Structure of the World Energy Demand Estimation Model

The World Energy Demand Estimation Model is an econometric analytical model consisting of an array of demand functions prepared for each energy source and demand sector according to the classification by the OECD/IEA Energy Balances data by countries, and is specially designed with a capability to obtain the petroleum demand estimates for each product. While the structure of this model is not identical for all of the 30 countries and regions since the estimation formulas may vary with the characteristics of the energy supply/demand situation in the country or region of interest and also for other reasons, the model has a basic structure as shown in Figure 2.2.1. In this model, the energy demand is estimated from the bottom upward, in that the computation is performed in order from the Final Consumption Sector to the Transformation Sector, and finally to the Primary Energy Supply Sector, balancing the estimated supply and demand at each sector. In addition to main exogenous variables given to the model including GDP, energy (oil) prices, and demographic data, variables concerning some of the primary energy supplies such as nuclear power, hydropower, geothermal power, or new energies are also given externally. The Final Energy Consumption Sector is broadly classified into Industrial Sector, Transportation Sector, Civil/Agriculture Sector, and Non-energy Sector, and constitutes the central part of the model.

In the Transformation Sector, the total output generated by electric utilities to meet the power demand resulting from the final consumption estimates is computed as a function of the final power demand. Next, the output to be generated by thermal power plants fired by fossil fuels is obtained by subtracting from the total generated output the output of nuclear power, hydropower, geothermal power, and other power plants which are all externally given as primary energy. The input amount of fossil fuels is estimated from the average generating efficiency of thermal power plants, which is another exogenous variable given. The breakdown of output by type of fuel is either estimated from a share function or obtained by estimation of oil’s share in the input and handling of natural gas as an exogenous variable. Lastly, the primary demand for fossil fuel in each source category is obtained by adding up the input for power generation and the demand in final consumption sectors.

Among the major exogenous variables, crude oil prices were determined in reference to the data presented in the “Annual Energy Outlook 2006” (AEO2006) published by the U.S. Department of Energy (EIA/DOE). For demographic data, input figures were determined in reference to the forecast by the United Nations, various national government projections, IEA forecasts and others.

Energy Demand Estimation Model and Computation Flow