BP Statistical Review of World Energy 2012: Summary of 2011 data

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BP Statistical Review of World Energy 2012: Summary of 2011 data

  1. 1. BP Statistical Reviewof World EnergyJune 2012bp.com/statisticalreviewEnergy in 2011 – disruptionand continuityChristof Rühl, 13thJune 2012© BP 20121 A year of disruptions2 Energy and the economy3 Fuel by fuel4 Concluding remarks
  2. 2. Christof Rühl, London June 2012BP Statistical Review of World Energy June 2012 11. A year of disruptionsEnergy in 2011 – disruptions and continuityBP Statistical Review of World Energy© BP 2012GDP and energy growthMtoe Annual change, %Supply disruptions“Arab Spring” “Fukushima”Source: includes data from Oxford Economics0%1%2%3%4%2001-11 2011GDP Energy-80-60-40-200Libya Syria/Yemen Japan GermanyCoal NuclearGas OilWelcome to the 61st edition of BP’s Statistical Review.As ever, this presentation is our attempt to analyse lastyear’s data, to tease out the underlying story of whathappened in international energy markets, in as rigorousa fashion as possible. The main theme this year relatesto the disruptions we saw in 2011, how the globalenergy system coped with them, and what lessons wecan draw from the adjustment.The enduring memories of 2011 are likely to be ofhuman hope and tragedy, of courage and of frailty. Inthe much smaller energy world this Review isconcerned with, political upheaval and natural disasterstranslate into huge and unpredictable disruptions of theglobal energy system. Quantifying these disruptions isour starting point.Political unrest and violence caused outages in oil andgas production in parts of the Arab world. The cessationof Libyan oil exports alone removed 1.2 Mb/d of crudefor the year. Adding in outages of natural gas and lossesin other countries shows a total decline in excess of 72mtoe compared to 2010 production – equivalent to morethan 11% of the European Union’s oil consumption.The shut-down of Fukushima and earthquake relateddamage to Japanese coal-fired power stations, plus thesubsequent closure of additional reactors in Japan andEurope led to losses of 43 mtoe for the year –equivalent to almost a third of Asia’s, or 7% of globalnuclear power consumption in 2010.In addition, 2011 saw for the first time ever an annualaverage oil price above $100; the first release ofstrategic petroleum reserves since 2005; the largestincrease in OPEC production since 2008; an exceptionalswing in European weather; and huge floods in Australiaimpairing coal production – to name but a few. It wasanything but a boring year.And yet - nothing in the aggregate data indicatesanything out of the ordinary. In fact both GDP andenergy consumption growth last year landed right attheir long term average. GDP at 3.7% grew slightlyfaster than primary energy consumption at 2.5%, as isthe case in ‘normal’ years, yielding an improvement inenergy intensity of 1.1% – again, close to trend. And aswe will see in a moment, other major long term trends,such as the shift of the world’s centre of gravity towardthe non-OECD economies, continued unabated as well.So how did the energy system cope?0306090120150Jan-08 Jan-09 Jan-10 Jan-11 Jan-12Oil BrentGas Henry HubCoal basketEnergy pricesBP Statistical Review of World Energy© BP 2012$/boeSource: includes data from Platts, BAFA and McCloskeyAnnual change, %2011 price changesEnergy prices-20%-10%0%10%20%30%40%Oil Brent Gas HH Coal basketPrice changes give a first indication that majoradjustments took place underneath the smoothaggregate surface. 2011 saw big price increases:Average annual Brent prices increased by 40% to reach$111 per barrel, the highest nominal oil price ever; for ahigher annual price in inflation adjusted terms, one hasto go all the way back to 1864. A simple average of theinternational coal marker prices we publish in theStatistical Review increased by 24%, with the biggestincrease in Europe; and with US coal prices approachingUS gas prices. While US gas prices continued theirdecline following the shale gas revolution, oil indexedgas prices outside the US increased, pulled up by therising price of crude; spot prices followed suit.Supply disruptions are one plausible cause for risingenergy prices, the other usual suspect is economicgrowth.2. Energy and the economy-8%-4%0%4%8%1Q10 3Q10 1Q11 3Q11 1Q12USJapanEU0%1%2%3%4%1980-1990 1990-2000 2000-2010 20110%1%2%3%4%1981-1991 1991-2001 2001-2011 2011Non-OECDOECDThe economyGDP growthQuarterly change, % annualisedAnnual change, %Contribution to GDP growthSource: includes data from Oxford Economics BP Statistical Review of World Energy© BP 2012
  3. 3. BP Statistical Review of World Energy June 20122To be upfront, there is not much in the economic data toindicate abnormal pressure on energy demand or prices.The global economy grew by 3.7% in purchasing powerparity terms last year, or by 2.7% when using marketexchange rates – significantly slower than in 2010, butby both measures almost exactly at the ten yearaverage. As has become customary, non-OECDeconomies outpaced the OECD, contributing almostthree quarters (73%) of global growth – but both campslanded exactly at their ten year average by this measureas well.While the global economy adjusts to lower growth afterthe crisis, the shift of its centre of gravity toward thenon-OECD continued. Volatility and disparities exist inboth camps – but in 2011, they were more pronouncedin the OECD: the Japanese pathway is shaped by thetragedy that was the earthquake and tsunami. Post-crisis growth in the US and Europe started to diverge,with the US in tentative recovery mode, and Europedragged down by unresolved issues in its unifiedcurrency area. Both developments are still with us. Thepost-crisis adjustment is proving difficult in thedeveloping world as well, but repercussions therestarted later and are an issue for 2012 and beyond.Adding in primary energy growth confirms – for once,given the upheavals of the last few years – the bigpicture: no extraordinary impact from the economy onenergy demand. The composition of fuels also evolvedbroadly in line with long term trends, with the obviousexception of nuclear power. An interesting deviationfrom trend emerges only if one distinguishes OECDfrom non-OECD energy growth.-2%0%2%4%6%8%2001-11 2011-2%0%2%4%6%8%2001-11 2011GDP EnergyGDP and energy growthBP Statistical Review of World Energy© BP 2012Annual change, %Non-OECD OECDSource: includes data from Oxford EconomicsAnnual change, %Non-OECD energy consumption growth of 5.3% stayedfirmly on trend last year, with China growing at 8.8% –that is, adding more than total annual UK energyconsumption – similar to last year. OECD energyconsumption, in contrast, fell by 0.8%, despite averageGDP growth. While OECD GDP finally returned to pre-crisis levels, energy consumption remains 3.3% belowits 2007 peak; it has declined in three out of the last fouryears. Why last year?There are broadly three reasons: First, the impact ofhigh oil prices everywhere, and of high coal and gasprices outside the US. Energy prices in the OECD areleast sheltered by subsidies, and so the price impact ismost direct. The US, for example, the world’s secondlargest energy consumer, used 0.4% less energy in2011, despite lower gas prices and a strong recovery inhydropower. US energy consumption has now fallen infour out of the last six years, driven by a rapid decline inoil consumption – the fuel that has had the most rapidprice increase. The second reason for the decline wasthe impact of Fukushima: Energy consumption in Japan,the world’s third largest economy, declined by 5%; andswitching off nuclear power had knock-on effects onanother large economy, Germany. Finally, Europeexperienced an exceptional swing to warmer weathercompared to 2010, the key reason behind a 3.1%decline in EU energy consumption.The energy dislocations in the OECD give anotherindication of how markets coped with the disruptionsthat characterized 2011.Fuel substitution, supply and demand responses andtrading patterns all played their role. In a nutshell, threemajor adjustments took place: an increase in oilsupplies, most notably from Saudi Arabia, together withflexibility in trading and the global refining system,allowed heavier Saudi crudes to replace lighter Libyan oilin Europe; a diversion of natural gas from Europe to Asiaallowed the substitution of lost nuclear energy in Japanwithout harming the energy needs of other economiesin this fast growing region; and finally, the release ofcoal from the Americas, facilitated by the availability ofunconventional gas in the US, helped to replace gas inEurope.To trace these developments in more detail, we bestlook at them fuel by fuel.3. Fuel by fuelOil0501001502007 2008 2009 2010 2011 2012Dated BrentAnnual averages7085100115130Jun-10 Dec-10 Jun-11 Dec-11 Jun-12Dated BrentWTICrude oil pricesBP Statistical Review of World Energy© BP 2012Source: includes data from PlattsDated Brent and WTI$/bbl$/bblDated BrentLike energy markets at large, oil markets experiencedsignificant turbulence in 2011 and so far this year. Oil
  4. 4. Christof Rühl, London June 2012BP Statistical Review of World Energy June 2012 3prices rose substantially in 2011, with Dated Brent up by40% to average $111/bbl – a record in money-of-the-dayterms. Prices began the year slightly above $90 and rosesharply following the loss of Libyan supplies in February.They peaked just below $127 in mid-April andmoderated thereafter as the economy (and oil demand)weakened, OECD nations released 35 Mbbls of oil fromstrategic storage in July and August, and other OPECproducers began to increase output. Earlier this year,prices spiked again as the stand-off around Iran’snuclear program stoked market fears of a supplydisruption. Those fears have been assuaged morerecently by record levels of OPEC production and risinginventories.A second key development was the massive $16 gapthat emerged during 2011 for the world’s two maincrude benchmarks, West Texas Intermediate and DatedBrent. The differential between these similar-qualitycrudes is due to infrastructure constraints triggered bythe rapid growth of US and Canadian supplies.Oil production growth in 2011BP Statistical Review of World Energy© BP 2012IncreaseMb/dDeclineUAEKuwaitIraqUSNorwayAzerbaijanAngolaUKLibya-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5Non-OPECOPECSaudi ArabiaThe main factor driving prices up last year was thesustained loss of supplies caused by upheavals in theArab world, primarily in Libya, and the slow pace ofother OPEC members in filling the void. Libyan outputlast year fell by 1.2 Mb/d or 71% – the largest decline ina country’s oil production since the aftermath of theSoviet collapse 20 years ago. Several other countries inthe Middle East and North Africa also experiencedsupply losses, some of which have continued into thisyear.These losses are not visible in the annual data: global oilproduction increased last year by 1.1 Mb/d. Moreover,virtually all of that increase was from OPEC countries – agroup that includes Libya. The reason is a massiveincrease in oil production among OPEC members in theArabian Peninsula and Iraq, who collectively increasedoutput by 2.5 Mb/d over the year, in the event meetingnot only the loss of Libyan supply but also the growth inglobal oil demand. Saudi Arabia alone increased outputby 1.2 Mb/d, with production reaching a record 11.2Mb/d.Outside OPEC, production was essentially flat, withgrowth in the US, Canada, Russia and Colombiaoffsetting continued declines in mature provinces suchas the North Sea, extended outages in a number ofcountries such as Azerbaijan, and flat biofuels outputdue to weather related disruptions in Brazil.0500100015002000Jan-07 May-08 Sep-09 Jan-11 May-12OilGasUS supplyBP Statistical Review of World Energy© BP 2012Source: includes data from Energy Information Administration and Baker HughesUS rig countsRigsAnnual change, Kb/dUS supply-25002505007502007 2008 2009 2010 2011OtherNGLsGoMTX/ND*Net*Texas and North DakotaA striking shift in US oil production has become animportant piece of the evolving oil supply story. Withhigh oil prices and low natural gas prices incentivizing aswitch in drilling activity from natural gas to liquids, andthe application to oil of techniques mastered for shalegas, the US had the largest increase in non-OPEC oilsupply for the third year running. Output in 2011 wasthe highest since 1998, and has continued to growrobustly this year. Combined with rising supply fromAlberta, this significant growth has created bottlenecksin the US pipeline system, leading to the largedisconnect between WTI and Brent mentioned earlier.There is a bigger lesson behind these developments.Canada and the US both boast very competitiveinvestment and property regimes. The competitionenabled by open access triggered short term supplyresponses to price incentives, as seen in the shifting rigcount from gas toward oil production; but it also breedsinnovation and the long term development oftechnologies which make such short term adjustmentspossible over time. It is no accident that supply growthand new technologies have been concentrated in NorthAmerica.Oil consumption growth in 2011Kb/dLargest changes Regional growth by fuel typeKb/d-600-3000300600900Non-OECD OECDLight distillateMiddle distillate-400 -200 0 200 400 600USGermanyTaiwanIranSaudi ArabiaIndiaRussiaChinaOECDNon-OECDBP Statistical Review of World Energy© BP 2012Consumption growth, meanwhile, was weak. Global oilconsumption rose by just 0.7% or 600 Kb/d in 2011, alittle over half the ten year average (1.1 Mb/d or 1.2%) –
  5. 5. BP Statistical Review of World Energy June 20124despite global GDP staying at trend. For the 12th year ina row oil’s share in the primary energy mix declined.On the surface, oil consumption data mimics thecontrast between OECD and non-OECD energy demanddiscussed earlier. But in oil, the OECD decline canalready be called structural.Non-OECD consumption grew by 1.2 Mb/d or 2.8%.China once again saw the world’s largest increase, at500 Kb/d, accounting for 42% of the net increment, withsignificant gains also seen in Russia (160 Kb/d), India(140 Kb/d) and Saudi Arabia (110 Kb/d). Consumptiondeclined in North Africa and growth was below averagein the Middle-East – yet another glimpse of the politicalupheaval in these regions, but also reflecting subsidycuts in Iran, driven by sanctions.OECD consumption continued its long term decline andfell by 600 Kb/d, reaching its lowest level since 1995.The US (350 Kb/d) and Germany (80 Kb/d) accounted forthe largest contractions. By coincidence, the warmEuropean winter reduced heating oil demand by aboutthe same amount (120 Kb/d) which was required todeliver a 38% increase in fuel and crude oil for powergeneration to Japan (140 Kb/d), as oil helped to mitigatethe nuclear outages.Distinguishing by refined product category furtherilluminates the reasons behind weak consumptiongrowth. The weakest portion of overall product demandwas light distillates, including gasoline, which fell by 1%or 300 Kb/d globally. Gasoline is price sensitive; higherprices at the pump drove a decline in consumption. Thiscontrasts with middle distillates, including diesel, whichis primarily used in commerce, and therefore tends tobe aligned with GDP growth. During the past years ofhigh prices, middle distillates were the fastest-growingproduct group.Limits to oil consumption growth$/bbl Litres/100km for new salesVehicle fuel economySubsidised consumption03060901200%10%20%30%40%2003 2005 2007 2009 2011Oil price (RHS)% of global demand5678910112002 2005 2008 2011US*EUChinaJapanSource: includes data from the International Council for Clean Transportation and the US Environmental Protection Agency* Includes light trucksBP Statistical Review of World Energy© BP 2012The consumption data confirm another importantdevelopment. Demand responses to high internationalprices are still disproportionally concentrated in OECDeconomies, where subsidies of oil products are absent.However, emerging economies are becoming moreprice sensitive because subsidisation in this segmenthas decreased. Only about 20% of the world’s oilconsumption was in countries with subsidies last year,down from nearly 40% in 2008, the last year of recordhigh oil prices. Because subsidies are expensive andbecause of the realisation that energy efficiency mattersin international competition, the cycle of rising oil pricesresulting in rising subsidies appears to have beenbroken: we estimate that non-OECD countries passedroughly 70% of last year’s oil price increase on toconsumers, up from about 25% in 2008. Of thecountries that continue to subsidize consumption, mostare the oil exporters themselves – in 2011 this group,which accounts for less than one-quarter of global oilconsumption, contributed two-thirds of global demandgrowth.Longer term price effects are starting to become morevisible as well. Fuel efficiency for new vehicles isimproving rapidly in most markets – in both the OECDand emerging markets. While this is driven in part bygovernment standards, several years of high oil priceshave helped change consumer preferences. The vehiclefleet turns over only gradually, and so the improvedefficiency of new vehicles will weigh on consumptionfor years to come.8586878889904Q10 2Q11 4Q11 2Q12DemandSupply25002600270028002900Jan Mar May Jul Sep Nov2006-10 range 2006-10 average2011 2012Oil consumption and productionBP Statistical Review of World Energy© BP 2012OECD commercial oil stocksMbblsMb/dWorld liquids demand and supplySource: includes data from Energy Information Administration and Monthly Oil Data Services © OECD/International Energy Agency May 201235 Mbbl SPR releaseTurning back to the aggregate data, the globaldevelopments in production and consumption put us ina position to explain the trajectory of prices in 2011, andthis year. As 2011 began, oil consumption wasoutpacing production – reflecting the legacy ofaggressive OPEC production cuts to offset the impact ofthe recession on oil demand. That gap widenedsignificantly after the loss of Libyan supplies in February2011. Even with the large increase in output from SaudiArabia and other Gulf states described earlier, overallOPEC output did not surpass pre-disruption levels – andglobal production did not exceed consumption – untillate in 2011. This timing left inventories well belowaverage despite the SPR release and in this waysupported crude prices throughout the second half of2011.So far this year, global production has exceededconsumption by a large margin. Although tensionssurrounding the Iran nuclear stand-off supported anotherspike in prices early this year, inventories have nowmoved above the five-year average, setting the stage for
  6. 6. Christof Rühl, London June 2012BP Statistical Review of World Energy June 2012 5the significant weakening in prices seen in recentweeks, with Dated Brent falling below $100 for the firsttime since February 2011.RefiningRefining: spare capacity and utilisationRefinery utilisationCumulative spare capacity growthMb/d since 2005Source: includes data from Parpinelli Tecnon and Energy Security Analysis Inc.77%81%85%89%2005 2006 2007 2008 2009 2010 2011WorldOECDNon-OECD02462006 2007 2008 2009 2010 2011Non-OECDOECDBP Statistical Review of World Energy© BP 2012The global refining environment continues to becharacterized by massive excess capacity and slowthroughput growth. Net global refining capacity grew by1.4 Mb/d in 2011, led by growth of 730 Kb/d in AsiaPacific, mainly in China. In contrast, global crude runsgrew by just 380 Kb/d, slightly below liquidsconsumption growth because of new NGL supplies. Thedata continues to show differing fortunes between theOECD, where runs were down (by 310 Kb/d) and thenon-OECD, where runs increased (by 680 Kb/d). The USbucked this trend of lower OECD throughputs andincreased runs as Midwest refiners took advantage ofweak domestic crude prices. Middle distillate exportsand a reduced gasoline import requirement led to theUS becoming a net oil product exporter for the first timein our data (1960).Global unused capacity increased by 1 Mb/d and is nowmore than 5 Mb/d higher than it was in 2005. Globalrefinery utilisation fell to 81.2%, the second lowestsince 1994. There is too much refining capacity – but noteveryone is suffering to the same extent. Flexible siteswith world class operations can be successful and in2011, some had the opportunity to prove it.Crude oil trade and refining marginsMb/dSource: includes data from the International Energy Agency$/bblNW Europe cracking marginsEuropean crude imports024681Q 2Q 3Q 4Q2010 2011 201202468101995 1999 2003 2007 2011S&C AmericaOtherFSUAfricaMiddle EastBP Statistical Review of World Energy© BP 2012The disruption of Libyan supplies meant that Europe lostaround 800 Kb/d of good quality crude oil. Other Africanexporters made good about half of these losses by re-optimising trade. The Former Soviet Union is Europe’slargest crude oil supplier by far but its oil productiongrew only marginally last year. That created anopportunity for Middle East exporters to regain marketshare and, led by Saudi Arabia, they increased mediumand heavy sour crude exports to Europe by more than250 Kb/d. With flexible sites and excess capacity inEurope, the lost Libyan barrels were easily replaced.European refiners made the switch to a heavier crudeslate with only a modest impact on cracking margins.Just how modest is revealed by a look at the 2012margins so far, which have increased because of springmaintenance, shutdowns in OECD refining, and stronggasoline export demand. However, with gasolinedemand contracting year-on-year on both sides of theAtlantic, these spikes are likely to be transitory.Natural GasNatural gas markets in 2011Source: includes data from PlattsRegional gas prices$/Mmbtu-50050100150Production ConsumptionNorthAmericaFSUEuropeMiddleEast AsiaOtherAnnual change, BcmProduction and consumption growth05101520Feb 10 Aug 10 Feb 11 Aug 11 Feb 12Asia LNGGermany AGIPUK NBPUS Henry HubBP Statistical Review of World Energy© BP 2012Natural gas has produced some of the biggest changesin global energy markets over the last few years: Thereis, first, the rapid increase in trade, especially of LNG,that has connected hitherto segmented regions in anincreasingly flexible manner. And second, thedevelopment of unconventional resources in the USwhich has everyone wondering where gas may turn intoa relatively abundant resource next. Both of thesedevelopments shaped 2011. And as it happens, theyalso played a key role in the response to last year’sdisruptions.Let us start with a quick summary of changes on theaggregate level.Natural gas production and consumption growthmoderated, compared to last year’s exceptionalincreases. Global production was up 3.1% (98 Bcm),slightly above trend (2.8%). Growth originated in theMiddle East (11.4%, 54 Bcm), North America (5.5%, 45Bcm) and the Former Soviet Union (4.6%, 34 Bcm).Consumption rose by 2.2% (70 Bcm), below trend(2.7%), and led by Asia Pacific (5.9%, 33 Bcm), NorthAmerica (3.2%, 28 bcm) and the Middle East (6.9%, 26Bcm). European consumption, in contrast, suffered anunprecedented 7.8% (42 Bcm) decline.
  7. 7. BP Statistical Review of World Energy June 20126There is no global price for natural gas. Regional pricechanges therefore provide a first glimpse of theunderlying forces of demand and supply and thepatterns of change in any given period. Annual averagespot prices for LNG in Asia rose by 82% to $14/Mmbtuin 2011, driven by a combination of higher oil pricespushing up oil-indexed contract prices, and strongadditional demand for LNG from Japan, to displacelosses in nuclear power. They have since risen another16% for 2012 to-date. At the other end of the spectrum,US prices slipped by 8% to an average of $4/Mmbtu in2011; they have since fallen a further 42% to average$2.3/Mmbtu in 2012. US Henry Hub prices have been ata record discount to oil as well as to international gasprices.European spot and contract prices hovered between theUS and Asian extremes, with UK spot prices averaging$9/Mmbtu in 2011, up 37% on the previous year. Milderweather in Europe helped European spot prices toremain well below oil-linked contract prices throughout2011 (AGIP, increasing by 32% and averaging$10.65/Mmbtu) and into 2012 so far – despite the lossof Libyan supplies and the diversion of LNG cargoes toAsia.Global gas tradeSource: includes data from Cedigaz, GIIGNL, CISStats, Poten, WaterborneLNG import growth in 2011Gas exports20%25%30%35%0500100015002001 2003 2005 2007 2009 2011LNGPipelineShare of globalconsumption (RHS)Bcm Annual change, Bcm-100102030To Asia To EuropeFrom QatarFrom AtlanticBasinBP Statistical Review of World Energy© BP 2012International trade continued to outpace consumption,rising by 4% (39 Bcm). LNG grew by more than 10%,easily outpacing pipeline trade growth of 1.3%. 32% ofall natural gas is now traded across internationalborders; and 32% of all traded gas is LNG. This meansthat more than 10% of all gas consumed reaches itsdestination as a LNG cargo.Trading patterns in 2011 show a large shift of LNGtoward Asia, driven by the continued need to fuel rapiddemand growth in the region as well as the necessity toreplace nuclear power in Japan. Asian net LNG importsincreased by 34% (27.6 Bcm), compared to 3% (2.1Bcm) in Europe, with Asia-bound deliveries accountingfor 90% of global LNG growth. By coincidence also lastyear, Qatar finalised the final phase of expansion of itsLNG export capacity. Qatari LNG supply grew by 35%(26 Bcm) in 2011 as Qatar overtook Norway to becomethe world’s 2nd largest gas exporter. Japanese demandthus could tap into a combination of short-term deals fornew Qatari supply and spot purchases from varioussuppliers, especially Atlantic Basin suppliers such asNigeria and Equatorial Guinea.The share of LNG deliveries into Asia rose to 63% of theglobal total; whereas Europe’s market share fell to 27%.What drove this switch?-20-100102030China Japan Other AsiaAnnual change, BcmAsia supply growthSource: includes data from Cedigaz, GIIGNL, CISStats, Poten, WaterborneAnnual change, BcmEurope supply and demand growth-45-30-15015Supply DemandOther netimportNatural gas in Asia and Europe in 2011ProductionLNGPipelineProductionFrom LibyaFrom RussiaBP Statistical Review of World Energy© BP 2012It was a combination of two developments. Japan’sneed to import more natural gas to secure its energysupplies dominated the headlines. Indeed, the world’slargest LNG importer increased LNG imports by anadditional 12.5% (12 Bcm). Independently, China for itsnew five year plan is debating a program to double theshare of natural gas in its energy mix from 4% to 8%between 2011 and 2015. China’s gas market has morethan doubled over the past five years, though it still is‚only‛ the fourth largest market in the world. Since2006, China’s gas consumption growth was the world’slargest three times, including in 2011, when growthcame to 22% or 23 Bcm – by far the biggest incrementever in China, and supplied by a combination ofdomestic production increases (up 8% or 8 Bcm),pipeline imports (from Turkmenistan, 301% or 11 Bcm),and LNG imports (28% or 4 Bcm). In addition, Asia sawstrong LNG demand growth from India (5 Bcm – drivenby domestic production problems) and South Korea (5Bcm – on strong economic growth and cold weather).Overall, LNG demand in Asia increased by 15% (27Bcm).With Asia absorbing most of the growth in LNGsupplies, there was little left for Europe. Europeanmarkets also had to deal with the loss of Libyan supplies(7 Bcm) – and large production declines in the North Sea(23 Bcm, of which 12 Bcm from UK, 5 Bcm fromNorway and 6 Bcm from the Netherlands), where theunderlying natural decline of mature fields wasexacerbated by maintenance shut-downs, much ofwhich unplanned.The situation in Europe was mitigated by increasedpipeline imports from Russia (9%, 11 Bcm), by fallingdemand, and by additional coal supplies. Gasconsumption was sharply lower across all the majorEuropean markets - with the sole exception of Turkey(up 17.3%) - due to the combination of weak economicgrowth, an exceptionally mild winter compared to 2010,and substitution by coal in power generation.
  8. 8. Christof Rühl, London June 2012BP Statistical Review of World Energy June 2012 7Consumption fell faster than supply, leading to asignificant inventory build and keeping spot prices wellbelow oil-indexed contract prices.10%15%20%25%30%35%Jan Mar May Jul Sep Nov2006-10 range 2011 2012Gas share in power generation02004006008001971 1981 1991 2001 2011BcmProductionShale gasSource: includes data from Energy Information AdministrationUS natural gas marketBP Statistical Review of World Energy© BP 2012While Asian markets were looking for supplies to meetsurging demand, and Europe coped with decliningproduction, the North American gas market faced a verydifferent challenge. The continued momentum in thegrowth of unconventional gas supplies saw US gasproduction increase by a record 47 Bcm, accounting for48% of the growth of world gas production in 2011, andtaking US gas production to a new all-time high, abovethe previous peak in 1973. 30% of this total was shalegas.Demand could not keep up (2.4%, 17 Bcm), despite areduction of net imports and gas prices low enoughversus coal to encourage substantial substitution inpower generation. The incremental supply which wasleft was ultimately absorbed by a large build-up ininventories.The growth of LNG trade and the production ofunconventional gas continue to transform the world ofnatural gas. In 2011, they combined to give gas marketsthe flexibility to accommodate additional Japanese LNGdemand, without disruption in other parts of the system.To see how, we need to look at coal.CoalCoal was the fastest growing fossil fuel last year, inproduction as well as consumption. The coal story is astory of production and trade patterns able to adjust tomarket conditions. In this way, coal was buttressingglobal supply security.Coal growth in 2011Largest changes in consumptionMtoeMtoeLargest changes in production267655-5ChinaIndonesiaColombiaRussiaUkraineUSAustralia1582565-2-6-24ChinaIndiaAustraliaSpainCanadaJapanUS163BP Statistical Review of World Energy© BP 2012Coal production increased by 6.1% (229 mtoe) globally,easily exceeding the ten year average (4.9%). Growthlast year, as in many previous years, came from China(8.8%, 158 mtoe) which provided the largest volumetricincrement, raising its share in global production to 50%.It did not come from India, where a prolonged monsooncaused production growth of 2.3% (5 mtoe) to lagconsumption growth by an even wider margin thanusual. EU production also grew by 2.6% (4.2 mtoe), thefirst increase since 1995.Only a small share of coal is traded, but this share isgrowing – in size and reach. In 2011, and outside China,coal exporters, benefiting from growing import needs inAsia and Europe, have been the largest contributors toproduction growth with Indonesia recording the largestproduction increment (18.1%, 30.6 mtoe) by far. Theworld’s biggest exporter, Australia, was an exception; itrecorded a production decline (2.2%, 5.3 mtoe) becauseof floods.Strong global demand was driven by the non-OECD, inparticular by China at 9.7% (163 mtoe) and India at 9.2%(25 mtoe) who together accounted for 98% of netconsumption growth. Over the last decade, the OECDshare in global coal consumption has declined from 47%to 29%. Last year, OECD consumption declined by1.1% (12 mtoe), five times the average rate (-0.2%). Yetthis was not your typical coal-equals-emerging-marketsyear.The OECD decline in 2011 was particularly pronouncedin the US (-4.6%, 24 mtoe) where shale gas erodedcoal’s role in power generation; and in Japan (-4.8%, 6mtoe), where coal-fired electricity production had to bereduced after the earthquake. These declines werepartially offset by growth in the EU (3.6%, 9.8 mtoe),where coal was winning against gas in powergeneration because of lower prices, and also because ofregulatory incentives: carbon prices remained extremelyweak under the present system and explicit quotasprotected coal from competition in Spain (where almosthalf of the EU’s consumption growth had its origin with5.1 mtoe).
  9. 9. BP Statistical Review of World Energy June 20128Coal prices and tradeImport growth in 2011Annual change, MtoeSteam coal prices6090120150180Jan-10 Jul-10 Jan-11 Jul-11 Jan-12China Qinhuangdao (fob)Japan Index (cif)NW Europe (cif)US CAPP (fob)$/tonne-100102030To Asia* To EuropeFromIndonesiaFrom RussiaFrom USFromColombiaSource: includes data from McCloskey, Eurostat, IHS CERA*China, India, Japan, South Korea, Hong Kong, TaiwanFrom otherBP Statistical Review of World Energy© BP 2012Steam coal prices in Asia remained at a premium, withChinese import demand driving up prices throughout theregion - including in Japan, the world’s second largestcoal importer, and despite falling demand there.European import prices rose more rapidly (31.4% y-o-y,compared to 26.1% in China), albeit from a lower level –and just enough to attract additional imports from acrossthe Atlantic. A clear pattern emerges: Asian suppliersand Russia provided the bulk of additional coal for Asia;American suppliers and Russia did the same for Europe– in the course of events also replacing European Unionimports from Indian Ocean suppliers that had beenredirected to Asia.With Australia’s and South Africa’s coal exports falling in2011, there was plenty of room for other suppliers to fillthe gap. Indonesia benefitted most, growing exports toAsia by 18% (25.1 mtoe). Russia came second (25.7%,3.8 mtoe). Meanwhile, Colombia (35.3%, 7.9 mtoe), theUS (38.3%, 6.4 mtoe) and Russia again (15%, 4.5 mtoe)satisfied Europe’s higher net import requirements.In this way, markets balanced. European marketscompensated for the natural gas cargoes (LNG)bypassing the old continent for Asia in part by picking upabundant US and Colombian coal supplies. Higher Asianprices directed previous exports from Indian Oceansuppliers back into Asia, while attracting new suppliesfrom Russia and Indonesia. And coal from the US wasavailable at a price advantage because at home, it hadbeen backed out by natural gas.This, then, allows us to complete the puzzle of howmarkets coped with the large scale disruptionsdominating the headlines in 2011. Production increases,demand changes and even the weather all helped. Inessence, however, this is a story of fuel substitution andshifts in trade flows, triggered by price adjustments.Before leaving this subject, let’s have a short look atwhat happened to non-fossil fuels.Non-fossil fuelsNuclear, hydro and other renewables in powerOther OECDOutput changes in 2011-200-1000100200Nuclear Hydro RenewablesJapanUSGermanyAnnual change,TWhBrazilEUChinaOtherShares of world power generation0%5%10%15%20%1991 1996 2001 2006 2011NuclearHydroRenewablesBP Statistical Review of World Energy© BP 2012Nuclear was of course at the heart of one of the majordisruptions in 2011. Global nuclear generation fell by4.3% (119 TWh), the largest decline on record, bringingit back roughly to the level of 2001. Nuclear’s share ofglobal energy (4.9%) was at the lowest level since 1986.But beyond the closure of Japanese and Germannuclear plants, the global impact on energy markets ofthe Fukushima incident has actually been relatively mild.Nuclear output grew in 22 countries in 2011 and onecountry – Iran - joined the ranks of nuclear powerproducers in the Statistical Review.Renewable power generation grew 18%, the ninthsuccessive year of double-digit growth. This was thelargest ever volume increment (29.3 mtoe), contributing10% of the overall increase in world energyconsumption – a larger contribution than oil. The US(16.4%), China (48.4%) and Germany (22.9%), togetheraccounted for more than half (56%) of renewable powergrowth in 2011. Overall, renewable energy, includingbiofuels, accounted for 2% of primary energyconsumption in 2011, of which 1.6% was from fuels forpower generation. The share of biofuels in totalrenewable energy declined because production washampered by a weather related decline in Braziloffsetting production increases elsewhere.Renewable energy did not play a role in responding tothe disruptions we discussed – partially because wind,solar and geothermal energy inputs are non-tradable,and partially because capacity expansion is still afunction of policy support. For 2011, the path ofrenewable growth was largely pre-determined byexisting policy settings.The impact of high oil prices on the economyI have described 2011 earlier as a year when theeconomy did not drive prices up. But up they wentanyway, and this gave rise to a different discussion – theimpact of high energy prices, and in particular of oilprices, on the global economy.
  10. 10. Christof Rühl, London June 2012BP Statistical Review of World Energy June 2012 90%2%4%6%8%US EU China IndiaOil import billExports to oil producersNet costImpact of oil prices on the economyMb/dNet oil imports04812162001 2003 2005 2007 2009 2011EU ChinaUS India2011 net oil import bill% GDPSource: includes data from the International Monetary Fund BP Statistical Review of World Energy© BP 2012There is widespread consensus that high oil prices aredetrimental to economic growth, but no unanimity abouthow ‚high‛ prices need to be to create damage, norabout the magnitude of such damage. The variouschannels for such an effect are well known: On a globallevel, the main transmission mechanism is the transferof income from oil importers to oil exporters. For oilimporters, higher prices will leave them more exposedthe higher the share of imported oil in their economy.But it is more complicated than this: The overall effectdepends on how oil exporters use the additional incomegenerated by higher prices. ‚Petrodollars‛ can berecycled in two ways – oil producers can save theadditional income or spend it. To the extent they spendit to purchase goods and services from oil importingcountries, income is shifted straight back, offsetting theinitially higher import bill in oil consuming countries. Tothe extent they decide to save it by purchasing foreignassets, these revenues increase the global supply ofsavings, thereby reducing interest rates and loweringborrowing costs everywhere.However, if interest rates are already set close to zeroby monetary policy, as is presently the case in major oilimporting economies, this second channel loses allimportance and the ability to export goods and servicesback into oil producing countries becomes even moreimportant.This ability differs greatly across countries. In 2011, ayear of record high oil prices, for example, Europeanexports to oil producing nations have been much higherthan those from the US, giving Europe a competitiveadvantage in absorbing its rising oil bill. Outside theOECD India is more vulnerable than China by thiscriterion.Compared to previous periods of high oil prices, thisranking of major economies has not changed. However,the 2011 data reflect a remarkable improvement in theUS vs. other economies. Tellingly, this improvement isnot driven by the US having increased exports to oilproducers but rather by a reduction in US oil imports –further evidence of the intricate ways in which thetechnological improvements fostered by opencompetition in North America are changing thegeopolitics of energy.4. Concluding remarksLong-term trendsOil and gas reservesTrillion bblsShares of world primary energyTcm0%10%20%30%40%50%1966 1981 1996 2011OilCoalGasHydroNuclearRenew.0.00.40.81.21.62.01981 1991 2001 2011 1981 1991 2001 2011050100150200250OtherNorth AmericaFSUOPECBP Statistical Review of World Energy© BP 2012For most of this presentation, I have focused on eventsin 2011. A big advantage of collecting all this data is theability to take a longer term perspective. Allow me, then,to close with a few observations in that spirit, linked tothe topics we have covered.I mentioned earlier that fuel substitution was animportant ingredient in the way markets dealt with theturmoil of 2011. The long term equivalent ofsubstitution, also determining its short term scope, isthe development of fuel shares over time. Change maycome slowly to the energy system, but it does arrive.Oil’s share has been in structural decline for 40 yearsnow, and its current share (31%) is the lowest in ourdata set. The line shows how a fuel can become more‘specialized’ – as in oil concentrating in transport – if it isexpensive. Coal has gained market share rapidly inrecent years, fuelling the shift in the centre of gravity wediscussed from the OECD to the industrializing world,and in the process fuelling income generation literally forbillions of people.This has profound implications, for example for carbonemissions – something we have not yet discussed – asindustrialisation is, and always has been, dependent oncheap energy. As a result, carbon emissions from theuse of energy over the last ten years have (2.9% p.a.)risen faster than primary energy consumption (2.7%).Last year, they climbed by 3%, faster as well.They fell, however, in one large energy consumer notknown for its carbon policies, the United States. Thereason of course is the substitution of coal by naturalgas – an example linking back to our discussion of whatdrives the development of new energy technologies.Today’s energy mix is dominated by fossil fuels, withrenewable energy accounting for only 2% of globalconsumption. Even at current growth rates, and currentfinancial support, it is easy to calculate just how long itwill take for renewables to make a real difference –without technological break-through. The question thisdata point brings to my mind is whether there are useful
  11. 11. BP Statistical Review of World Energy June 201210lessons to be learned about the role of competition inthe emergence of new technologies which we havedocumented in the data on fossil fuels.A second issue I would like to mention in conclusionrelates to the short term capacity of the system toincrease output if required – as it did in 2011. The longterm equivalent of this ability is the availability ofresources.Our data continue to show that proved reserves riseover time, despite the steady increase in energyconsumption. Today’s proved reserves of oil aresufficient to meet current production for 54 years; fornatural gas that figure is 64 years; and for coal it is morethan 100 years. Indeed, since we began tracking provedreserves of oil & natural gas in 1980, global reserveshave increased every year for natural gas, and everyyear but one for oil (1998, when oil prices collapsed). Aswe have long argued, the world faces challenges ingrowing supply rapidly enough to sustain growth inenergy demand and the economy, but at a global levelthe availability of hydrocarbon resources is not one ofthem.ConclusionBP Statistical Review of World Energy© BP 2012• 2011: supply response, inter-fuel substitution, trade optimisation• Key: flexible markets• Lessons: diversity of supply, global integrationWhere does this leave us? I do think there are a fewtakeaways to be had from this year of disruptions, withseemingly normal growth and in line with long-termstructural changes. These evolve around the flexibility ofmarkets – the ability to increase production, tosubstitute across fuels, and to change trading patternshas been crucial to the ease with which the system hasadapted. For this to work, prices must be allowed theirrole as signals to guide the reallocation of energy flows.Our messages change only slowly as well – and one ofthem is to praise the role of markets in guaranteeingenergy security.There is a second, related, conclusion here. It hasbecome fashionable to advocate energy independenceas a path to security. I believe an objective look at thedata shows that it is precisely the inter-dependence ofthe world’s energy system that is its real strength. Justimagine if Japan would have been truly self-sufficient,and not integrated into the global energy system at all –the adjustments we have seen would have beenimpossible.Disclaimer The data series for proved oil and gasreserves in BP Statistical Review of World EnergyJune 2012 and referenced in this speech does notnecessarily meet the definitions, guidelines andpractices used for determining proved reserves atcompany level, for instance, under UK accountingrules contained in the Statement of RecommendedPractice, ‘Accounting for Oil and Gas Exploration,Development, Production and DecommissioningActivities’ (UK SORP) or as published by the USSecurities and Exchange Commission, nor does itnecessarily represent BP’s view of any provedreserves. Rather, the data series has been compiledusing a combination of primary official sources andthird-party data.

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