Monday, April 23, 2018

Economic Growth Considered Through the Lens of Energy Consumption and Changing Populations

Once upon a time, skeptical analysts cross checked stated growth versus energy consumption...looking for discrepancies as fluctuations in energy consumption are a good proxy for the changes in real economic activity.  Nowadays, the model of printing highly politicized and/or skewed economic data has gone very global.  So, today I offer a couple broad variables to gauge global economic activity; 1) total primary energy consumption data by region, cross checked against 2) their consumer bases (the 0-65yr/old populations).  I break the world down into four different regions to gain a better vantage of the purported global recovery, as follows:
  • OECD (List of 35 nations) representing 17% of global population & 43% of total energy consumption
  • Combined Africa / S. Asia (S. Asia = India, Pakistan, Afghanistan, Bangladesh, Nepal, Bhutan, Sri Lanka, Maldives) representing 41% of global population & 9% of total energy consumption
  • China, representing 19% of global population & 22% of energy consumption
  • "RoW" or Rest of the World, representing 23% of global population & 26% of global energy consumption
The first chart below shows total global primary energy consumption in quadrillion BTU's from 1980 through 2015 according to the EIA (US Energy Information Administration).  The flattening in consumption since 2012 is plainly visible in the upper right and clearly detailed in the year over year columns in the lower right.  The arrows highlight minimal growth or outright energy consumption declines that were associated with recessionary periods.  The weakness of the current period since 2012 is unparalleled from 1980 on...and even more significant than the sharp but brief downturn of 2009.
Below, the year over year change in global energy consumption broken down by nuclear/renewable (green), natural gas (brown), coal (black), and petroleum (blue) total consumption represented by the yellow dashed line.
Looking at the primary energy consumption of the OECD regions (N. America, Europe, and Asia/Oceania) versus China and the combined Africa/S. Asia consumption.  The Chinese consumption moonshot is pretty obvious.
The next chart again shows global primary energy consumption (quadrillion BTU's), but broken out by regions.  As of 2015, the OECD nations are consuming less energy than during the 2009 global recession and in fact are using about 1% less than they did in 2000.  Meanwhile, China has increased total energy consumption about 200% since '00, the combined Africa / S. Asia have increased consumption by about 70%, and the RoW have increased by about 40%.  Quite noticeably, total global energy consumption is essentially unchanged from 2012 through 2016 as the OECD declines have offset minor increases across the other regions.

The chart below shows global primary energy consumption, by region, as a percentage of all energy consumed.  Noteworthy, the long declining OECD portion of total energy consumption, the more than doubling of Chinese consumption from '00, and the flattish consumption from Africa / S. Asia and the RoW.
Next, the EIA total energy estimations through 2040 (chart below).  All regions estimated to move from lower left to upper right.  I'm going to detail why these estimations are highly unlikely to be realized and why far lower consumption is probable.
So, lets cross reference...starting with the changing populations of the four regions (particularly the core 0-65yr/old populations) that drive spending, housing, jobs, credit utilization, and resultant energy consumption.

The 35 nations that make up the OECD represent 17% of global population but 43% of total primary energy consumption.  The OECD core population is now outright declining and by 2040, is estimated to see a 6% decline (this estimate includes and relies upon ongoing immigration at current levels).  This is also assuming birth rates and fertility suddenly, and unlikely, surge as the UN and Census have been wrongly projecting ever since 2008.  However, assuming birth rates and fertility continue their decade plus downward trend &/or immigration wanes, even more significant declines will ensue and the under 65yr/old population will be below the mid 1980 levels by 2040.OECD annual 0-65yr/old population change versus OECD actual and projected total energy consumption (chart below).  Despite the 50%+ fall in energy prices since peak consumption (way back in '07), OECD demand continues declining but is continually estimated to suddenly reverse and begin rising again by the EIA?!?  A secular decline of the population and energy consumpttion is underway and is likely to continue indefinitely.
19% of global population, 22% of global energy consumption.  China's core population began declining in 2017 but the pace of decline is accelerating, so much so that China is estimated to see a 10%+ core decline from '18 to '40 (but as with the OECD, this assumes a surge in fertility rate that is not happening (Termination of China's "One Child" Policy...Much Ado About Next to Nothing ) actual declines are likely to be significantly larger than 10%).  Growth, once as many as 20 million more potential core consumers annually, has turned to declines of millions every year...indefinitely.
China annual 0-65yr/old population change versus China actual and projected total energy consumption (chart below).  The accelerating population decline versus ongoing energy growth imply a rapidly increasing demand, per capita.  However, like the OECD, the EIA estimates are fantasy as secular decline is underway and will be accelerating to the downside as China's domestic market and China's export bases shrink indefinitely.
Rest of the World
23% of global population, 26% of global energy consumption.  10% increase in core population from '18 to '40 but growth is significantly decelerating.
And RoW annual 0-65yr/old population change versus RoW actual and projected total energy consumption (chart below).  Again, a decelerating growth versus anticipated accelerating energy consumption.
Africa / S. Asia
41% of global population but just 9% of global energy consumption (fyr - the combined regions likewise consume just about 9% of the total Chinese exports).  From 2018 to 2040, combined core population growth of 30% while YoY growth remains elevated at current levels (Africa's accelerating growth offsetting India's decelerating growth).  As of 2018, these combined regions represent 83% of annual under 65yr/old global population growth...but by 2040, Africa alone will represent 100%+ of the fast decelerating annual under 65yr/old global growth.
Africa / S. Asia annual 0-65yr/old population change versus actual and projected total energy consumption (chart below).  Population growth is projected to remain centered and extremely high for the next quarter century, particularly in Africa .  Yet, despite the combined size and expected growth, the combined Africa / S. Asia region total energy consumption is estimated to grow only two thirds as much as China...despite China's fast declining population (est. +47q/btu for China vs. +33q/btu for Africa/S. Asia).
Energy Consumption, a Means to Gauge Relative Wealth
The chart below details total primary energy consumption, on an actual and estimated per capita basis versus the changing under 65yr/old populations.  If energy consumption is equivalent to wealth, then the declining populations of the OECD and China will accrue all the benefits of the existing system while the teaming masses of Africa & South Asia are not anticipated to enjoy any real gains.  Again, I believe all these forward EIA estimates to be way too optimistic and out of step with the reality of changing populations.
Global Oil Consumption
Similar to the total energy consumption chart above (and discussed previously HERE), OECD oil consumption peaked in 2005 and as of year end 2017, OECD oil consumption is back to levels last seen in 1997 (over a 6% total decline in consumption).  Still, the 3mbpd decline among the OECD has been more than offset by the 5mbpd increase in China, 7mbpd increase among the RoW, and 3mbpd among the combined Africa / S. Asia.
As an aside, OECD oil consumption trend growth ended as of Q4 '07 (chart below)...and quarterly variations in consumption have been "unusual" since.  Despite the halving of energy costs, despite the implementation of ZIRP, massive growth in federal debt, central bank balance sheets, and stimuli of every sort...the OECD demand is back to levels first breached in the mid 1990's.
Why This is About to Get Far Worse
The chart below shows the 15-45 year old global childbearing population minus Africa and S. Asia.  This population peaked in 2010 (red line) and is now declining annually by millions (blue columns, falling 7 million alone in 2018).  Those capable of having children among the nations of the world that consume over 90% of all the energy, 90% of the oil, and 90%+ of China's exports are now falling and will continue falling indefinitely.
Couple the declining childbearing population (red line, chart below) with collapsing birthrates and total births (blue columns) among the import engines...and an economic collapse is assured.  The chart shows births (x-Africa/S. Asia) have already fallen 20% from the 1990 peak and are estimated to be somewhere between 30% to 50% below peak by 2040 (blue line is UN medium variant, green line is UN low variant).  The low variant is looking more and more likely.  The real question isn't an economic is will society and civilization be able to adapt to this new reality?

Below, global childbearing population and 45-64yr/old populations and actual plus estimated total energy consumption (all excluding Africa/S. Asia).  Energy consumption simply isn't likely to continue on anything like the previous growth trends (and perhaps not growing at all) with these changing dynamics.
The chart below is the best case (economically speaking) for the world (excluding Africa/S. Asia), assuming the medium variant of births through 2100.  The UN estimates that the 65+yr/old population will nearly double the 0-15yr/old population by 2100.  This inversion of the population pyramid simply can't and almost surely won't happen given the reliance of the elderly on the young.  A near term "course correction" will almost surely intervene and the reality will be a far lower 0-15yr/old population and honestly...I can't hazard a guess as to what will become of the 65+yr/old population.Conclusion:
Finally, for those who don't understand the gravity of the broken trend-line in the chart above...the OECD is the global import engine that provided the growing markets for developing nations of the world to export their way to prosperity.  What began post WWII with Germany and Japan, spread to Taiwan, Korea (etc.), and eventually China.  However, as the OECD and potential import growth capacity has waned, the exporters have a progressively deteriorating viable rationale to grow their capacity, their jobs base, their GDP (previously discussed HERE).

China alone since 2000, as a quasi "communist" state, was able to "compel" its corporations and local governments to undertake massive debt fueled build-outs to achieve pre-determined "growth" targets (previously discussed HERE).  New factories, housing, malls, infrastructure, etc. were built for a domestic population now embarking on a large decline and a global import base which has indefinitely stalled.  Now the massive Chinese overcapacity sits pumping out deflation and no other nation (of significance) can similarly compel their corporations and the like to undertake like levels of bad debt to keep global "growth" going.

This notion of an imminent "S-Curve" lifting India or Africa to prosperity is simply (and sadly) ludicrous.  That a fast growing group of poor in Africa and S. Asia, in need of selling their labor and resources to a now declining base of buyers in the OECD, China and decelerating growth among the RoW (already with too much and still growing capacity as it is), is delusional.  Very unfortunately, a synchronous and intertwined financial, economic, and currency collapse is highly likely as central banks and federal governments worldwide are undertaking progressively worsening policies and interventions to extend and pretend...even if it's just buying months now instead of years.  Of course, I've been wrong more than perhaps I'm wrong again.  Maybe two plus two can add up to seven and really, this is one time being wrong probably would feel better than being right.

Extra Credit (below), gauging asset appreciation in the US (using the Wilshire 5000, representing all publicly traded US equities) versus the measuring stick of total US energy consumption and the childbearing population.
...and the variables of est. childbearing population growth, estimated energy consumption, and 7% asset appreciation extended through 2040.  Make of it what you will.