7 Big Changes to the Energy Industry Coming by 2040

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For the most part, the way we generate and use energy hasn't changed a lot in the past 50 years. But that's not likely to be the case in the decades to come. As renewable energy sources become cheaper and more reliable, and we develop technology that enables us to better store and distribute that power, there could be some big changes in the energy industry between now and 2040. 

Factor in the historic Paris Agreement -- signed by virtually every country on Earth -- to reduce global carbon emissions, and it's a near-certainty that we are at the threshold of an energy revolution. Keep reading to learn about seven of the biggest changes coming to the energy industry over the next 23 years. 

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The Paris Agreement could lead 80% of energy demand growth to come from low-carbon and renewable sources

The Paris Agreement has the potential to radically alter how energy is produced and used in the future (even without the participation of the United States), but it will take many decades for its impact to fully play out. The agreement, which has been agreed to in principal by 197 countries, has a primary goal of keeping global temperature rise below 2 degrees Celsius above pre-industrial levels. 

Perhaps the only way to accomplish this is to significantly decrease the role of crude oil and coal as sources of energy production. The International Energy Agency states in its World Energy Outlook 2016 that "low-carbon fuels and technologies ... win the race to meet the growth in energy demand, accounting for more than 80% of the increase to 2040."

We can expect to see national policies around the world that incentivize the expansion of renewables such as wind and solar and increased use of natural gas, which produces far lower carbon emissions and pollutants than coal. 

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40% of energy investments will be in renewables in the interim

Even as the world shifts toward renewables, existing energy assets will continue to consume a massive amount of oil, which should result in a gradual shift in how capital is invested in different kinds of energy. According to the IEA, 70% of global capital investments in energy supply have been in fossil fuels over the past 15 years. But looking forward, the IEA expects the balance to tip increasingly toward non-fossil fuels.

Between now and 2040, an estimated $44 trillion will be spent on energy supply, with 60% of that being spent on fossil fuels. That may not seem like a big shift, but that means a massive $17.6 trillion is set to be invested in renewables by 2040.

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There will be twice as many cars, but they'll use less oil

Despite all the buzz about the potential of electric vehicles, they remain a tiny fraction of the cars on the road. But that will certainly change by 2040. According to the IEA, there will be about twice as many cars on the road in 2040 as there are now, but it will take less oil to fuel them all than it does to run the current global fleet. This will be accomplished by a handful of different things -- mainly, a significant increase in the number of electric cars, which could be half or more of new vehicles sold.

For a glimpse of what the future could look like, consider the recent plans by Ford Motor Company (NYSE: F) to go big on hybrids and electric vehicles. The company announced a plan to spend $700 million to expand a U.S. plant where two new EVs will be produced, and it intends to bring another half-dozen hybrids and EVs to market in coming years. 

That said, there will still be a big need for fossil fuels for transportation in 2040, particularly for aviation and moving freight. Petrochemicals -- that is, chemical products made from petroleum -- will almost certainly be in much higher demand, as a more populous world will need more plastics, rubber, fertilizer, and dozens of other essential products. 

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The United States' role in securing the world's energy will change

Growing dependence on renewables for electricity and transportation, along with growth in domestic fossil-fuel extraction, will drive a shift in how countries secure their energy access and infrastructure. This will almost certainly change America's military priorities.

For decades, the U.S. has maintained a significant presence in various parts of the world in part to secure American access to crude oil. However, advanced production techniques have lowered America's dependence on foreign oil, while the anticipated spread of the electric vehicle will further reduce the necessity for the U.S. to police global shipping routes. 

At the same time, it will be even more critical to keep the U.S. electricity grid online and secure. Over the next couple of decades, domestic power production, including solar and wind assets, will also be fueling a significant share of our transportation network, while a smaller amount of oil (likely even less of it imported) will be fueling cars. For this reason, the U.S. government will likely have increased its defense spending to secure our domestic energy production and transmission assets, while dedicating fewer assets to simply making sure foreign oil reaches our shores. 

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One fossil fuel will increase its market share

Over the next 23 years, coal will continue to see its prospects diminish, while crude oil will probably continue to grow in demand, if at a relatively low rate. However, one other fossil fuel -- natural gas -- is on track to see its share of the global energy mix increase.

While it still generates carbon emissions, natural gas is by far the "cleanest" of the hydrocarbons, generating lower amounts of greenhouse gases and the particulates that poison waterways and cause smog. Furthermore, technological innovation has made it even cheaper to produce natural gas, and global demand has led to major investment in liquefaction and export capacity from companies like Cheniere Energy, Inc. (NYSEMKT: LNG), which has built one of the biggest LNG export facilities in the world in Louisiana and is building at least two more on the U.S. Gulf Coast. 

Natural gas is also on track to see its use as a petrochemical feedstock increase, especially in the U.S. Petrochemical manufacturers are on track to invest $200 billion in expanded manufacturing capacity on the Gulf Coast in the next decade alone. These plants will likely operate for many decades to come. 

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The number of people living without electricity will be cut in half

According to the United Nations, 1.2 billion people around the world still don't have access to electricity. This number will decline substantially over the next 23 years, as the bulk of new energy production will take place in developing countries. 

And while it's certainly a positive that fewer people will be forced to survive without electricity, there will still be 500 million people globally living without power, despite the United Nations' goal of having universal access to energy by 2030. According to the IEA, the majority of these people will be in rural areas in sub-Saharan Africa. 

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Water and energy will become even more closely intertwined

Water is set to be one of the most at-risk resources in the coming decades. Between climate change and the ever-growing world population, water could become more expensive and difficult to access by 2040. And the repercussions will be felt in the energy industry, too. 

This is because the relationship between water and energy will almost certainly tighten. With the planet's population set to increase by at least 1 billion people in the interim, we'll need more sources of pure water, which will have to come partly from energy-intensive methods such as desalinization and purification

Meanwhile, water also plays a critical role in energy production. Whether it's the steam that drives generators in power plants, the rivers that power hydroelectric dams, or the water used in hydraulic fracturing of oil and gas wells, we will only need more and more water to power the world and keep people hydrated. 

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