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BP Statistical Review of World Energy 2007 Christof Rühl 12 June, 2007 www.bp.com/statisticalreview © BP 2007 © BP 2006 Contents 1. Introduction 2. What Has Changed? The Medium Term 3. What is New? 2006 in Review 4. Energy Developments by Fuel 5. Conclusion BP Statistical Review of World Energy 2007 Christof Rühl Looking through the first lens reveals the magnitude London • June 2007 of the changes that have taken place – as global economic growth accelerated, energy consumption grew faster in relation to GDP than in earlier periods, despite higher prices. Looking through the second 1. Introduction lens reveals the impact of high energy prices and suggests the possibility of a return to a less energy Outline intensive mode of global economic growth. Both views have important implications, not least for the growth of global carbon emissions. Introduction What Has Changed? The Medium Term My aim is to provide a rigorous analysis, to What is New? 2006 in Review understand what has happened, and why. Conclusion 2. What Has Changed? I want to start by assessing the energy experience over the last five years, 2001 through 2006, and by BP Statistical Review of World Energy 2007 © BP 2007 comparing this period with earlier periods. The objective is to provide the context for more recent energy developments. Energy has very much been in the spotlight in recent years. One way or another, the reasons usually lead to The challenge in addressing this question is that the the increase in prices and the acceleration in energy world has not stood still. The last five years have been consumption growth we have witnessed over the last a period of strong global economic growth. The few years. previous 5 years – 1996 through 2001 – were dominated by the Asian financial crisis and China’s Based on the data published in this year’s Statistical coal restructuring. The early 1990s saw the collapse Review of World Energy, I will look at recent energy of the Soviet Union and its economy and energy developments from two perspectives. I first look at sector. In light of these factors and the reality that medium term developments by comparing the last history does not divide neatly into 5 year periods, five years with earlier periods. Then I focus on what what has happened in world energy markets? How changed from the beginning of 2006 until now, and have key forces changed? why. © BP 2007 1 On average for the last five years, oil prices have Energy Prices more than doubled; gas prices have risen 75% and an average of coal prices has increased by 46% Index 1991=100 350 compared to the average of 1996 - 2001. Forward prices indicate that many market participants expect 300 Oil (dated Brent) to see high energy prices sustained for at least the rest 250 Gas basket of the decade. 200 150 Coal basket The next dimension is that of energy consumption 100 Weighted average growth. 50 0 1991 1994 1997 2000 2003 2006 World Energy Consumption Growth BP Statistical Review of World Energy 2007 © BP 2007 Average annual growth Excl. China 6% The best starting point is the price of energy. The 5% price of all forms of commercially traded energy has 4% increased substantially. Recent energy prices have 2001- 2006 been significantly different from previous 3% experiences. 2% 1996- 2001 1% Energy prices were stable during 1991 - 96 in the face 0% of adequate and growing supplies. But this did not World OECD Non-OECD Oil Gas Coal Primary last. Growing supplies were supplemented by lower Energy BP Statistical Review of World Energy 2007 demand due to the Asian financial crisis. Oil prices, in ©BP 2007 particular, slumped to $10/bbl. However, OPEC actions rebalanced the market and prices recovered to We can firstly observe that the consumption of all levels above those of the early 1990s. Gas prices fuels except nuclear accelerated in the 2001 - 06 followed oil prices as a result of the end of the US gas period compared to the previous five years. That bubble and indexation to oil in other markets. Coal implies that world primary energy consumption remained in adequate supply. By 2001 a weighted accelerated from 1.2% p.a. in the 1996 - 2001 period average of hydrocarbon prices had increased by 59% to 3% p.a. during the period 2001 - 06. China alone from the trough of 1998. However, the average generated almost half of the world’s energy growth increase for the full five year period of 1996 - 2001 over the last 5 years and thus dominated the global was only 8%. aggregate data. Nevertheless this acceleration also occurred in the world outside China – from 1.2% to The last five years have seen exceptional energy 1.9% p.a. prices. The price of oil has gone up each year during this period, despite now rising surplus production Importantly, this was a non-OECD phenomenon. capacity. Gas prices have tended to follow, especially Energy consumption growth in the OECD slowed, but in the oil price indexed markets of Europe and Asia accelerated elsewhere – in Asia Pacific, Africa, the Pacific. However, gas prices in the more competitive Middle East, the FSU and in South and Central liberalised markets of the US and UK have seen America. periods of decline in face of weak demand and an increasing availability of imported natural gas. Coal How can we reconcile rapid increases in energy prices prices have risen globally but not as much as oil or with accelerating consumption growth? gas – and in recent years have essentially stabilised. 2 © BP 2007 Even with higher average energy prices, energy World Economic Growth elasticities have been higher over the 2001- 06 period Average annual growth (PPP) than during the previous five years. In other words, 10% energy consumption grew faster relative to GDP growth from 2001 through 2006 than in the previous 8% period. And this conclusion holds even if China is 6% excluded from the calculation. It also holds when 2001- 2006 1996- compared to the 1991 - 96 period, although this data 4% 2001 is significantly affected by the FSU declines. 2% Oil stands out as the only fuel where income 0% World OECD FSU China Other EMEs elasticities remained constant in 2001- 06. It is not a excl. China coincidence that oil demand growth was relatively BP Statistical Review of World Energy 2007 © BP 2007 weak when oil prices rose more than those of other fuels. The first part of the answer is economic growth. Over the last five years the world economy has grown And again, all this does not apply to the OECD. Here strongly. Measured at ‘Purchasing Power Parity’ a slowdown in economic growth was matched by a exchange rates (PPP) global economic growth slowdown in energy consumption growth. The averaged 4.4%. This exceeded the 3.5% average in OECD’s demand for additional energy in relation to the 1996 – 2001 period. And it is the strongest five GDP growth was unchanged, whereas outside the year period since the 1960s. OECD this elasticity increased. Economic growth in the developing world thus tended to be more energy The acceleration of growth was concentrated outside intensive, despite higher energy prices. Economic the OECD, most notably in China, and it occurred growth in the OECD has tended to be relatively less despite rising energy prices. OECD economic growth energy intensive – most consumers already own cars actually slipped to 2.5% p.a. on average, with slower and are adequately heated and cooled. growth in both the US and EU. However, industrial activity in the OECD over this The question then becomes – to what degree can period also shows a reduction in energy intensive economic growth explain the rise in energy industrial sectors and an increase in the share of less consumption growth? To analyse this relationship we energy intensive sectors. There appears to have been a can consider energy elasticities – the ratio of energy combination of the effect of high prices and of a growth to GDP growth. When elasticities increase, longer term structural change. The aggregate data, of economic growth is increasingly energy intensive. course, mirror two effects: changes of the energy mix within countries; and changes in the weight of countries in global energy consumption. Income Elasticities of Energy Demand So, part of the acceleration of energy growth can be Elasticity 1.2 explained by economic growth – but not everything. 1.0 Economic growth is still the main driver of energy consumption growth. But, if anything, the relationship 0.8 2001- 2006 between economic growth and energy consumption 0.6 has strengthened rather than weakened. There is a 1996- 0.4 2001 specific China story. But there is also a difference in 0.2 the energy intensity of economic activity and growth between OECD and non-OECD countries. And it 0.0 World World OECD Non- Oil Gas Coal appears that the price effects that dampen energy Primary excl. OECD Energy China consumption have been bigger in the richer and more BP Statistical Review of World Energy 2007 © BP 2007 open markets of the OECD. © BP 2007 3 World Fuel Shares Carbon Emissions World Carbon Emissions Carbon Intensity Share of global primary energy consumption Index: 1990 = 100 Tonnes of carbon per tonne of primary energy use 50% 140 1.05 World China 1.00 40% 130 Oil 0.95 120 30% Coal 0.90 Gas 110 Annex 1 20% 0.85 Hydro 100 0.80 Nuclear 10% World 90 0.75 Annex 1 OECD Ratified 0% 80 0.70 1966 1971 1976 1981 1986 1991 1996 2001 2006 1990 1994 1998 2002 2006 1971 1978 1985 1992 1999 2006 BP Statistical Review of World Energy 2007 © BP 2007 BP Statistical Review of World Energy 2007 © BP 2007 I now want to consider the consequences of the All of this has implications for carbon trends.

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