Two steps forward, one step back

The latest BP Statistical Review of World Energy suggests that the global energy sector is unlikely to meet Paris Agreement climate goals. It shows that overall energy demand in 2017 was up, while gains in energy intensity were down. Coal consumption grew for the first time in four years. And, perhaps most notable, carbon emissions were up by 1.6% after three consecutive years of little or no growth. Indeed, as Group Chief Economist Spencer Dale, pointed out, 2017’s energy data could perhaps best be summarised as a case of ‘two steps forward, one step back’.

Data drill-down
Looking at the data in more detail, global energy demand grew by 2.2% in 2017, up from 1.2% last year and above its 10-year average of 1.7%. Despite unusually strong growth in the OECD, related to the pick-up in economic growth and a slight slowing in the pace of improvement in energy intensity (or energy productivity – the amount of energy needed to produce a unit of output), the vast majority of the increase in global energy consumption came from the developing world, accounting for nearly 80% of the expansion.

China alone contributed over a third of that growth, with energy consumption growing by over 3% in 2017, almost three times the rate seen over the past couple of years. This sharp pick-up was driven by a rebound in the output of some of China’s most energy-intensive sectors, particularly iron, crude steel and non-ferrous metals. Despite this increase, the growth of China’s energy demand in 2017 was still significantly slower than its 10-year average, and its rate of decline in energy intensity was more than twice the global average.

The phrase ‘two steps forward, one step back’ could be equally applied to the fuel mix. The forward progression can be seen in that around 60% of the increase in primary energy was provided by natural gas and renewable energy. Natural gas consumption rose by 3% (96bn cm; 83mn toe), the fastest rate since 2010, providing the single largest contribution to the growth of primary energy, buoyed by exceptional growth in China (31bn cm). This was closely followed by renewable energy, including biofuels (14.8%, 72mn toe), which again grew rapidly driven by robust growth in both wind and solar power. The step back was coal (consumption up 1%, 25mn toe), which grew for the first time since 2013. This was largely driven by India (18mn toe), but it is also notable that Chinese coal consumption increased slightly (4mn toe) after three years of successive falls during 2014–2016. World coal production grew by more than 105mn toe, or 3.2%, the fastest rate of growth since 2011, with output rising by 56mn toe in China and 23mn toe in the US.

Looking to the oil sector, global oil consumption growth averaged 1.8%, or 1.7mn b/d, above its 10-year average of 1.2% for the third consecutive year. Global oil production rose by 0.6mn b/d, below average for the second consecutive year. Meanwhile, refinery throughput rose by an above-average 1.6mn b/d, while refining capacity growth was only 0.6mn b/d, below average for the third consecutive year. As a result, refinery utilisation climbed to its highest level in nine years.

Review first
For the first time, this year’s BP Statistical Review of World Energy includes data on the fuel mix in the power sector and key materials (eg lithium and cobalt) for the changing energy world. As Dale noted, the power sector really matters. ‘It is by far the single biggest market for energy, absorbing over 40% of primary energy last year. And it’s at the leading edge of the energy transition, as renewables grow and the world electrifies.’

Global power generation increased by 2.8% in 2017, close to its 10-year average. Almost all that growth came from the developing world, driven by strong expansion in renewable energy, led by wind (17%, 163 TWh) and solar (35%, 114 TWh), which accounted for almost half of the total growth in power generation, despite accounting for only 8% of total generation.

According to Dale, the most striking – and worrying – chart in the whole of the Statistical Review is that covering the trends in the power sector fuel mix over the past 20 years. ‘Striking, because despite the extraordinary growth in renewables in recent years and the huge policy efforts to encourage a shift away from coal into cleaner, lower carbon fuels, there has been almost no improvement in the power sector fuel mix over the past 20 years. The share of coal in the power sector in 1998 was 38% – exactly the same as in 2017… Worrying, because the power sector is the single most important source of carbon emissions from energy consumption, accounting for over a third of those emissions in 2017. To have any chance of getting on a path consistent with meeting the Paris climate goals there will need to be significant improvements in the power sector. But this is one area where at the global level we haven’t even taken one step forward, we have stood still – perfectly still for the past 20 years. This chart should serve as a wake-up call for all of us.’

Bob Dudley, Group Chief Executive, echoed this sentiment, stating: ‘As we have said in our Energy Outlook, our Technology Outlook and now our Statistical Review, the power system must decarbonise. We continue to believe that gains in the power sector are the most efficient way to drive down carbon emissions in coming decades.’

The BP Statistical Review of World Energy and other material is available online at www.bp.com/statistical review

Petroleum Review’s forthcoming August issue will include a more in-depth analysis of the BP Statistical Review data.

Figure 1: Fuel shares in power generation
Source: BP Statistical Review of World Energy 2018