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Vol. 16, No. 24 Week of June 12, 2011
Providing coverage of Alaska and northern Canada's oil and gas industry

China leads energy use

BP Statistical Review for 2011 shows demand growth fastest in nearly 40 years

Kristen Nelson

Petroleum News

China has surpassed the U.S. in energy consumption and demand grew faster in 2010 than it has for nearly 40 years. Those were among the highlights cited by BP’s group chief executive, Bob Dudley, in prepared remarks June 8 introducing the BP Statistical Review of World Energy 2011.

Dudley said BP expects the demand to grow strongly over the next two decades, by up to 40 percent, with demand in the developed countries represented by the Organization for Economic Cooperation and Development remaining flat and demand in developing countries like India and China “growing dramatically.”

Demand in 2010, Dudley said, was strong. “The global growth rate for total energy consumption was the highest since 1973.”

Both structural and cyclical factors were at work, he said. “The cyclical factor is reflected in the fact that industrial production rebounded very sharply as the world recovered from the global downturn. Structurally, the increase reflects the continuing rapid economic growth in the developing world.”

China’s growth is spectacular, Dudley said. “It is now the world’s largest energy user as well as the largest producer of energy and the largest emitter of carbon dioxide.”

Dynamic growth

Christof Ruhl, BP’s group chief economist, said in prepared remarks that in 2010 the growth rate of major fuels about doubled against 10-year average growth, while consumption growth was above its long-term trend in every region of the world.

“Energy intensity — the amount of energy used for one unit of GDP — grew at the fastest rate since 1970,” Ruhl said.

In 2010, the world consumed more energy in total or per capita than ever before, he said.

The energy consumption growth rate in 2010 was 5.6 percent, compared to 4.9 percent growth in the global economy. Like energy consumption, economic growth was led by non-OECD economies, where economic activity exceeded pre-recession levels.

Ruhl said that while energy consumption appears to have “mirrored the economic cycle,” it actually fell and rose within the cycle. In 2009, energy demand fell by more than GDP — its first decline in almost 30 years; it then rose by more than GDP in 2010, the strongest demand increase in nearly 40 years.

There is also the fact, Ruhl said, that since the early 1990s the developing world’s share of global GDP has been rising.

The two effects, energy demand bouncing back as the economy strengthened and the more intense energy use in developing countries, both pushed in the same direction in 2010, Ruhl said, generating “one of these rare episodes, when energy consumption globally grows faster than the economy.”

Crude oil

Crude oil consumption and production, as with other fuels, rebounded strongly in 2010, Ruhl said, but, unlike other fuels, crude oil prices rose strongly as well, with Brent averaging almost $80 a barrel in 2010, up nearly 30 percent from 2009.

“Prices started to rise toward the end of 2010 and have continued to do so this year, with Brent now near $115,” Ruhl said.

He said the crude oil price story is driven by the economic recovery and by a feature unique to crude oil, Organization of the Petroleum Exporting Countries production restraint.

The price rise began last year before unrest in North Africa and the Middle East, “as strong consumption out-paced production growth over the latter part of 2010,” he said.

The growth in global oil consumption was 2.7 million barrels per day, 3.1 percent, in 2010, to reach a record 87.4 million barrels consumed each day, a growth rate more than twice the 10-year average.

OECD had the first increase in oil consumption since 2005 and the volumetric increase outside OECD was the largest ever, Ruhl said.

The largest national increment came from China — an increase of 860,000 bpd or 10.4 percent; there were also large increases in the U.S., Russia and Brazil.

Non-OPEC production was up by 860,000 bpd, 1.9 percent, with the increase in China that country’s largest ever due to rising offshore production. Russia and the U.S. also had production increases; Norway had the world’s largest production decline. OPEC production grew by 960,000 bpd, 2.5 percent.

Natural gas

Ruhl said global natural gas production and consumption both saw strong growth last year.

Global gas consumption was up 7.4 percent, he said, “the strongest volumetric gain on record.”

Non-OECD economies expanded their share of natural gas consumption to more than 51 percent and “China solidified its role as Asia’s largest gas market.” OECD markets also grew rapidly, 6.4 percent, with consumption at all-time highs.

The increase in production, 7.3 percent, was also a record, with 31 percent of this growth in the former Soviet Union.

North America has become largely self-sufficient in natural gas, with U.S. production up 4.7 percent due to shale gas.

U.S. horizontal drilling for shale gas surged in early 2010, with shale gas rising to account for 23 percent of total U.S. natural gas production, up from 4 percent in 2005.

This has kept prices low and producers are shifting activity toward shale gas deposits with high liquids content, or directly to oil, Ruhl said.

Technology perfected for shale gas is being transferred to oil, the horizontal oil rig count is up and “onshore oil production in the Lower 48 has increased to levels not seen since 2001,” he said.

Ruhl said the global liquefied natural gas supply has grown by 58 percent over the last five years, three times the growth rate of total gas production. In 2010 alone LNG supply expanded by 22.6 percent. Qatar is the world’s largest LNG supplier and its LNG exports rose 53 percent last year.

Last year the rate of expansion for LNG was four times that of pipeline gas and the share of LNG in international gas trade moved to 31 percent, from 23 percent in 2005.

Gas markets are integrating globally, Ruhl said, “and the flexibility to manage external shocks is increasing: Russia in pipeline gas and Qatar in LNG are holding spare capacity.”

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