Unprecedented turbulence in world energy markets in 2008 may have overshadowed a less dramatic but perhaps equally profound development in implications for the long term.
For the first time ever, the developing world led by China leapfrogged industrial and developed nations in the consumption of primary energy.
“The centre of gravity of the global energy markets has tilted sharply and irreversibly towards the emerging nations of the world, especially China,” BP Chief Executive Tony Hayward said June 10 in London at the launch of the company’s Statistical Review of World Energy 2009.
“This is not a temporary phenomenon but one that I believe will only increase still more over time. It will continue to affect prices and bring with it new challenges over economic growth, energy security and climate change,” Hayward said.
Among those challenges will be volatility in the short term, he warned.
“But I have no doubt that the diversity and flexibility of modern energy markets will continue to ensure that energy supplies continue to reach consumers efficiently and without interruption,” he added.
Despite “dramatic gyrations in the world economy and energy prices” in 2008, the annual Review reported that the markets served energy security well during the year, according to BP Chief Economist Christof Ruehl.
“Allowing markets to continue to function freely and without interference remains key to managing the inevitable ups and downs in prices as we go forward,” Ruehl said.
Prices peak; demand plummets
In 2008 the average price of dated Brent crude oil rose to $97.26 a barrel — 34 percent up on the previous year and the seventh consecutive annual rise. However, the annual average masked huge variations during the year, according to the Review.
Oil prices began 2008 at just below $100 a barrel, peaked above $140 in early July and fell dramatically to less than $40 at year’s end — the fall a consequence of higher OPEC production and rapid slowdowns in consumption in the second half.
Over the year, global oil consumption fell by six-tenths of 1 percent, or 420,000 barrels per day; the first decline since 1993 and the largest drop in 27 years. This included a steep fall in demand of 1.5 million bpd from the 30 Organization for Economic Cooperation and Development countries, which includes the European Union and the United States, and slower growth in demand (up just 1.1 million bpd) among developing nations. This was OECD’s third consecutive year of decline.
OPEC drives slightly higher output
Despite overall lower demand, average oil production rose four-tenths of 1 percent, or 380,000 bpd, driven largely by OPEC production increases. Despite cuts late in the year, average OPEC oil output actually rose by almost 1 million bpd, or 2.7 percent.
The Middle East saw the entire boost in daily production, with Saudi Arabia’s output climbing by 400,000 bpd and Iraq’s up 280,000 bpd, the Review reported.
Outside OPEC, crude production recorded the steepest decline since 1992, falling by 1.4 percent, or 601,000 bpd, with output from OECD countries falling 4 percent, or 750,000 bpd, driven by declines in North America and Europe. The single largest decline came from Mexico, where production decreased 310,000 bpd. Russian production also fell for the first time since 1998, by 90,000 bpd, while United Kingdom oil output fell 94,000 bpd, the lowest level for 30 years.
The world’s remaining proved oil reserves, excluding Canadian oil sands, totalled 1,258 billion barrels — enough for 42 years at 2008 production rates, according to the Review. On the same basis, reserves of natural gas are sufficient for 60 years and coal for 122 years.
World appetite for gas grows
Gas consumption grew by 2.5 percent in 2008, but still languished below the 10-year average, according to the Review. U.S. consumption rose by six-tenths of 1 percent as spot prices remained well below oil prices. The largest incremental growth in world gas demand was from China, where consumption rose 15.8 percent. The U.K.’s gas consumption grew by 3 percent, with gas now supplying 39.9 percent of the U.K.’s total primary energy — well above the global average of 24.1 percent. Elsewhere, only the Middle East saw above-average growth, driven by strong domestic demand.
Oil-indexed gas prices in OECD Europe and Asia-Pacific rose more rapidly which, coupled with the recessionary impact, meant that consumption growth was below average.
Globally, gas production rose 3.8 percent, above the 10-year trend of 3 percent. This was driven strongly by U.S. gas output, which recorded its highest-ever annual increase as strong activity in development of unconventional gas resources boosted production by 7.5 percent, or 10 times the 10-year average growth rate. The second highest increase came from Qatar as pipeline exports of gas to the United Arab Emirates increased. Production also rose in Europe overall as increases in Denmark, Netherlands and Norway gas output more than offset declines in the U.K. and Germany.
Robust renewables growth
Renewable energy again grew strongly albeit from a low base, with wind and solar generating capacity growing 29.9 percent and 69 percent, respectively, both above their 10-year average rate, according to the Review.
Wind power generating capacity in the United States grew by 49.5 percent, overtaking Germany to become the nation with the world’s largest installed wind generating capacity. U.K. wind-generating capacity grew 36.3 percent to 3.3 gigawatts, which accounts for less than 3 percent of installed capacity worldwide.
Hydroelectric production continued its recent strong performance with growth of 2.8 percent, above the 10-year average for the fourth time in the past five years. However, all of the global increase could be accounted for by growth in China — climbing by 20.3 percent, nearly twice the country’s 10-year average rate. Hydroelectric generation outside China fell by four-tenths of 1 percent.
Nuclear output fell for the second consecutive year, by seven-tenths of 1 percent, led by a 10 percent decline in Japanese output as its largest power station remained shut after a 2007 earthquake.
Coal demand strong in China
For the sixth consecutive year, coal remained the fastest growing fuel globally, even though its 3.1 percent growth in consumption fell below the 10-year trend. China, which accounts for fully 43 percent of global demand for coal, accounted for 85 percent of this growth, with an increase of 6.8 percent.
Outside China, growth in demand for coal globally was weak, climbing only 0.6 percent and reflecting the fact that coal prices in liberalized markets increased more than for any other fossil fuel. Coal use in the U.K. fell 7.6 percent to the lowest level in a decade, in part due to fuel switching driven by carbon dioxide prices in the European Union’s emission trading scheme.
Energy consumption slows
Overall primary energy consumption nudged up just 1.4 percent, the smallest rise since 2001 and largely due to the extremes of the world economy in 2008 — strong growth followed by sharp decline, the Review reported. China alone accounted for almost three quarters of the rise, with most of the balance coming from the wider Asia-Pacific region.
In the OECD nations, energy consumption fell by 1.3 percent, with demand in the United States seeing the steepest single-year decline since 1982, a drop of 2.8 percent.
