Developing World Leapfrogs OECD Nations in Primary Energy Consumption

BP plc

In a climate of unprecedented turbulence, global energy markets followed the same extreme pattern as the world economy in general during 2008.

Prices first rose to record highs as economic growth boomed in the first half of the year. Then they collapsed as the global economy abruptly reversed and plunged into recession in the wake of the financial crisis.

But the year was also remarkable for another reason -- less dramatic but, arguably, just as profound in its implications for the long term. For the first time ever, according to the 2009 BP Statistical Review of World Energy, the developing world led by China leapfrogged OECD nations in the consumption of primary energy.

At the launch of the Review in London today, BP chief executive Tony Hayward said, "The center of gravity of the global energy markets has tilted sharply and irreversibly towards the emerging nations of the world, especially China.

"This is not a temporary phenomenon but one that I believe will only increase still more over time. It will continue to affect prices and bring with it new challenges over economic growth, energy security and climate change.

"This shift will bring volatility in the short term," Hayward warned. "But I have no doubt that the diversity and flexibility of modern energy markets will continue to ensure that energy supplies continue to reach consumers efficiently and without interruption."

BP chief economist Christof Ruehl said that in spite of the dramatic gyrations in the world economy and energy prices, the Review data showed how well those markets had served energy security during the year. "Allowing markets to continue to function freely and without interference remains key to managing the inevitable ups and downs in prices as we go forward," he said.

The Review reports remaining proved oil reserves of 1,258 billion barrels, excluding Canadian oil sands -- enough for 42 years at 2008 production rates. On the same basis, reserves of gas are sufficient for 60 years and coal for 122 years.

Reflecting the extremes of the world economy across 2008 -- strong growth followed by sharp decline -- the Review shows that overall primary energy consumption nudged up just 1.4 percent, the smallest rise since 2001. China alone accounted for almost three quarters of the rise, with most of the balance coming from the wider Asia-Pacific region.

In the developed world, energy consumption fell by 1.3 percent, with demand in the USA seeing the steepest single year decline since 1982, a drop of 2.8 percent.

Oil: In 2008 the average price of dated Brent crude oil rose to $97.26 a barrel -- 34 percent up on the previous year and the seventh consecutive annual rise. However, the annual average masked huge variations across 2008. The price began the year at just below $100 a barrel, peaked at $144 in early July and fell dramatically to less than $40 at year-end -- the fall a consequence of higher OPEC production and rapid slow-downs in consumption in the second half.

Over the year, global oil consumption fell by 0.6 percent, or 420,000 barrels a day; the first decline since 1993 and the largest drop for 27 years. This included a steep fall in demand of 1.5 million barrels a day from the developed OECD countries -- their third consecutive year of decline -- and slower growth in demand (up just 1.1 million barrels a day) from outside the OECD.

Despite overall lower demand, average oil production rose 0.4 percent, or 380,000 barrels a day, driven largely by OPEC production increases. Despite cuts late in the year, average OPEC oil output actually rose by almost 1 million barrels a day, or 2.7 percent. This all came from the Middle East with daily production from Saudi Arabia up 400,000 barrels and from Iraq up 280,000 barrels.

Production outside OPEC recorded the steepest decline since 1992, falling by 1.4 per cent, or 601,000 barrels a day, with output from the OECD countries falling 4 percent, or 750,000 barrels a day, driven by declines in North America and Europe. The single largest decline came from Mexico, where production fell 310,000 barrels a day. Russian production fell for the first time since 1998, by 90,000 barrels a day. UK oil production fell 94,000 barrels a day, or 6.3 percent, to the lowest level for 30 years.

Gas: Gas consumption grew by 2.5 percent, below the 10-year average. Consumption in the USA grew by 0.6 percent as spot prices remained well below oil prices. Elsewhere, only the Middle East saw above-average growth, driven by strong domestic demand. Oil-indexed gas prices in OECD Europe and Asia-Pacific rose more rapidly which, coupled with the recessionary impact, meant that consumption growth was below average.

The largest incremental growth in world gas demand was from China, where consumption rose 15.8 percent. The UK's gas consumption grew by 3 percent, with gas now supplying 39.9 per cent of the UK's total primary energy -- well above the global average of 24.1 percent.

Globally, gas production rose 3.8 percent, above the 10-year trend of 3 percent. This was driven strongly by the USA which recorded its highest ever annual increase in gas production as strong activity in the development of unconventional gas resources raised output by 7.5 per cent -- 10 times the 10-year average growth rate. The second highest increment was from Qatar as pipeline exports to UAE increased. Production rose in Europe overall as increases in Denmark, Netherlands and Norway more than offset falls in the UK and Germany.