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BP review reflects economic growth 2001-06 economic growth strongest since mid-1960s; company’s annual statistics show strong energy consumption in oil, gas, coal Kristen Nelson Petroleum News
Economic growth, energy consumption and energy prices have all been strong over the last five years, with global 2001-06 economic growth averaging just more than 4 percent.
Economic growth during those five years was “the strongest five-year chunk of economic growth the world has seen since the mid-1960s,” says Mark Finley, BP’s general manager, global energy markets and U.S. economics, in Anchorage in early September to give presentations on the annual “BP Statistical Review of World Energy” published in June.
2006, with the world economy growing at just over 5 percent, was “the fastest year for economic growth since 1973,” he said.
Along with economic growth, energy consumption growth “accelerated significantly” in both 2001-06, and in the previous five years, 1996-2001. This acceleration took place outside of the mature industrial economies represented by the Organization for Economic Cooperation and Development. Growth has been dramatic in China, but also in the Former Soviet Union and “broadly speaking elsewhere among emerging market economies,” Finley said.
And while the price of energy fell adjusted for inflation in the five years from 1996-2001, energy prices “increased significantly” for all fossil fuels in the most recent five years, 2001-06.
“Oil prices have increased every single year, hitting record highs at least in non-inflation-adjusted terms for the last several years,” Finley said, with natural gas prices tending to follow crude oil prices, although with more regional variation in natural gas prices.
Last year, crude oil prices rose 17-20 percent, depending on the benchmark, Finley said, although “still below the inflation-adjusted peak that we saw in the late ‘70s and early 1980s.”
Coal prices have also increased, but not by as much, he said.
In a five-year weighted average, the price of crude oil has more than doubled, prices of natural gas have risen by about 75 percent and coal is up by a little less than 50 percent.
Biggest growth in coal Energy consumption has grown as the economy has grown and has been affected by differing fuel prices.
“That change is most pronounced for the fuel that has the least amount of price inflation,” Finley said, referring to coal. Oil has had the biggest price increase and there’s been no change in the way the world uses oil, he said.
Coal has had bad press and “the very long-term trend for coal has been to lose market share.” But the appeal of coal — cheap compared to other fossil fuels — in the last couple of years has trumped concern that coal is dirty, he said. Because coal is relatively cheap compared to other fossil fuels it has been gaining market share, Finley said, while oil, the most expensive fossil fuel, has been losing market share.
Natural gas, while still the fastest growing fuel outside of China, has been overwhelmed by the growth of coal use in China. While natural gas gained market share for 40 years, largely at the expense of coal, the growth of natural gas has “plateaued in recent years,” he said.
There are regional differences: Oil is gaining market share over natural gas in the United States, “especially in the industrial sector,” because of high natural gas prices.
Emissions up BP estimates carbon emissions from other data it gathers and Finley said emissions are going up on an indexed basis to 1990, the base year for the Kyoto treaty.
“Emissions are going up not only everywhere in the world but importantly are going up in those countries that have actually ratified and committed themselves to reductions,” he said. Because of increasing use of coal, the carbon intensity of energy use is going up — after declining for decades. OECD countries are leveling off, Finley said, and “by implication what that means is that the non-OECD countries are rising even more rapidly.”
Highest coal use is in China: Globally coal has about a 25 percent market share; “in China it’s more like 70 percent of total energy needs.” China accounts for more than 15 percent of the world’s energy consumption — up from 9 percent in 1991.
Gas production changing The world consumption map for natural gas is changing, and so is the production map, Finley said. In the early part of the 1990s “gas production was rising where the consumption was in North America and Europe.”
“That is no longer the case. Over the last five years on average North American production has declined, European production has been basically flat — but remember, gas consumption is still rising. Outside of China it’s the fastest growing fuel in the world.
“That means that production has had to rise elsewhere, everywhere else as a matter of fact, to keep up with that rising demand,” Finley said.
And that, he said, suggests “that the trade in natural gas must be rising very rapidly — and in fact that is true.”
About 15 percent of the world’s natural gas crossed an international border 15 years ago; “today that figure is 26 percent.”
While natural gas — outside China — remains the fastest growing fuel, there was “outright decline in three of the five biggest natural gas consumers in the world last year,” the United States, the United Kingdom and the Ukraine. “In all three places it was because of higher prices,” Finley said.
Even within those countries, variations in price drove some spot market LNG trading.
“Last year U.S. gas prices were cheap relative to the UK” and LNG cargoes went to the UK. If LNG shippers have flexibility in their contracts those shipments will go where prices are higher. Finley said this year it’s the opposite — “gas prices in the UK have been well below U.S. gas prices and U.S. imports this year are hitting all-time record highs.” The amount of LNG sold on the spot market is small, he said, with only some 25 percent of the world’s gas traded internationally and about a quarter of that LNG; of that 6 percent, “maybe 15 percent of that is swapped around.”
Oil changing, too Oil production in OECD countries has also been declining, but “production overall outside of OPEC continues to rise,” with declines in OECD “more than offset by rapid growth in the Former Soviet Union, primarily Russia up until the last year or two” but now including Azerbaijan.
While production from the Organization of Petroleum Exporting Countries has been rising over the last 15 years, “OPEC’s market share today is exactly the same as it was 10 years ago.”
With the “growing mismatch between where the supply is and where the demand is” energy trade is growing rapidly. Over the last quarter century, Finley said, data shows that, on average, “all of the exporters export more and all of the importers import more.” Almost 70 percent of the trade in fossil fuels is oil, followed by natural gas at almost 20 percent and coal at just slightly more than 10 percent, he said.
“It is a fact of life that energy imports are rising and not just in the United States but in importing countries and regions around the world.”
Finley said there are advantages: producers benefit from higher export value but consumers also benefit because they “have been able to maintain reliable supplies, access to reliable energy supplies, to run their economies — albeit at much higher prices.”
“We would also argue that energy security is actually helped by the development of a liquid, flexible, global energy market that provides flexibility and options and a greater ability to adjust to unexpected events,” he said.
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