BP’s 2015 Statistical Review provides a description of the storm after the calm - what BP officials described as a return to more normal conditions in 2014 after several years of oil and gas industry price and production stability.
In remarks at the review’s June 10 launch, BP Group Chief Executive Bob Dudley said: “The eerie calm that had characterized energy markets in the few years prior to 2014 came to an abrupt end last year.”
He said there was no reason for surprise or alarm, and said the events of 2014 “may well come to be viewed as symptomatic of a broader shifting of the tectonic plates that make up the energy landscape, with significant developments in both the supply of energy and its demand.”
“The turbulent and unsettled conditions that characterized global energy markets in 2014 were driven by many factors, many of them specific to particular markets and fuels,” Spencer Dale, BP’s group chief economist, said in prepared remarks.
But, he said, a small number of broader forces helped to shape the global energy landscape: the continuing shale revolution in the U.S.; developments in China; and continuing focus on climate and environmental issues.
US production up
U.S. operating rigs peaked at 1,800 in 2014, Dale said, with some 40,000 new wells drilled.
In the shale industry, capital spending is estimated to have reached $120 billion in 2014, more than double what it was five years earlier. And productivity in tight oil pays increased seven-fold since 2007.
U.S. oil production rose by 1.6 million barrels per day in 2014, “by far the largest growth in the world, and the first time any country has increased its production by more than 1 Mb/d for three consecutive years,” Dale said.
U.S. oil production in 2014 exceeded a previous peak set in 1970, and the U.S. “passed both Saudi Arabia and Russia to become the world’s largest oil producer for the first time since 1975.”
In fact, Dale said, revisions of data suggest the U.S. overcame Russia in 2013 as the world’s largest producer of oil and gas.
China
In China gross domestic product growth slowed to 7.4 percent in 2014, down from double-digit growth rates in the previous 10 years. Growth in some of China’s most energy-intensive sectors - steel, iron and cement - “virtually collapsed in 2014 as more service-oriented parts of the economy came to the fore,” Dale said, causing the rate of China’s energy consumption to grow by just 2.6 percent, less than half the 6.6 percent average of the past 10 years and the weakest rate of growth since the late 1990s.
Dale said long-term rates in China’s energy growth will probably decline slowly, converging with the rates of more developed economies.
Focus on climate, environmental issues
There was considerable focus on climate and environmental issues in 2014, Dale said, with accompanying attention on developments in reserves of fossil fuels.
“Total proved reserves of fossil fuels were essentially unchanged last year,” he said.
“The big picture remains one of abundant reserves, with new sources of energy being discovered more quickly than they are consumed. Total proved reserves of oil and gas in 2014 were more than double their level in 1980, when our data began,” Dale said.
Weak demand growth
Dale said the big picture in 2014 was “surprisingly weak growth in energy demand, coupled with greater resilience in production growth and a consequent softening in energy prices.”
Primary energy consumption grew by just 0.9 percent in 2014, while energy production grew by 1.4 percent, growth similar to 2013, he said.
“The data for 2014 as a whole make clear that the sharp fall in oil prices was a supply story,” Dale said, with increase in oil consumption close to recent historical average, while global production increased by more than 2 million barrels per day, “more than double its 10-year average.”
Non-OPEC production increased by 2.1 million bpd overall, “the largest increase on record,” while OPEC production was largely unchanged.
On the oil demand side, consumption grew by just 800,000 bpd.
Calm due to offsetting factors
Dale said the 2011-13 calm in the oil markets “reflected two powerful forces coincidentally offsetting each other.”
The growth in U.S. tight oil was a factor throughout much of that period, but that was offset by Middle East and North African supply which “was retarded by the events surrounding the Arab spring,” resulting in global supply in that period increasing by some 1 million bpd, “broadly in line with global consumption.”
“That balancing act came to an abrupt end last year,” Dale said, with strong growth in non-OPEC supply far exceeding supply disruptions, which combined with softening of consumption growth in 2013, resulting in “a growing supply imbalance and a consequence build-up of inventories.”
Prices dropped slowly in 2014, due partly to the possibility that OPEC at its November meeting might reduce production. “But the decision by OPEC to maintain its production levels and protect its market share broke the markets’ back, causing prices to fall sharply,” Dale said.
A key message, he said, is that prices work, with “high levels of innovation and investment” which drove the supply growth “set in motion by a decade of high oil prices.”
He said the market now appears to be responding to lower oil prices, with the number of rigs in the U.S. less than half the recent October 2014 peak.
