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№ 6 (June 2009)

BP Statistical Review of Energy: Non-OECD Economies in the Lead

Developing nations consumed more energy than the entire group of OECD countries for the first time in 2008. This analysis is extracted from the reams of data in the BP Statistical Review of Energy, presented by Dr. Kristof Rühl, chief economist at BP, in Moscow on July 3.

 

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Developing nations consumed more energy than the entire group of OECD countries for the first time in 2008. This analysis is extracted from the reams of data in the BP Statistical Review of Energy, presented by Dr. Kristof Rühl, chief economist at BP, in Moscow on July 3.

 

The report, now in its 59th year of publication, canvasses use of hydrocarbon, nuclear, and renewable sources of energy in many of the world’s larger economies. It describes energy production in exporting countries for OECD, non-OECD, OPEC, and Non-OPEC sources.

 

Rühl brought particular attention to coal’s place in the global energy consumption diagram given it’s low cost, abundance around the globe, and fast turnaround from mine to market. Coal continues to be the fuel of choice for the non-OECD developing world, and in 1988 non-OECD coal consumption surpassed that of the OECD countries. China accounted for 85 percent of the growth in coal consumption in 2008.

 

As expected, references to the global economic crisis peppered Dr. Rühl’s discussion of the global crude market, where developing country demand overall grew by a million barrels for the year, but consumption fell overall as the large mature economies contracted their requirements by over 1.5 million barrels. Underscoring this fact is the comparison of the U.S. and India: America’s drop of 1.6 million barrels was equal to the amount of crude India consumes in a year.

 

The drop in consumption due to the crisis will stretch reserves even further. “The world continues to replace every barrel consumed with new reserves. OPEC and the FSU account for seventy-six percent of those reserves,” said Rühl, reminding the audience of the clout wielded by Russia, Saudi Arabia, and the few states on the supply end of the global crude oligopoly.

 

Rühl considers the OPEC production cuts instituted over the winter successful in that they brought the price back above USD 60 per barrel despite flat demand in the first half of 2009. Like the supply side, demand is often recalibrated using less than free-market principles: all of the crude consumption growth in the last five years came from countries where the price of crude products is subsidized. Overall growth in crude consumption going back ten years is attributable to non-OECD countries, as mature economies have become service-based and populations have fallen. There is a noticeable overlap between price-subsidizing and non-OECD countries.

 

While only seven percent of natural gas was shipped by LNG tanker format in 2008, the year did witness the longest shipment of LNG, from Norway to Japan. Improvements in drilling and capturing natural gas in North America have precluded the need for new import regimes there. "(In the U.S.) the output curve started to increase exponentially last year. As a result, the share of non-conventional gas in the U.S. increased from 15 percent in the 1990s to more than 50% today,” warned Rühl. Becoming more efficient with domestic gas is cheaper than building new pipelines and terminals.

 

Many emerging economies were able to keep high energy prices from slowing down their economies over the last few years of sustained oil prices for one simple reason: emerging economies began producing many of the finished goods that oil exporters purchase, and exporting those goods to OPEC and oil producers recoups the petrodollars. The oil price shock hit the U.S. harder, considers Rühl, because “it only exports grain and weapons,” neither of which oil producers would buy from America.

 

Specifically touching on Russia, Rühl lamented the downturn in Russian production due to ageing fields and an unclear tax structure. In the recent Iraq bids, all of bidders were partnerships between NOCs and publicly-traded companies, with a BP-CNPC venture winning the biggest contract. Rühl added that Petrobras made itself into the best deep-water drilling company in the world by allowing foreign competition.

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