In a climate of unprecedented turbulence, global energy markets followed the same extreme pattern as the world economy in general during 2008.
Prices first rose to record highs as economic growth boomed in the first half of the year. Then they collapsed as the global economy abruptly reversed and plunged into recession in the wake of the financial crisis.
But the year was also remarkable for another reason – less dramatic but, arguably, just as profound in its implications for the long term. For the first time ever, according to the 2009 BP Statistical Review of World Energy, the developing world led by China leapfrogged OECD nations in the consumption of primary energy.
At the launch of the Review in London today, BP chief executive Tony Hayward said: “The centre of gravity of the global energy markets has tilted sharply and irreversibly towards the emerging nations of the world, especially China.
“This is not a temporary phenomenon but one that I believe will only increase still more over time. It will continue to affect prices and bring with it new challenges over economic growth, energy security and climate change.
“This shift will bring volatility in the short term,” Hayward warned. “But I have no doubt that the diversity and flexibility of modern energy markets will continue to ensure that energy supplies continue to reach consumers efficiently and without interruption.”
BP chief economist Christof Ruehl said that in spite of the dramatic gyrations in the world economy and energy prices, the Review data showed how well those markets had served energy security during the year. “Allowing markets to continue to function freely and without interference remains key to managing the inevitable ups and downs in prices as we go forward,” he said.
The Review reports remaining proved oil reserves of 1,258 billion barrels, excluding Canadian oil sands – enough for 42 years at 2008 production rates. On the same basis, reserves of gas are sufficient for 60 years and coal for 122 years.
Reflecting the extremes of the world economy across 2008 – strong growth followed by sharp decline – the Review shows that overall primary energy consumption nudged up just 1.4 per cent, the smallest rise since 2001. China alone accounted for almost three quarters of the rise, with most of the balance coming from the wider Asia-Pacific region.
In the developed world, energy consumption fell by 1.3 per cent, with demand in the USA seeing the steepest single year decline since 1982, a drop of 2.8 per cent.
Oil: In 2008 the average price of dated Brent crude oil rose to $97.26 a barrel – 34 per cent up on the previous year and the seventh consecutive annual rise. However, the annual average masked huge variations across 2008. The price began the year at just below $100 a barrel, peaked at $144 in early July and fell dramatically to less than $40 at year-end – the fall a consequence of higher OPEC production and rapid slow-downs in consumption in the second half.
Over the year, global oil consumption fell by 0.6 per cent, or 420,000 barrels a day; the first decline since 1993 and the largest drop for 27 years. This included a steep fall in demand of 1.5 million barrels a day from the developed OECD countries – their third consecutive year of decline – and slower growth in demand (up just 1.1 million barrels a day) from outside the OECD.
Despite overall lower demand, average oil production rose 0.4 per cent, or 380,000 barrels a day, driven largely by OPEC production increases. Despite cuts late in the year, average OPEC oil output actually rose by almost 1 million barrels a day, or 2.7 per cent. This all came from the Middle East with daily production from Saudi Arabia up 400,000 barrels and from Iraq up 280,000 barrels.
Production outside OPEC recorded the steepest decline since 1992, falling by 1.4 per cent, or 601,000 barrels a day, with output from the OECD countries falling 4 per cent, or 750,000 barrels a day, driven by declines in North America and Europe. The single largest decline came from Mexico, where production fell 310,000 barrels a day. Russian production fell for the first time since 1998, by 90,000 barrels a day. UK oil production fell 94,000 barrels a day, or 6.3 per cent, to the lowest level for 30 years.
Gas: Gas consumption grew by 2.5 per cent, below the 10-year average. Consumption in the USA grew by 0.6 per cent as spot prices remained well below oil prices. Elsewhere, only the Middle East saw above-average growth, driven by strong domestic demand. Oil-indexed gas prices in OECD Europe and Asia-Pacific rose more rapidly which, coupled with the recessionary impact, meant that consumption growth was below average.
The largest incremental growth in world gas demand was from China, where consumption rose 15.8 per cent. The UK’s gas consumption grew by 3 per cent, with gas now supplying 39.9 per cent of the UK’s total primary energy – well above the global average of 24.1 per cent.
Globally, gas production rose 3.8 per cent, above the 10-year trend of 3 per cent. This was driven strongly by the USA which recorded its highest ever annual increase in gas production as strong activity in the development of unconventional gas resources raised output by 7.5 per cent – 10 times the 10-year average growth rate. The second highest increment was from Qatar as pipeline exports to UAE increased. Production rose in Europe overall as increases in Denmark, Netherlands and Norway more than offset falls in the UK and Germany.
Coal: For the sixth consecutive year coal remained the fastest growing fuel globally, even though its 3.1 per cent growth in consumption was below the 10-year trend. China, which accounts for fully 43 per cent of global coal demand, accounted for 85 per cent of this growth, with an increase of 6.8 per cent. Outside China however, global demand growth was weak, climbing only 0.6 per cent, reflecting the fact that coal prices in liberalised markets increased more than for any other fossil fuel. Coal use in the UK fell 7.6 per cent to the lowest level for a decade, in part due to fuel switching driven by CO2 prices in the EU emission trading scheme.
Other fuels: Nuclear output fell for the second consecutive year, by 0.7 per cent, led by a 10 per cent decline in Japanese output as its largest power station remained shut after a 2007 earthquake. Hydroelectric output continued its recent strong performance with growth of 2.8 per cent, above the 10 year average for the fourth time in the past five years. However, again, all of the global increase could be accounted for by growth in China – climbing by 20.3 per cent, nearly twice the country’s 10-year average rate. Hydroelectric generation outside China fell by 0.4 per cent.
Renewable energy again grew strongly albeit from a low base, with wind and solar generating-capacity growing 29.9 per cent and 69 per cent respectively, both above their 10-year average rate. The USA’s wind power generating capacity grew by 49.5 per cent, overtaking Germany to have the largest installed wind generating capacity in the world. UK wind generating capacity grew 36.3 per cent to 3.3 GW; still, however, accounting for less than 3 per cent of global installed capacity.