Highlights From The 2017 BP Statistical Review
The energy sector continues to experience rough waters, but today I want to take a step back and review the big picture. The BP Statistical Review of World Energy 2017 was released last week, and it gives us an opportunity to review and reflect on the evolution of the energy sector.
Primary Energy Consumption
World primary energy consumption increased by 171 million metric tons of oil equivalent (MTOE) from 2015 to 2016. Over the past 34 years, the world’s overall energy consumption has only decreased once. To put the increase in perspective, consumption of modern renewables like wind and solar power increased by 53 MTOE — less than a third of the overall consumption increase. On the other hand, this was the same amount of consumption decline experienced by coal, so it’s fair to say that these renewables offset the decline in coal.
The global increase in oil consumption accounted for 77 MTOE of the energy consumption increase. Natural gas provided a bit more new energy than wind and solar power with a year-over-year (YOY) increase of 57 MTOE. The balance of the energy consumption numbers was made up of increases in nuclear power (+9 MTOE) and hydropower (+27 MTOE).
In last week’s Energy Letter, I covered the continuing strong demand case for crude oil. As the BP Statistical Review showed, last year demand growth for oil rose 1.6% to a new record high of 96.6 million barrels per day (BPD). There are no signs of peak demand anywhere, and electric vehicles are still a long way from even slowing crude oil demand growth. (I also made this case in my latest Forbes article Peak Oil Demand Is Millions Of Barrels Away).
Because OPEC’s production cuts didn’t take place until the end of the year, the group saw strong production growth during the year. Overall OPEC production rose by 1.2 million BPD, led by Iran and Iraq. Production in Iran rose by 18.0% (+700,000 BPD) and production in Iraq was up by 10.8% (+400,000 BPD). This marked the highest production level for Iran since the 1970s and was the highest-ever production level for Iraq.
The hangover from OPEC’s price war on oil lingers on, as it helped push global crude inventories to record levels. The thesis that oil demand growth will remain strong is intact, but oil production growth has kept pace, keeping oil prices in check.
Natural gas consumption grew to a new all-time high, and has now increased in 49 of the past 51 years:
The U.S. is the world leader in both consumption and production of natural gas. The 75.1 billion cubic feet (BCF) the U.S. consumed in 2016 was more than the entire Asia Pacific region consumed, and was nearly double the 37.7 BCF consumed by Russia, the world’s second largest consumer.
The U.S. has no close competitor in natural gas production. Low natural gas prices brought an end to an 11-year streak of increasing production in the U.S., but the 72.3 BCF produced by the U.S. in 2016 was still far ahead of 2nd place Russia’s 55.9 BCF. To put U.S. natural gas production into perspective, it was greater than all Middle East production of 61.5 BCF in 2016.
The thesis that U.S. natural gas demand will continue its strong growth remains intact, but as in the case of oil, natural gas production has kept pace, keeping a lid on prices.
Global coal consumption declined by 1.7% to its lowest level since 2010. This decline marks the second consecutive annual decline in coal consumption. Almost every region of the world saw a decline in coal consumption. In the Organization for Economic Co-operation and Development (OECD) countries — primarily the world’s developed countries — coal consumption fell by 6.4%. In the European Union, it declined by 8.9%.
The 8.8% decline in U.S. coal consumption took demand to its lowest level since 1978. U.S. coal production followed, with a 19.0% decline to levels also not seen since the 1970’s.
Coal consumption has fallen for a couple of reasons. Countries around the world are passing legislation to limit carbon dioxide emissions, and cheap natural gas and renewables are providing economic alternatives to coal.
My thesis for several years has been that the coal industry faced significant headwinds compared to its fossil fuel brethren oil and natural gas. In a nutshell, there are too many alternatives to coal, but not so many alternatives to oil and natural gas (which is a cleaner power source, and a good fit as backup power for renewables).
However, despite coal’s loss of market share, coal companies have been some of the strongest portfolio performers in The Energy Strategist over the past year. That’s primarily because these companies had become deeply oversold. Despite coal’s negative growth prospects, the world will continue to use coal for decades, and a number of companies will continue to profit from that.
Nuclear power once looked like the perfect solution to the world’s energy problems. But in the past 30 years, there were two major disasters that forever changed that outlook. Nuclear power was growing exponentially until the Chernobyl accident took place in 1986, and then the growth rate slowed substantially. Then, Japan’s Fukushima Daiichi nuclear disaster in 2011 actually caused global nuclear power consumption to decline sharply for two straight years.
However, in the past three years, the growth rate has returned to nearly the rate in the years before Fukushima:
The U.S. remains the world’s top consumer of nuclear power, with 32% of global consumption in 2016. But China’s consumption increased by 24.5% from 2015, which was the largest overall consumption increase by far. In fact, if China’s consumption was excluded, global consumption of nuclear power would have fallen.
This situation looks unlikely to change soon. My thesis on nuclear power has been that the world would pause in light of the Fukushima disaster, but developing countries with huge populations would ultimately decide that they have no choice but to build more nuclear reactors. In particular, I continue to believe that China will be the primary driver of global nuclear power in the years ahead, and will pass the U.S. in about a decade to become the world’s leading nuclear country.
I touched on renewables last week in A Record Year For Renewables from the perspective of The Renewables 2017 Global Status Report (GSR) discussed in the previous article. The BP Statistical Review echoed those findings. Of note:
- Global consumption of solar power rose 30% to reach 333 Terawatt-hours (TWh)
- Global consumption of wind power rose 16% to reach 960 TWh
- China surpassed the U.S. for the first time to become the world’s largest consumer of both solar and wind power
- Solar power consumption in the past ten years has increased by nearly a factor of 60
- Global biofuel production rose 2.6% to reach an all-time high of 1.54 million BPD
My thesis here has been that solar power would ultimately become the most important renewable, eventually surpassing wind power. Biofuels, on the other hand, will grow slowly, and won’t make a huge contribution to global liquid fuel supplies. Both solar and biofuels made up less than 2% market share in their respective categories, but solar power’s growth rate in 2016 was more than ten times that of biofuels.
Earlier this week in The Energy Strategist, I went into more detail on global fossil fuel trends. In the next article, I will take a deeper dive into renewables and nuclear power.