The BP Statistical Review of World Energy 2013 shows the far reach of unintended consequences when the context is the globally interconnected energy marketplace.
Those Iranian sanctions? They helped keep oil prices high despite a huge imbalance between production and consumption. All that shale gas? It flooded Europe with coal.
The big picture for 2012 continued to follow several recent trends. There was lower growth in energy demand globally, and the United States saw the largest increases in both oil and natural gas production. But “as soon as you go beneath the surface, all sorts of adaptation processes emerge which are quite interesting,” BP group Chief Economist Christof Ruehl said in introducing the 62nd annual edition of the reference guide.
The oil conundrum
The oil markets presented a puzzle in 2012.
Globally, oil production increased by almost 2 million barrels per day, or 2.2 percent, while oil consumption grew by less than 1 million bpd, or 0.9 percent, the weakest growth rate of the three major fossil fuels for the third year in the row.
And yet, during this same time, nominal oil prices remained stable, and relatively high.
“And so the big question is how can this be that prices stay up and production exceeds consumption by so much?” Ruehl said. “The answer lies in inventory build.”
To compensate for the political uncertainty of the Iranian sanctions, countries in the Middle East and non-OECD countries such as China built up their inventories.
“That’s where the missing barrels actually went and kept prices up,” Ruehl said.
Without the United States, those countries may not have been able to accommodate the stockpiling. The 1 million bpd increase in domestic production, primarily from tight oil sources, allowed the U.S. to back out imports. OPEC also increased production, partially to offset Iranian sanctions and partially to offset ongoing slowdowns in Libya.
More gas means more coal?
The natural gas market also caused some unexpected shifts.
Globally, gas is flowing into Asia to accommodate the shift from nuclear power in Japan following the Fukushima disaster and high economic growth in China. In the U.S., a massive increase in shale gas production is leading power plants to switch from coal.
The movement of global liquefied natural gas supplies to Asia, and the increased prominence of gas in the U.S. are making a lot of coal available for use in Europe.
On top of the environmental consequences, the shift is causing geopolitical consequences for Europe’s historic supplier. “Russian exports of gas into Europe declined massively as a result of Europe replacing gas with coal, and of course also because of weak economic growth in Europe,” Ruehl said. “So in that way one could say that Russian exports also became a victim, to some extent, of the shale revolution in natural gas in the U.S.”
Renewables slowing down
As has been common recently, the small percentage of renewable energy in the marketplace continues to grow at the fastest rate, although it has slowed down some.
Renewable energy remains a small component of the energy sector — some 2.4 percent of all consumption and 1.9 percent of all power generation — but it grew by more than 15 percent last year. The growth came largely from wind and solar, though. Biofuels declined for the first time since 2000, mostly driven by a decline in the United States.
Generally speaking, Ruehl said, renewable energy use is slowing down in those countries where the penetration rate is highest, particularly in the United States and Europe.
The decline in renewable energy is causing one of the most surprising unintended consequences of the past year, according to Ruehl. With Europe having met its targets for renewable energy and energy efficiency, the price of carbon fell considerably on the European Union Emission Trading Scheme, which allowed coal to flood the market.
“Because these targets were followed and reached, the carbon emissions were so low that the carbon price was not meaningful anymore, not high enough to prevent the influx of coal into the system,” Ruehl said. In other words: renewable energy and coal squeezed gas out of the power production mix. “And that’s certainly not what was intended.”
Globally, there was a 1.9 percent increase in CO2 emissions from energy use last year, primarily from developing countries. While emissions fell “quite rapidly” in the U.S. because of the shift to natural gas, according to Ruehl, they fell much slower in Europe.
“It is a little bit ironic, one could say cynically, that in the U.S. carbon emissions have declined quite rapidly because of the innovation taking place in the fossil fuel sector, particularly the replacement of coal with shale gas, whereas in Europe, CO2 emissions haven’t decreased as much as they should have because of inconsistency of regulation, because of the inability to combine rising targets for renewables and for energy efficiency with a positive volume target which would allowed for positive carbon prices,” he said.
