Energy Supplies Available and Reliable in 2005 Despite Physical Disruptions
June 14, 2006
Last year was another dramatic period in global energy markets with energy prices rising to new highs while dramatic weather impacts both strengthened energy consumption and weakened production.
Although markets continued to work efficiently and there was no shortage of physical supplies, energy security became a major worldwide concern among both producing and consuming nations.
“Supply availability has continued, but at the cost of high prices,” said BP chief economist Peter Davies speaking today at the launch of the BP Statistical Review of World Energy 2006. “Market adjustments are beginning and will continue. There has been a price effect already with coal and gas prices falling and oil consumption growth slowing sharply and inventories rising.”
Published annually by BP, the Review contains detailed data on worldwide energy production and consumption with this latest edition including data up to the end of 2005.
World energy growth slowed in 2005 with an increase of 2.7 per cent, down from the 4.4 per cent increase in 2004 which was the largest rise for 20 years.
Energy consumption in the United States fell by 0.1 per cent last year, the first time since 1985 that the US experienced a combination of higher than normal economic growth and a decline in energy consumption. This was largely due to the effect of both high prices and relative energy prices in competitive markets as well as the impact of hurricanes in the Gulf of Mexico – the decline in US oil consumption was concentrated in the last four months of the year, after the hurricanes.
China also experienced a reduction in energy consumption growth, from 15.5 per cent in 2004 to 9.5 per cent in 2005, although economic growth in China was essentially unchanged at 9.9 per cent. China is now the world’s largest producer and consumer of coal, having resolved the shortage of coal for power generation of the previous year, and also the largest producer of hydroelectricity.
Oil: In terms of consumption and production growth, 2005 was a weaker year in the oil markets. However this failed to remove excess supply and inventories continued on an upward trend, firmly above historic average levels in aggregate. Prices rose further with Brent crude averaging $54 a barrel for 2005 as a whole – a development considered to be due less to ‘fundamentals’ than to the perception of risk, exacerbated by limited spare capacity.
Growth in oil consumption fell by 1.8 million barrels a day – to 1 million barrels a day - principally due to slowdowns in the US and China but also as a result of weakness in developing Asia Pacific where price subsidies were reduced in Indonesia, Malaysia, Thailand and the Philippines, and because India substituted imported oil with imported gas and coal.
Oil production growth in 2005 was 889.000 barrels a day, equivalent to one per cent, with OPEC supplying almost all of the growth. This was lower than expected for a number of reasons – many OPEC producers had reached or were close to full capacity, security problems in Iraq, hurricanes in the US, declines in both the UK and Norwegian North Sea, a slowdown in Russian production, a number of accidents and disruptions to production and rising cost inflation which reflected constraints in the contracting and engineering sectors, leading to delays.
Gas: World gas consumption growth also fell back in 2005 although the fall - 2.3 per cent - was less than that of oil. Slower global economic growth was one factor but there was also an impact from the US hurricanes which were more disruptive to US gas markets than oil markets. Internationalisation of gas continued via pipelines and LNG, domestic supply availability increased in some specific markets and industrial gas consumption in particular proved to be price sensitive in liberalised energy markets.
Gas prices have been pulled upward by rising oil prices and there were spikes in the US and the UK in response to changing demand conditions.
Coal: Coal continued to be the fastest growing fuel thanks to China which consumes 36.9 per cent of the world’s coal, almost all of which is domestically produced. Chinese coal consumption rose by 10.9 per cent in 2005, down from 14.4 per cent in 2004. Coal growth outside China was modest, up by 1.8 per cent in 2005, just slightly ahead of the 10 year average of 1.5 per cent.
International coal is now relatively cheap with prices having risen less than gas and then falling back faster. The cost of carbon has yet to critically impact fuel choice.
Nuclear and Hydroelectricity: Both nuclear and hydroelectricity contribute 6 per cent to total energy consumption.
Nuclear output edged up a mere 0.6 per cent in 2005, experiencing above average growth in Asia-Pacific where four new reactors were connected to the grid but declining slightly in the US and Europe with Germany and Sweden both permanently shutting down reactors.
The year was relatively good for hydroelectricity with an increase of 4.2 per cent, largely due to continued growth in China which remained the world’s largest hydro producer.
Renewables: Energy consumers around the world are increasingly expressing their desire to consume energy that is both local and green. Installed wind power capacity continued its annual increase of 28.6 per cent in 2005 but still only generates an estimated 0.7 per cent of worldwide electricity.
Ethanol, together with bio-diesel, is the leading renewable liquid motor fuel and global ethanol production increased by 10 per cent in 2005, reaching 16 million tonnes of oil equivalent or about 0.4 per cent of world oil consumption.
Notes to Editors:
* The BP Statistical Review of World Energy is available online at www.bp.com/statisticalreview. The website contains all the tables and charts found in the printed edition plus some additional data, an energy charting tool and a conversion calculator.
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