Energy Consumption and Transportation

Maritime Cyprus 2009

Energy Consumption and Transportation Peter M Swift

As Global economies start to recover from the financial crisis the demand for energy will also start to grow again, although the rate of growth and the energy mix will not necessarily be the same, and in the immediate future will reflect the fragility of the recovery.

In the developed world, increasing acceptance of the effects of climate change will nevertheless dampen growth rates as well as encouraging moves to alternative “greener” energy sources. At the same time increasing per capita demand in the developing world and somewhat less stringent environmental concerns will spur overall net growth. Coal and natural gas usage are expected to grow faster than oil, driven in part by the closer proximity of many of the consumer areas to production sources.

The outcomes from the UNFCCC COP15 meeting in Copenhagen in December will influence to some extent the future energy mix, e.g. moves to less dependence on fossil fuels, but over time will probably have a greater influence on the total demand.

Shorter term growth in energy demand would, however, also be moderated should energy prices soar disproportionately.

Future energy price levels will also be a determinant of future exploration and production activities, but with the expectation that there will be significantly more offshore production. The forecast continuation of the relatively lower energy prices and returns of the past year has stifled exploration investment and there are warnings of future supply shortfalls, in particular for oil. Somewhat ironically, this could in turn lead to higher energy costs in the longer term.

The current surpluses in the supply of both oil and gas ships will continue for some time, but will be helped in the oil sector by delays in the delivery of new ships and additional demolitions; while the demand for energy transportation will generally reflect the pace of global economic recovery. Existing inefficiencies in the transport chain, such as port and terminal constraints and congestion, are likely to be eased while, at the same time, green house gas emission considerations may influence ships’ speeds and thus total shipping transportation capacity. In parallel, over the coming years there may also be increased maritime opportunities in offshore exploration, production, storage and support activities, and some limited expansion in ice operations.

Despite the likelihood of flat oil demand in the mature OECD countries, crude tankers may benefit slightly from reduced oil production in the North Sea and the presently stagnating Russian oil export, which may mean more longer-haul crude to Europe. In the oil products markets, new requirements for marine fuels over the next decade, the lack of refinery investment within Europe and North America, and the continuing imbalances in refinery production against local consumption, will add complexities to their availability and distribution and create further opportunities for arbitrage, transportation and storage.

The demand for energy and subsequently marine transportation will generally lag rather than lead the recovery from the global financial crisis, with energy prices and freight rates likely to remain volatile for the next several years.