The BP Statistical Review of World Energy, 2012 – the 61st annual report is launched today – highlights disruptions to supplies and ever-increasing demand as the two big energy stories of 2011.
In the foreground, the ‘Arab Spring’ affected oil and gas supplies—most notably the complete, albeit temporary, loss of Libyan supply—while the tragic Fukushima accident in Japan had knock-on effects for nuclear and other energy sources around the world. These shocks pushed energy prices higher in much of the world, with oil prices reaching a record average of over $100 per barrel (bbl) for the first time in history.
Meanwhile, the background long-term trends continue, with global energy consumption growth of 2.5%, near the historical average, and the emerging economies continuing to expand their share of the total. OECD countries’ energy demand actually shrank by around 0.8% last year, while growth of 5.3% was seen in emerging economies.
“As we seek to manage short-term disruptions and meet long-term demand, we should remember that open markets can be a powerful ally,” said Bob Dudley, BP Group Chief Executive at the launch of the Review.
Markets “provided the flexibility that was crucial to the world’s ability to cope with last year’s disruptions. And over time, markets lead to the chain reaction of competition, innovation and growth which creates the secure and affordable energy supplies which governments and consumers are looking for.
“The good news today is that we’re seeing a whole range of areas where this process of competition, innovation and growth is generating results. These include shale gas; deepwater oil and gas; heavy oil; and, potentially, advanced biofuels,” said Dudley.
Dudley highlighted the example of the United States, where the shale gas revolution has meant that natural gas prices declined and reached record discounts to oil. In addition, the production of shale liquids gave the US the largest increase in oil production outside OPEC for the third year in a row.
The US experience “shows how an open and competitive environment drives technological innovation and unlocks resources. I think the message for policy makers is to follow this model and to encourage competition wherever possible.”
This process also acts to “support energy security by enabling countries to develop their domestic resources and by underpinning a dynamic global market.”
Presenting the data, Christof Rühl, BP’s chief economist, outlined 2011’s background: “Political unrest and violence caused outages in oil and gas production in parts of the Arab world; the shut-down of Fukushima and earthquake-related reductions in Japanese coal -fired power generation, plus the subsequent closure of additional reactors in Japan and Europe; the first annual average oil price above $100; the first release of strategic petroleum reserves since 2005; the largest increase in OPEC production since 2008; an exceptional swing in European weather; and huge floods in Australia impairing coal production – it was anything but a boring year.
“And yet nothing in the aggregate data indicates anything out of the ordinary. In fact both GDP and energy consumption growth last year landed right at their long term average.”
Rühl explained what made the system work: “Fuel substitution, supply and demand responses, and trading patterns … three major adjustments took place. An increase in oil supplies, most notably from Saudi Arabia, together with flexibility in trading and the global refining system, allowed heavier Saudi crudes to replace lighter Libyan oil in Europe; a diversion of natural gas from Europe to Asia allowed the substitution of lost nuclear energy in Japan without harming the energy needs of other economies in the region; and the release of coal from the US, facilitated by the availability of unconventional gas, helped to replace gas in Europe.
“2011 saw big price increases: average annual Brent prices increased by 40%; a simple average of the international coal marker prices increased by 24%, with the biggest increase in Europe and with average annual US coal prices approaching US gas prices. While US gas prices continued their decline following the shale gas revolution, oil indexed gas prices outside the US increased, pulled up by the rising price of crude.”
Global energy consumption grew by 2.5% in 2011, broadly in line with the historical average but well below the 5.1% seen in 2010. Emerging economies accounted for all of the net growth, with OECD demand falling for the third time in the last four years, led by a sharp decline in Japan. China alone accounted for 71% of energy consumption growth.
The averages hide a mixed picture by fuel, however. Oil demand grew by less than 1% – the slowest rate amongst fossil fuels – while gas grew by 2.2%, and coal was the only fossil fuel with above average annual consumption growth at 5.4% globally, and 8.4% in the emerging economies.
Fossil fuels still dominate energy consumption with 87% market share, while renewables rose fastest but are still only 2% of the global total. The fossil fuel mix continues to change with oil, the world’s leading fuel at 33.1% of global energy use, losing share for 12 consecutive years. Oil consumption reached 88 million barrels per day (bpd) after a below average rise of 0.6 million bpd or 0.7%.
The loss of oil supplies in Libya and elsewhere was eventually more than offset by large production increases among Middle Eastern OPEC members, leading to record oil production in Saudi Arabia, the UAE and Qatar.
Brent oil prices were on average 40% higher than 2010 and exceeded $100 a barrel for the first time ever; at $111.26/bbl, they were the second-highest in inflation adjusted terms, behind only 1864. Crude prices peaked in April as Libyan supplies dried up, and the differential between Brent and West Texas Intermediate (WTI) benchmarks reached a record premium due to North American infrastructure bottlenecks.
Gas prices increased broadly in line with oil prices except in North America where prices reached record discounts both to crude oil and to international gas markets.
“Natural gas has produced some of the biggest changes in global energy markets over the last few years: There is, first, the rapid increase in trade, especially of LNG, that has connected hitherto segmented regions in an increasingly flexible manner. And second, the development of unconventional resources in the US, which has everyone wondering where gas may next turn into a relatively abundant resource. Both of these developments shaped 2011. And as it happens, they also played a key role in the response to last year’s disruptions,” said Rühl.
World natural gas consumption grew by 2.2%, below average in all regions except North America where low prices due to the shale gas “revolution” drove robust growth. There was a record decline in EU gas consumption (-9.9%) driven by the weak economy, high prices, warm weather and continued growth in renewable power generation.
Gas production globally grew by 3.1%; the US recorded 7.7% growth and is the world’s biggest producer. Output grew rapidly in Qatar (+25.8%), Russia (+3.1%) and Turkmenistan (+40.6%), more than offsetting declines in Libya (-75.6%) and the UK (-20.8%). The EU’s decline in gas production was the highest on record (-11.4%).
Natural gas trades grew modestly by 4%, driven by liquefied natural gas (LNG) growth of 10.1%, with Qatar (+34.8%) taking 87.7% of the LNG increase.
Coal was again the fastest growing fossil fuel with predictable consequences for carbon emissions; it now accounts for 30.3% of global energy consumption, the highest share since 1969. OECD coal consumption declined by 1.1%, although the EU used 3.6% more as natural gas was diverted to Asia. Prices increased in all regions.
“The coal story is one of production and trade patterns able to adjust to market conditions. In this way, coal was buttressing the global supply security,” said Rühl.
Nuclear output fell 4.3%, the largest decline on record driven by Japan (-44.3%) and Germany (-23.2%). Hydro-electric output grew just 1.6%, the weakest growth since 2003.
“Beyond the closure of Japanese and German nuclear plants, the global impact of the Fukushima incident on energy markets has actually been relatively mild,” commented Rühl.
Renewable energy sources saw mixed results with global biofuels production stagnating (+0.7% or 10,000 bpd equivalent), the lowest rise seen since 2000. Growth in the US slowed as the share of ethanol in gasoline approaches the ‘blendwall’. Brazilian output was hit (-15.3%) by a poor sugar harvest.
Renewable energy used in power generation rose by an above average 17.7% driven by wind energy (+25.8%) which accounted for more than half of renewable power generation for the first time, with the US and China showing the largest increments. Solar powergen rose 86.3%, though from a low base.
The data suggests that growth in global carbon dioxide emissions from energy use continued in 2011, but at a slower rate than in 2010.
Summarising, Christof Rühl said: “I do think there are a few takeaways to be had from this year of disruptions, with seemingly normal growth and in line with long-term structural changes. These evolve around the flexibility of markets – the ability to increase production, to substitute across fuels, and to change trading patterns has been crucial to the ease with which the system has adapted. For this to work, prices must be allowed their role as signals to guide the reallocation of energy flows. Our messages change only slowly as well – and one of them is to praise the role of markets in guaranteeing energy security.”
