BP has released its annual Statistical Review of World Energy to an oil and gas industry facing increased scrutiny from Washington and the realities of an ever-rising cost-per-barrel. But, according to BP CEO Tony Hayward, the economic situation remains fundamentally strong, highlighted by steady consumption and a sufficient theoretical fuel base to meet the demand. Counterbalancing this is a weakness in oil supply and a rising demand for oil outside the Organisation for Economic Co-operation and Development (OECD). Ultimately, Hayward suggests, the perceived decline in oil production is a question of politics, not scarcity.
"Declining oil production in the OECD highlights the fact that, while resources are not a constraint globally, the resources within reach of private investment by companies like BP are limited," said Hayward. "Political factors, barriers to entry, and high taxes all play a role here. In other words, when it comes to producing more oil, the problems are above ground, not below it. They are not geological, but political."
"But despite high and volatile energy prices, the world's energy markets continue to deliver reliable energy supplies," he reiterated.
According to the Review, last year saw continued economic growth regardless of general market turmoil beginning in August. While energy consumption slowed in 2007 compared to 2006, at 2.4%, growth was once again above the ten-year average for the fifth year in a row.
In addition, oil prices have been growing steadily for more than six years, which, according to BP's records dating back to 1861, is the single longest period of rising prices.
"This year's Statistical Review shows very clearly that markets do work, and that consumers and producers respond to changes in energy prices when given the opportunity to do so," commented Christof Ruhl, BP's chief economist. "However, in many places, policies interfere with market mechanisms, and access to economically rational upstream reserves is difficult. Further, in a number of countries consumers are shielded from price increases via subsidies."
According to BP's 2008 Statistical Review of World Energy, the 2007 price of Brent crude oil averaged $72.39 per barrel, an increase of 11%. The year was marked by a steady rise in oil prices, from $50 per barrel in January to more than $96 per barrel by the end of the year. Due to temporary bottlenecks, the US benchmark WTI traded at a discount to Brent for the first time since 1979. Discounts for heavy, sour crudes remained high due to the constraints of upgrading capacity in refining.
Global consumption of oil grew by 1.1% in 2007, which translates to 1 million bpd, a figure slightly below the 10-year average. Consumption in the oil-exporting regions of the Middle East, South and Central America, and Africa accounted for two-thirds of the international growth. The Asia-Pacific region saw a 2.3% growth, even though growth in China and Japan was below average. OECD consumption dropped by 0.9%, or approximately 400,000 bpd.
Global production, meanwhile, slumped by 0.2%, or 130,000 bpd. This marks the first decline since 2002. OPEC production dropped by 350,000 bpd due to the effect of production cuts passed in November 2006 and February 2007. This decrease in production was partially mitigated by increased output in Angola and Iraq, and the growing supply of condensates/NGLs. OECD production fell for the fifth consecutive year.
Proved oil reserves remained flat in 2007 at approximately 1.24 trillion barrels, an amount sufficient to meet current needs for more than 41 years.
Gas consumption rose by 3.1% in 2007, due entirely to regional growth in America, Asia-Pacific, and Africa. The US alone accounted for almost half of the world's gas consumption growth. Chinese consumption grew by 19.9% while EU consumption fell by 1.6% in the face of warmer winters.
Concurrently, gas production rose by 2.4%, with the US accounting for its strongest growth since 1984. EU production fell by 6.4%, with the UK's 9.5% slump marking the world's largest volumetric decline for the second year in a row. China and Qatar continued strong gas production growth. LNG shipments grew by 7.3%, buoyed by increased shipments from Qatar and Nigeria, while US LNG receipts grew by one-third due to a large price premium to European markets which resulted in diversion of cargoes in the US.
However, these 2007 price figures are released in the face of new record highs in oil prices, making them already out-of-date in June 2008. While 2007 ended with oil at $96 per barrel, the price of oil has already hit the $140 threshold, with Morgan Stanley estimating that the price of oil per barrel could reach $150 by the Fourth of July.
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