) electricity consumption for space cooling.

• China purchased approximately 38% of the 124 million AC units sold globally in 2023. India and Indonesia purchased 7.5% and 2.2%, respectively. Established, wealthy markets like the US purchased fewer than 1% of all air conditioning units sold in 2023.

As noted above, incremental changes in per capita access to utilities like air conditioning translate into material demand growth when multiplied across large populations.

Again, fast-growing markets like India provide a clear example. India’s electricity consumption from air conditioning increased 21% between 2019 and 2022 to reach 10% of total electricity demand despite low (<20%) AC access across 1.4 billion people.

• Indian officials forecast electricity consumption from air conditioners to jump from 190 TWh in 2023 to 600 TWh in 2038 — equivalent to 43% of India’s total electricity consumption last year.

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Note: The next Energy Shots will publish on December 8th.

All at Mobius wish you save travels and a Happy Thanksgiving!

ES.

This commentary contains our views and opinions and is based on information from sources we believe are reliable. This commentary is for informational purposes, should not be considered investment advice, and is not intended as an offer or solicitation concerning the purchase and sale of commodity interests or to serve as the basis for one to decide to execute derivatives or other transactions. This commentary is intended for Mobius clients only and is not considered promotional material.