BP Drives Home Crude Realities

The 2014 BP Statistical Review

This past week BP (NYSE: BP) released its Statistical Review of World Energy 2014. For energy wonks, this is the bible of energy statistics. The report contains global and country level statistics on production and consumption for oil, natural gas, coal, nuclear power and renewables. In this week's Energy Strategist I will look at trends for each of these sectors. In today's Energy Letter I will provide some observations and note some trends in the world's oil markets.

Overview

Fossil fuels continue to dominate the world energy supply. In 2013, fossil fuels were responsible for nearly 87 percent of the world's energy consumption, while nuclear provided another 4.4 percent. Oil was 33 percent of the total energy consumed. Modern renewables (excluding hydropower) were only 2 percent, but the overall contribution of renewables has increased by nearly 70 percent since 2010 (from 165.5 million metric tons of oil equivalent in 2010 to 279.3 million metric tons of oil equivalent in 2013).

Consumption increased in all major energy categories, including nuclear, which had seen two straight years of decline. Carbon dioxide emissions increased by 2 percent to a new record above 35 billion metric tons. Consistent with recent years, carbon dioxide emissions in Asia Pacific led all regions with an increase of 476 million metric tons from 2012 — three quarters of which were contributed by China. After two years of declines, US carbon dioxide emissions increased by 151 million metric tons, while Europe's carbon dioxide emissions decreased by 117 million metric tons.

Drilling Into the Oil Markets

Global oil production increased by 557,000 barrels per day (bpd) to a ne! w all-time high of 86.8 million barrels per day. Note that BP's definition of "oil" includes crude oil, tight oil, oil sands and natural gas liquids (NGLs — the liquid content of natural gas where this is recovered separately). Its definition excludes liquid fuels from other sources such as biomass and derivatives of coal and natural gas (e.g., coal-to-liquids, or CTL).

There are two very large caveats that accompany this new global production record. The first one is that the US contribution to the global oil supply was a 1.1 million bpd increase over the previous year. This was the largest year-over-year increase in US history (and eclipses the previous record US gain in 2012). Without this large US increase — driven by the fracking/shale oil and gas boom — global oil production would have actually declined by 554,000 bpd.

The other major caveat is that even though there was a more than half million bpd gain in global oil production, global oil demand increased by 1.4 million bpd.

While much has been made of a slowdown in China, oil demand there still increased by 390,000 bpd (following a 500,000 bpd increase from 2011-2012). Despite the slowdown in the rate of growth from the previous year, this represented a 3.8 percent consumption increase, compared with a global increase of 1.4 percent. US oil demand reversed two years of declines and increased by 397,000 bpd (a 2 percent increase).

Thus, the US and China together were responsible for 56 percent of the global increase in oil demand in 2013. The big difference between the two countries is that US oil production was up far in excess of our increase in consumption, while oil production in China edged up by only 24,000 bpd. This means that while US oil imports declined and finished product exports (e.g., gasoline, diesel, je! t fuel) i! ncreased, China's dependence on oil imports continues to increase.

Double-digit percentage increases in oil consumption were recorded by Pakistan, Venezuela, and Azerbaijan from 2012 to 2013, and over the past five years double-digit percentage consumption increases were recorded by the regions of Central and South America (15.2 percent), the Middle East (18.3 percent), Africa (12 percent), Asia Pacific (17.4 percent), and the former Soviet Union (12.8 percent). Oil demand in the developed countries belonging to the Organisation for Economic Co-operation and Development (OECD) decreased 5.3 percent over the past five years, while demand in non-OECD countries increased 20.3 percent.

The US remained the world's third-largest oil producer at 10 million bpd in 2013, trailing Saudi Arabia's 11.5 million bpd and Russia's 10.8 million bpd. Rounding out the top five were China (4.2 million bpd) and Canada (3.9 million bpd).

Over the past five years, global oil production has increased by 3.85 million bpd. During that same time span, US production increased by 3.22 million bpd — 83.6 percent of the total global increase. Had the US shale oil boom never happened and US production continued to decline as it had for nearly 40 years prior to 2008, the global price of oil might easily be at $150 to $200 a barrel by now. Without those additional barrels on the market from (primarily) North Dakota and Texas, the price of crude would have risen until supply and demand were in balance.  

Conclusions

There are two major oil themes that emerge from this year's BP Statistical Review of World Energy. One is that with respect to increases in oil production, there is the US, and then there is everyone else. US oil production increased by 1.1 million bpd for the largest year over year gain in the world. For perspective, the second-largest national increase in oil production was posted the United Arab Emirates with a gain of 248,000 bpd over 2012, and Canada was the only other count! ry in the! world to record an increase of more than 200,000 bpd, at 208,000 bpd over 2012.

The second major theme to emerge from the report is continued demand growth, led once again by developing countries. While China's demand growth did slow to 390,000 bpd over 2012, the rest of the non-OECD countries increased their demand by nearly a million bpd. I think this theme is often missed by the media, who too often focus on China alone as a proxy for demand growth in developing countries. So when China slows, journalists either assume the rest of the world has done the same or mistake a slower rate of growth in demand for outright decline, and then scratch their heads and wonder why oil prices continue to hover around $100.  

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