June 16, 2017

New BP Statistical Review Highlights an Energy World in Transition

Dan Byers

This week, BP released the 66th edition of its Statistical Review of World Energy, a comprehensive and highly regarded analysis of key energy trends around the globe. While most reading this page are familiar with the major storylines in U.S. and global energy markets, BP’s report crystallizes these stories with detailed data and new insights.

BP’s Chief economist Spencer Dale summarizes the past year as a story of short-run adjustments transition:

Stability and energy markets don’t go together – booms and busts; rebounds and reversals are the norm. But the movements and volatility seen last year were particularly interesting since energy markets were buffeted by two separate forces: the continued adjustment to the short-run cyclical shocks that have rocked energy markets in recent years, particularly the oil market; and the growing gravitational pull of the longer-run energy transition that is under way. In recent years the nature of the cyclical adjustments has been increasingly affected by the longer-run transition that is shaping global energy markets. On the demand side: the shift in the centre of gravity to fast-growing developing economies, led by China and India; together with a slowing in overall energy growth as it is used ever more efficiently. And on the supply side, the secular movement towards cleaner, lower carbon energy sources, led by renewable energy, driven by technological advances and environmental needs.

The whole report is worth a read, but below we have summarized a few of the major storylines with excerpts from the report (“headlines” are from us, not BP).


The World is Still Hungry for Energy, but Consumption Growth is Decelerating and the Shift to Low Carbon Fuels Continues

Rapid growth and improving prosperity mean growth in energy demand is increasingly coming from developing economies, particularly within Asia, rather than from traditional markets in the OECD. The relentless drive to improve energy efficiency is causing global energy consumption overall to decelerate. And, of course, the energy mix is shifting towards cleaner, lower carbon fuels, driven by environmental needs and technological advances…

…Looking at the picture overall, energy consumption grew slowly again in 2016 – the third consecutive year in which demand has grown by 1% or less – much weaker than the rates of growth we had become used to over the previous 10 years or so.


Get Ready for Global Gas

Looking at the growing market for LNG, although China continued to provide the main source of growth, it’s striking that the increasing availability of supplies has prompted a number of new countries, including Egypt, Pakistan and Poland, to enter the market in the last year or two. These new entrants were helped by the increased flexibility afforded by plentiful supplies of FSRUs (floating storage and regasification units).

2016 was the first year of the growth spurt we expect to see in LNG, with global supplies set to increase by around a further 30% by 2020. That is equivalent to a new LNG train coming onstream every two-to-three months for the next four years – quite astonishing growth. As the importance of LNG trade grows, global gas markets are likely to evolve quite materially.


For Coal, China Looms Large

The fortunes of coal appear to have taken a decisive break from the past. This shift largely reflects structural factors: the increasing availability and competitiveness of natural gas and renewables, combined with government and societal pressure to shift towards cleaner, lower carbon fuels…

…This was particularly the case in China, which at the beginning of the year introduced a series of measures to reduce the scale of excess capacity in the domestic coal sector and improve the productivity and profitability of the remaining mines…

…The events in China spilled over into global coal markets, with world prices taking their cue from China. This rise in global coal prices further depressed global coal demand, particularly in power sector around the globe, with natural gas and renewable energy the main beneficiaries.


U.S. Oil Producers Are Proving to be Incredibly Nimble and Resilient

[T]he short-cycle nature of fracking meant activity related to US tight oil did respond far more quickly to price signals than conventional oil and, in so doing, dampened price volatility. Rigs started to fall around four to six months after oil prices peaked in June 2014 and picked up even more quickly – within three or four months – once prices started to turn at the beginning of last year…

…The final point to note about US tight oil is that productivity continued to rise rapidly through the cycle, with new well production per rig increasing by around 40% per year in both 2015 and 2016. Despite rigs in the Permian falling by over 75%, output continued to grow. Put differently, a rig operating in the Permian today is equivalent to more than three rigs at the end of 2014.

It’s clear from this report that incredible changes of the last decade continue apace. The U.S. shale industry is at the forefront of these changes, influencing not just the global energy landscape, but also disrupting the geopolitical and economic status quo all across the globe. And it’s still just getting started.