Energy Consumption Rises as Supplies Lag But Free Energy Markets Do Work
“The defining feature of global energy markets remains high and volatile prices, reflecting a tight balance of supply and demand. This has put issues such as energy security and alternative energies at the forefront of the political agenda worldwide,” said Tony Hayward, BP’s chief executive at the launch of the 2008 BP Statistical Review of World Energy.
The Review shows that the world’s fossil fuel resource base remains sufficient to support growing levels of production but the continued weakness in oil supply and increasing demand outside the OECD also highlight the challenges that industry faces in maintaining secure energy supplies.
“Declining oil production in the OECD highlights the fact that, while resources are not a constraint globally, the resources within reach of private investment by companies like BP are limited. Political factors, barriers to entry, and high taxes all play a role here. In other words, when it comes to producing more oil, the problems are above ground, not below it. They are not geological, but political,” added Hayward.
“But despite high and volatile energy prices, the world’s energy markets continue to deliver reliable energy supplies,” said Hayward.
According to the Review, world economic growth was strong last year, despite financial market turmoil which began in August, and this continued to support global energy consumption. And although growth in primary energy consumption slowed in 2007 compared to 2006, at 2.4% it was still above the 10-year average for the fifth consecutive year.
The oil price has been on an upward path for more than six years, which according to BP’s data series going back to 1861, is the longest period of rising prices on record.
“This year’s Statistical Review shows very clearly that markets do work, and that consumers and producers respond to changes in energy prices when given the opportunity to do so. However, in many places, policies interfere with market mechanisms and access to economically rational upstream reserves is difficult. Further, in a number of countries consumers are shielded from price increases via subsidies,” commented Christof Rühl, BP’s chief economist at the Review’s launch.
Oil: Dated Brent crude oil averaged $72.39 per barrel in 2007, an increase of 11%. Prices rose steadily throughout the year, from a low of just over $50 in mid-January to above $96 by year-end. Temporary bottlenecks caused the USA benchmark WTI to trade at a discount to Brent for the first time since 1979. Discounts for heavy, sour crudes remained high reflecting constraints on upgrading capacity in refining.
Global oil consumption grew by 1.1% in 2007, or 1 million barrels per day (bpd), slightly below the 10-year average. Consumption in the oil exporting regions of the Middle East, South and Central America, and Africa accounted for two-thirds of the world’s growth. The Asia-Pacific region grew by 2.3%, even though growth in China and Japan was below average, with strong growth in a number of emerging economies. OECD consumption fell by 0.9%, or nearly 400,000 bpd.
Global oil production fell by 0.2%, or 130,000 bpd, the first decline since 2002. OPEC production dropped by 350,000 bpd due to the cumulative impact of production cuts implemented in November 2006 and February 2007. Increased output in Angola and Iraq, and growing supply of condensates/NGLs, partially offset larger cuts in other OPEC countries.
Oil production growth outside OPEC remained weak, rising by just over 200,000 bpd in 2007; OECD output fell for a fifth consecutive year. FSU output rose by nearly 500,000 bpd, with Azerbaijan and Russia each growing by more than 200,000 bpd.
Proved oil reserves were essentially flat in 2007-at 1.24 trillion barrels-and are sufficient to meet current production for more than 41 years. However, the 2006 world total was revised up by 31 billion barrels upon receipt of more complete information.
Gas: World natural gas consumption grew by an above-average 3.1% in 2007, although only North America, Asia-Pacific, and Africa recorded above average regional growth. The USA accounted for nearly half of the world’s gas consumption growth, driven by cold winter weather and strong demand for gas in power generation. Chinese consumption grew by 19.9% and accounted for the second-largest increment to global gas consumption. EU consumption declined by 1.6%-the second consecutive decline-in face of warm winter weather.
Gas production rose by 2.4% in 2007. The USA accounted for the largest increment to supply, growing by 4.3%, the strongest growth since 1984. EU production declined by 6.4%, with UK output falling by 9.5%, the world’s largest volumetric decline for a second consecutive year. A small decline in Russian production was more than offset by strong growth elsewhere in the FSU. China and Qatar recorded the second- and third-largest increments to production, increasing by 18.4% and 17.9% respectively.
LNG shipments rose by 7.3%, supported by continued growth in shipments from Qatar and Nigeria. USA LNG receipts rose by one-third as a large price premium to European spot markets resulted in the diversion of cargoes to the USA.
Coal: Coal was the fastest growing fuel in the world for the fourth consecutive year. Global consumption rose by 4.5%. Consumption growth was widespread, with growth in every region except the Middle East exceeding the 10-year average. Chinese coal consumption rose by 7.9%, the weakest growth since 2002, but more than two-thirds of global growth. Indian consumption rose by 6.6%, and OECD consumption rose by 1.3%, both above average figures.
Nuclear and hydroelectric: Nuclear power output fell by 2%, the steepest decline on record. However, more than 90% of this decline was accounted for by Germany and Japan-which saw the world’s largest nuclear power plant closed following an earthquake. Hydroelectric generation increased by 1.7%, slightly below the 10-year average. Increased capacity in China and Brazil was partially offset by drought-related declines in the USA and Southern Europe.
Renewables: Renewable energy remains a small share of total global energy use, but most renewable sources experienced rapid growth in 2007. Ethanol output rose by 27.8%. Global capacity for wind and solar electricity generation grew broadly in line with historical averages of 28.5% and 37%, respectively.
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