How’s this for confusing: At the launch of the BP Statistical Review of World Energy 2012, BP Group CEO Bob Dudley said the newest data “paints an intriguing picture,” while Chief Economist Christof Ruehl said the facts and figures look “almost boring.”
What’s even more confusing is Dudley and Ruehl are in complete agreement.
“When you think back on 2011, it was a year which had quite some disruptions,” Ruehl said June 13, as BP released the 61st edition of its annual appraisal of global energy.
In terms of supply, the Fukushima Daiichi nuclear disaster increased skepticism of nuclear power in Japan and subsequently in Germany; the political unrest of the Arab Spring shut down oil production, particularly in Libya; and the refinement of drilling and completion technology boosted unconventional oil and gas production in North America.
“Intriguing,” you might say.
And yet the major trends of recent years continued as though nothing happened.
Global energy demand increased by 2.5 percent in 2011, down from 5.1 percent growth in 2010 but still in line with historical averages. That growth came largely from the developing world, as demand fell 0.8 percent in Organization for Economic Cooperation and Development countries but rose 5.3 percent in emerging economies. China continued to boom, accounting for 71 percent of the total growth in global energy consumption.
Even with supply disruptions, oil production increased 1.3 percent. And despite the largest drop in European consumption on record, gas production increased 3.1 percent.
Oil demand grew by 1 percent, natural gas demand grew by 2.2 percent and coal demand grew by 5.4 percent. And although the demand for renewable energy collectively grew by 13 percent, those fuels account for only about 2 percent of global energy production.
“When you look at the aggregate numbers — in economic growth and in energy production and consumption globally — it looks almost boring,” Ruehl said. “It looks as if nothing has happened. So what we are asking this year is: How did the system cope?”
Price shocks, mostly up
Or, to put it another way: “How was it possible to overcome these pretty heavy disturbances without leaving a trace in the aggregate picture?” Ruehl asked.
One answer is: They did, in fact, leave a trace.
Those disruptions significantly increased energy prices.
The average oil price of $111.26 per barrel is the highest nominal price in history and the highest inflation-adjusted price since 1864. And while shale drove down natural gas prices in the Unites States, oil-indexed gas prices rose throughout the rest of the world.
While Henry Hub averaged some $4 per million British thermal units and Canadian prices fell more than half a dollar below that in 2011, prices in Europe hovered around $10 per million Btu and liquefied natural gas to Japan approached $15 million Btu.
Even coal prices increased in Europe, the United States and Canada.
BP believes those prices helped the market rebound, but, Dudley said, “With so many economies dependent on imported oil and gas, the risk of high prices is that, rather than economic factors driving energy prices, energy prices could drive economies downward.”
A major adjustment
Another answer is: The global energy system adjusted across five continents.
After a lag, Saudi Arabia increased oil production enough to offset the 1.2 million barrels per day lost to political unrest in Libya. And increased production from the United Arab Emirates, Kuwait and Iraq accommodated rising demand from the developing world.
Those disruptions required a “reconfiguration of trade” and a “very flexible European refining capacity” able to handle increased production of heavier crude, Ruehl said.
Meanwhile, European gas consumption fell 9.9 percent as LNG went to Japan to offset the loss of nuclear power and to accommodate growth in China and Saudi Arabia.
That shift might have troubled Europe in previous years, but the continent didn’t need as much gas as usual last year because of its flagging economy, its warmer-than-usual winter and its increased consumption of coal, particularly from the U.S. and Columbia.
And why was the U.S. able to ship coal across the Atlantic?
Because a glut of shale gas production in North America drove down prices in a market without many export options, Ruehl said, allowing power producers to back out coal.
Markets and infrastructure
Dudley simplified the question even further.
The energy system adjusted because of markets and infrastructure. “We need open markets to channel supplies to where they are needed. And we need the infrastructure to ensure sufficient supplies are available. The open market is something that governments provide — while the infrastructure is largely something industry provides,” he said.
Ruehl concurred.
The disruptions and recoveries of 2011 proved “the more interdependent the energy system is allowed to be, the more integrated markets are, the more people are allowed to trade, the safer countries are.” If Japan hadn’t been able to turn to the global market the Fukushima accident might have presented a greater supply challenge, he hypothesized.
For that reason, BP sees the U.S. as a model for energy policy.
Pointing to shale oil, oil sands and deepwater oil as the future of the most popular fuel on the planet, Ruehl said, “It is no accident that all these technologies have been developed in North America, in particular the U.S. and Canada. Why is it no accident? Because there is an investment regime which allows for open access and for competition.”
Plenty of fossil fuels left
Concerning long-term supplies, BP isn’t worried about peak anything.
“At today’s consumption rates, the world has proved reserves sufficient to meet current production for 54 years for oil and 64 years for gas,” Dudley said.
The global outlook, though, presents bad news and good news for carbon emissions.
“The bad news is that last year, again, coal was the fastest growing fuel and therefore carbon emissions, again, will have continued to rise substantially,” Ruehl said. But, he added, “In the U.S., carbon emissions actually slowed down. The reason for this is the replacement of coal for power generations by abundant natural gas.” And, Ruehl made sure to note, the decline came in a country without any carbon markets, taxes or caps.
