Long-term shifts underway in global energy markets

The 2017 edition of the BP Statistical Review of World Energy, published on 13 June, shows global energy markets are continuing to undergo long-term changes as they transition to a low-carbon future and adapt to nearer-term price challenges

The report clearly demonstrates the shift to slower growth in global energy demand, demand moving strongly towards the fast-growing developing economies of Asia, and a marked shift towards lower carbon fuels as renewable energy continues to grow strongly and coal use falls. At the same time, energy markets are adjusting effectively to nearer-term challenges, with the oil market in particular adjusting in 2016 to the oversupply that has dominated the market in recent years.

Demand and consumption

In 2016 global energy demand was weak for the third consecutive year, growing by just 1%, around half the average growth rate of the past decade. Once again, almost all this growth came from fast-growing developing economies, with China and India together accounting for half of all growth. Indian energy demand grew by 5.4%, a similar rate to that seen in recent years. Chinese energy demand, however, grew by 1.3%. This is close to the 1.2% rise in energy demand in 2015 and around a quarter of its 10-year average growth. Meanwhile, demand from the developed OECD countries remained essentially flat (rising just 0.2%).

Dated Brent averaged $44/b in 2016, down from $52 in 2015 and the lowest annual average price since 2004. The year’s low prices drove demand for oil higher by 1.6% while growth in production was limited to only 0.5% (or 0.4mn b/d) – the lowest increase since 2009. As a result, the oil market returned broadly back into balance by mid-year, although prices continued to be depressed by the large overhang of built-up inventories.

Global oil consumption grew strongly, rising by 1.6%, or 1.6mn b/d above the 10-year average rate for a second consecutive year. Strong increases in demand were seen from India (up 0.3mn b/d) and Europe (up 0.3mn b/d) and while demand from China continued to grow (up 0.4mn b/d) it was lower than in recent years.

Meanwhile, global natural gas consumption rose by 1.5% in 2016, slower than the 10-year average rate of 2.3%. However, there were strong increases in gas consumption in Europe (up 6%), the Middle East (up 3.5%) and China (up 7.7%). Global natural gas production rose by only 0.3% – the weakest growth in gas output for 34 years, outside the financial crisis. With lower gas prices, US gas production fell for the first time since the shale gas revolution began. Australian gas production rose significantly as new LNG facilities came onstream.

Global LNG imports/exports grew by 6.2%, driven by the new Australian output. LNG production is expected to grow by around 30% in next three years as further new projects come on line. The rise of LNG trade reflects an ongoing continuing fundamental shift in global gas markets towards greater integration, but also towards more competitive and flexible markets – with increasing volumes of LNG under shorter or smaller contracts or uncontracted. [For more on LNG market developments, see Petroleum Review’s July 2017 issue.]

Rise of renewables and declining coal

Renewables were again the fastest growing of all energy sources, rising by 12%. Although providing only 4% of total primary energy, the growth in renewables represented almost a third of the total growth in energy demand in 2016.

In contrast, use of coal – the most carbon-intensive of the fossil fuels – fell steeply for a second year, down by 1.7% (or 53mn toe), primarily due to falling demand from both the US and China. This decline brought coal’s share of primary energy production to 28.1%, its lowest share since 2004. World coal production fell by 6.2% (231mn toe), the largest annual decline on record. The falls in production were again driven by China (down 7.9%; 140mn toe) and the US (down 19%; 85mn toe). In the UK, coal consumption more than halved (–52.5%). UK coal consumption has now fallen to levels last seen at the start of the Industrial Revolution around 200 years ago, with the UK power sector recording its first ‘coal-free’ day in April 2017.

Carbon emissions

The combination of weak energy demand growth and the shifting fuel mix meant that global carbon emissions are estimated to have grown by only 0.1% – making 2016 the third consecutive year of flat or falling emissions. This marks the lowest three-year average for emissions growth since 1981–1983.

EV uptake

Looking to the transport sector, BP expects electric vehicles (EVs) to reach 100mn by 2035. However, it was indicated that even with 300mn EVs on the road, only 3mn to 4mn b/d of crude oil would be displaced, against global consumption which is likely to be well above 120mn b/d by then. [Petroleum Review will be taking a closer look at the EV market, and other alternative transport fuels, in the November 2017 issue.]

The BP Statistical Review of World Energy can be found at www.bp.com/statisticalreview

Petroleum Review’s August 2017 issue will include a more in-depth analysis of the 2017 Review.