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Vital Signs 2012
The Trends That Are Shaping Our Future
By Michael Renner, Linda Starke
ISLAND PRESSCopyright © 2012 Worldwatch Institute
All rights reserved.
For additional energy trends, go to vitalsigns.worldwatch.org.
Oil Market Resumes Growth after Stumble in 2009
Saya Kitasei and Natalie Narotzky
After falling 1.5 percent between 2008 and 2009 due to the global financial crisis, global oil consumption recovered by 3.1 percent in 2010 to reach an all-time high of 87.4 million barrels per day. (See Figure 1.) About one third of this growth came from China, which now uses over 10 percent of the world's oil. The United States, Brazil, Russia, and the Middle East accounted for an additional 48 percent of the increase. Meanwhile, consumption in the European Union decreased for the fourth consecutive year, falling 1.1 percent. The gap in oil consumption between countries in the Organisation for Economic Co-operation and Development (OECD) and non-OECD countries narrowed, with the two groups respectively accounting for 52.5 and 47.4 percent of total oil consumption in 2010.
In 2010, oil remained the largest source of primary energy use worldwide, but its share of this use fell for the eleventh consecutive year, to 37 percent. Responding to this falling demand, global oil production fell 2.1 percent to 80.3 million barrels per day in 2009. (See Figure 2.) Faced with lowered demand and prices, members of the Organization of Petroleum Exporting Countries (OPEC) decided in December 2008 to reduce their production targets by about 4.2 million barrels per day. As a result, OPEC oil production dropped 6.6 percent between 2008 and 2009, its largest annual production decline since 1983.
OPEC and non-OPEC countries (excluding the former Soviet Union) each accounted for almost 42 percent of global oil production in 2010, with the former Soviet Union responsible for 16.8 percent, up from 10.7 percent in 2000. (See Figure 3.) Russia has taken the top producing spot from Saudi Arabia in the last two years.
Although the large share of oil produced in politically unstable regions remains a potential source of oil market volatility, other recent events have created an additional source of risk for global oil markets. On April 20, 2010, a well blowout and fire on the Deepwater Horizon offshore drilling rig in the Gulf of Mexico left oil leaking for months from the partially constructed offshore well. The blowout and oil spill caused public outrage around the world and led a number of governments to put a moratorium on offshore oil drilling until the causes of the accident could be discovered.
The subsequent presidential National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling found that "changes in safety and environmental practices, safety training, drilling technology, containment and cleanup technology, preparedness, corporate culture, and management behavior will be required if deepwater energy operations are to be pursued in the Gulf—or elsewhere." The Commission also recommended strengthened safety and environmental regulations on offshore drilling, and the International Energy Agency (IEA) forecasts that the new regulations that have been called for around the world could mean that projected oil supply from deepwater projects in 2015 could be between 100,000 and 800,000 barrels per day less than previously projected.
Despite the Deepwater Horizon accident, global production increased in 2010 along with prices, rising 2.2 percent to about 82.1 million barrels per day. Nevertheless, the 2010 increase in production was small compared with post-recession growth in coal and natural gas production, which rose 6.3 and 7.3 percent respectively between 2009 and 2010. While the surge in cheap natural gas supplies since 2008 displaced oil in certain markets around the world, it also resulted in the addition of relatively inexpensive natural gas liquids (NGLs—liquid hydrocarbons produced in natural gas wells) to global oil supplies, which are not limited by OPEC production targets and have helped reduce oil prices.
Since the end of 2010, political unrest in the Middle East and North Africa has constrained production in the world's biggest oil-producing region. According to estimates from the International Energy Agency, by the end of May 2011 civil war in Libya—which accounted for 2 percent of the world's oil production in 2010—had removed 132 million barrels of light, sweet crude oil (1.5 million barrels per day) from the world supply.
Concern over the potentially disruptive impact of the Libyan civil war on global oil markets and a lack of stabilizing action by OPEC led the IEA in late June 2011 to release 60 million barrels from its member nations' emergency petroleum reserves for only the third time in history. Of this total, 30 million barrels will come from the United States, 20 million from the European Union's member countries, and 10 million from Asia. This move was intended to complement Saudi Arabia's stated plan to increase its own production, potentially to as much as 10 million barrels per day or more by July 2011, although the IEA and Saudi Arabian actions both drew sharp criticism from other OPEC members, particularly Iran, that are concerned about the dampening effect they would have on oil prices.
After reaching all-time highs in mid-2008, oil prices fell sharply as the global financial crisis drove demand down. (See Figure 4.) With OPEC's decision to cut production targets in the first quarter of 2009, world crude prices began to recover, and average annual prices for West Texas Intermediate crude reached $79.48 per barrel in 2010, which was 25 percent lower than the average 2008 price of $99.69 per barrel.
Against the backdrop of rising oil prices and concerns about supply risk, many countries are paying more attention to their dependence on imports and the stability of the countries from which they purchase oil. In 2010, the United States imported 50 percent of the oil it needed, compared with 67 percent in Europe. In China, imported oil accounted for 59 percent of total oil consumption, while Japan imported 96 percent of its oil.
The Middle East remains the largest exporter of oil, with 35.3 percent of the world's gross exports in 2010. The former Soviet Union, the second largest exporter, with 16 percent of the total, exported 7.2 percent more oil in 2010 than in the preceding year. The Asia Pacific region experienced a 10.6 percent increase in exports, with 11.6 percent of total exports coming from that region.
Meanwhile, global proved oil reserves, including natural gas condensate and NGLs in addition to crude oil, have been increasing since 1980, reaching an estimated 1,383 billion barrels in 2010 (1,526 billion including Canadian oil sands). (See Figure 5.) The largest stocks of proved reserves are in the Middle East, which holds 54.4 percent of the world's total.
Oil sands, as well as other unconventional oil sources such as Venezuelan extra-heavy oil, coal-to-liquids, gas-to-liquids, and oil shales, represent huge resources, but their relatively high production and environmental costs will likely prove to be important limiting factors on production.
Oil sands in the Canadian province of Alberta accounted for an additional 143 billion barrels of proved reserves in 2010, equivalent to slightly more than Europe and Eurasia's reserves combined. Canadian oil sands now contribute around half of that country's crude oil production and are expected to provide a growing share, but they are energy-and water-intensive to develop and, in the case of pit mining, can lead to extensive landscape alteration and large waste streams of toxic mining tailings. These environmental concerns have led to strong opposition to oil sands development among certain interest groups in major U.S. and European markets.
Global Natural Gas Consumption Regains Momentum
Saya Kitasei and Ayodeji Adebola
Global natural gas consumption rebounded 7.4 percent in 2010 after a slight dip in 2009, reaching a record 111.9 trillion cubic feet (Tcf). (See Figure 1.) Strong growth in all regions reflected the end of the recession's dampening effect on energy consumption. In 2010, natural gas accounted for 23.8 percent of global primary energy use, a slight increase over 2009.
Responding to revived demand, global natural gas production increased almost as much as consumption—7.3 percent—to 112.8 Tcf in 2010. Global proved natural gas reserves increased by only 0.3 percent to 187.1 Tcf, or 59 years of current production levels, due in large part to the rapid growth in natural gas production. Most of these reserves are concentrated in the Middle East (40.5 percent) and the former Soviet Union (31.3 percent).
Several organizations have published research in the past few years suggesting that there could be as much global recoverable natural gas resources in unconventional formations as there are in conventional ones. These unconventional resources, including shale gas, coalbed methane, and tight sands, appear to be distributed much more broadly than conventional resources, with a 2011 shale gas assessment by the U.S. Energy Information Administration identifying world-class shale resources in almost every continent studied. The United States and Canada are the only two countries where unconventional gas made up a significant portion of natural gas production in 2010, but Australia, Poland, Germany, the United Kingdom, and China are actively pursuing shale gas development within their own borders.
A number of factors bolstered natural gas markets in North America, including sustained low prices. The world's largest incremental increase in natural gas consumption occurred in the United States, where consumption leapt by 1.3 Tcf to reach 24.1 Tcf in 2010, which was just over one fifth of global natural gas consumption. The United States also maintained its position as the world's largest natural gas producer for the second year in a row, accounting for just under one fifth of global natural gas production.
The former Soviet Union, after experiencing the largest regional decline in natural gas consumption in 2009, saw a strong rebound in demand in 2010, up 6.8 percent to 21.1 Tcf. Russia, the world's second largest natural gas consumer, accounted for just under 70 percent of this use. Russian production also jumped 11.6 percent, to 20.8 Tcf, just behind the United States, though still not up to its peak levels of 2008. Russia holds almost one quarter of the world's proved natural gas reserves. Production in Turkmenistan, holder of the world's fourth largest natural gas reserves, also recovered 16.4 percent to 1.5 Tcf after an explosion along an export pipeline to Russia halved production in 2009.
European consumption rose as well in 2010, by 7.4 percent to 17.7 Tcf.16 Production in Norway, Europe's largest producer, reached record levels of 3.8 Tcf, but Europe's proved reserves fell for the seventh consecutive year. Although Europe has accounted for close to one fifth of global natural gas consumption for the last three decades, its share has recently declined, and European usage was overtaken by Asia in 2009.
Asian demand continued to grow rapidly, driven largely by China, which surpassed Japan in 2009 to become Asia's largest natural gas consumer; it used 3.9 Tcf, or 3.4 percent of global natural gas demand, in 2010. China, India, South Korea, and Taiwan all experienced demand growth that year of more than 20 percent. Production in the Asia Pacific region (including Australia and New Zealand) rose by 10.5 percent, led by China, Indonesia, and Malaysia, and contributed 15.4 percent to global natural gas supplies. China's 12th Five-Year Plan, which covers 2011–15, includes the goal of increasing natural gas's share in the country's primary energy mix to 8.3 percent by 2015—about double its current share—sending a strong signal that Chinese natural gas consumption will continue to increase rapidly over the next five years.
Although the Middle East is home to some of the richest natural gas resources in the world, with Iran and Qatar alone accounting for 29.4 percent of global proved reserves as of 2010, the region has only recently begun to develop the infrastructure needed for domestic consumption. Consequently, despite a 13.2 percent increase in the region's natural gas production, driven mainly by Qatar, usage in the Middle East grew by only 6.2 percent, with the remainder going to exports. The Middle East is widely regarded as one of the world's largest potential growth markets.
Both Africa and South America have comparatively immature natural gas markets due to relatively modest production and a lack of robust transmission and distribution infrastructure, with consumption at just 3.3 and 4.7 percent, respectively, of the global total in 2010. Nevertheless, both regions exhibited growth in both consumption and production. Nigeria, where flaring of natural gas associated with oil production has long been criticized as a major source of greenhouse gas emissions and other environmental damage, has improved its capture rate of natural gas, and production there rose 35.7 percent over 2009.
Gas flaring continues to be a challenging environmental and energy issue throughout the world. It is estimated that 5–5.5 Tcf of associated gas, or the equivalent of about 5 percent of global natural gas production, is flared annually. Satellite data indicate that Russia and Nigeria were the two largest gas-flaring countries in the world, with an estimated 1.4 Tcf and 0.5 Tcf of gas flared, respectively, in 2009. Global gas flaring fell from 5.2 Tcf in 2009 to 4.7 Tcf in 2010, marking the fifth consecutive year that gas flaring has dropped worldwide despite rising oil production: in fact, between 2005 and 2010 gas flaring decreased 22 percent. Russia and Nigeria have achieved significant reductions in flaring through the use of natural gas-fired power plants to displace diesel generators. Kazakhstan has also been credited with cutting its gas flaring activities by a third in five years.
Reenergized global gas demand drove average prices up from their 2009 lows in all markets but the European Union. In the United States, natural gas was traded on the Henry Hub spot market at an average of $4.39/million Btu (MMBtu) in 2010, a 13 percent increase over 2009 levels. (See Figure 2.) Over the same period, average spot prices on the British National Balancing Point (NBP) Hub rose 35.2 percent to $6.56/MMBtu. Prices in Asia, the market that saw the largest rate of increase in consumption, remained the highest, with the average price of liquefied natural gas (LNG) reaching $10.91/MMBtu in 2010. Yet even these high prices were lower than global oil prices in 2010, which reached $13.47/MMBtu.
The sharp divergence between oil and natural gas price trends in 2009 and 2010 put downward pressure on oil-indexed prices in long-term contracts, particularly in Europe—where the coincidence of falling demand, the availability of cheap LNG originally intended for U.S. markets, and the emergence of spot markets has threatened the dominance of oil indexation in long-term contracts with major suppliers such as Russia's Gazprom. Average natural gas prices in the European Union fell 6 percent to $8.01/MMBtu in 2010.
The share of global natural gas trade represented by LNG passed 30 percent in 2010 for the first time on record. (See Figure 3.) The total volume of LNG traded globally reached 10.5 Tcf in 2010, up 22.6 percent from 2009. About half of the increase in exports came from Qatar, whose LNG exports rose 53.2 percent to 2.67 Tcf (about one quarter of LNG traded in 2010). Exports from Australia, Indonesia, and Malaysia, which together represent an additional 29.3 percent of exports, increased 9.4 percent.
Excerpted from Vital Signs 2012 by Michael Renner, Linda Starke. Copyright © 2012 Worldwatch Institute. Excerpted by permission of ISLAND PRESS.
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