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Disruptions to supplies and increasing demand were the two big energy stories of 2011, according to the 2012 BP Statistical Review of World Energy.
In the 61st edition of the BP Statistical Review of World Energy, the ‘Arab Spring’ was highlighted as having a definite effect on oil and gas supplies while the Fukushima accident in Japan impacted nuclear and other energy sources around the world. These shocks pushed energy prices higher globally with oil prices reaching a record average of more than $100 per barrel (bbl) for the first time in history, according to the report.
“As we seek to manage short-term disruptions and meet long-term demand, we should remember that open markets can be a powerful ally,” said Bob Dudley, BP Group chief executive, at the launch of the review in mid-June.
Markets “provided the flexibility that was crucial to the world's ability to cope with last year's disruptions. And over time, markets lead to the chain reaction of competition, innovation and growth that creates the secure and affordable energy supplies that governments and consumers are looking for.
“The good news today is that we’re seeing a whole range of areas where this process of competition, innovation and growth is generating results. These include shale gas, deepwater oil and gas, heavy oil, and, potentially, advanced biofuels,” Dudley said.
He went on to highlight the US, where the shale gas boom has pushed natural gas prices down significantly. Despite the price drop, shale liquids helped the US have the largest increase in oil production outside OPEC for the third year in a row, he noted.
The U.S. experience “shows how an open and competitive environment drives technological innovation and unlocks resources. I think the message for policy makers is to follow this model and to encourage competition wherever possible. This process also acts to support energy security by enabling countries to develop domestic resources and by underpinning a dynamic global market.”
Christof Rühl, BP’s chief economist, pointed to some of the factors that affected the 2012 review results.
In 2011, these included: “political unrest and violence that caused outages in oil and gas production in parts of the Arab world; the shut-down of Fukushima and earthquake-related reductions in Japanese coal-fired power generation, plus the subsequent closure of additional reactors in Japan and Europe; the first annual average oil price above $100; the first release of strategic petroleum reserves since 2005; the largest increase in OPEC production since 2008; an exceptional swing in European weather; and huge floods in Australia impairing coal production -- it was anything but a boring year.
“And yet nothing in the aggregate data indicates anything out of the ordinary. In fact, both GDP and energy consumption growth last year landed right at the long-term averages.”
According to Rühl, three major adjustments took place during the review period: an increase in oil supplies -- especially from Saudi Arabia -- along with flexibility in trading and the global refining system, allowed heavier Saudi crudes to replace lighter Libyan oil in Europe; a diversion of natural gas from Europe to Asia allowed the substitution of lost nuclear energy in Japan without harming the energy needs of other economies in the region; and the release of coal from the US -- thanks to an abundance of unconventional gas -- helped replace gas in Europe.
There were big price increases in 2011. “Average annual Brent prices increased by 40%. A simple average of the international coal marker prices increased by 24% with the biggest increase in Europe and with average annual US coal prices approaching US gas prices. While US gas prices continued to decline following the shale gas revolution, oil-indexed gas prices outside the US increased, pulled up by the rising price of crude,” he continued
Meanwhile, global energy consumption grew by 2.5% in 2011, well below 2010’s 5.1%. Emerging economies accounted for all of the net growth with OECD demand falling for the third time in the last four years, which was led by a sharp decline in Japan. China alone accounted for 71% of energy consumption growth, according to the review.
Rühl said, “Natural gas has produced some of the biggest changes in global energy markets during the last few years. There is, first, the rapid increase in trade, especially of LNG, that has connected hitherto segmented regions in an increasingly flexible manner.
“And second, the development of unconventional resources in the US, which has everyone wondering where gas may next turn into a relatively abundant resource. Both of these developments shaped 2011. And as it happens, these also played a key role in the response to last year’s disruptions,” he added.
World natural gas consumption grew 2.2%, which was below average in all regions except North America where low prices due to the shale gas “revolution” drove robust growth, Rühl said. There was a record decline in EU gas consumption (-9.9%) driven by the weak economy, high prices, warm weather, and ongoing growth in renewable power generation.
Globally, gas production grew 3.1%. The US recorded 7.7% growth and is the world’s biggest producer. Output also grew in Qatar (+25.8%), Russia (+3.1%) and Turkmenistan (+40.6%), offsetting declines in Libya (-75.6%) and the UK (-20.8%). The EU’s decline in gas production was the highest on record (down 11.4%), according to the review.
“I do think there are a few takeaways to be had from this year of disruptions with seemingly normal growth and in line with long-term structural changes. These evolve around the flexibility of markets -- the ability to increase production, substitute across fuels, and change trading patterns has been crucial to the ease with which the system has adapted,” he said.
“For this to work, prices must be allowed their role as signals to guide the reallocation of energy flows. Our messages change only slowly as well -- and one of them is to praise the role of markets in guaranteeing energy security,” he concluded.
The full version of this year’s BP Statistical Review of World Energy is available online.