There is a global energy glut

There is a global energy glut, just about everywhere except on the east coast of Australia. This is clear from an analysis of the latest BP Statistical Review of World Energy contained in the August 2015 edition of EnergyQuest’s EnergyQuarterly. There is a glut of all fossil fuels, not only oil but also coal and gas. The rise in renewables adds to the oversupply. There are of course regions and people chronically short of affordable energy, such as the billion people in Africa and India without access to electricity. There is also a shortage of ‘completely clean’ energy, although not ‘cleaner’ energy such as gas. But overall the world is not short of energy.

The current glut reflects a slowdown in demand growth and acceleration in supply. According to BP, total global primary energy consumption grew by 121.3 million tonnes of oil equivalent (Mtoe) in 2014, which absent the Global Financial Crisis (GFC), was the lowest absolute growth since 2001. Production however grew by 177.4 Mtoe, with strong growth in production of oil, gas and renewables and solid contributions from hydro and nuclear.

The two major factors driving these trends were the US shale revolution and the rebalancing of the Chinese economy.

Global oil production grew by over 2 MMbbl/d (mostly from the US, now the world’s largest oil producer), but demand grew by less than 1 MMbbl/d. BP says demand grew at close to its recent historical average but the surge in US supply was the primary factor driving down global oil prices.

Coal consumption grew by just 0.4%, its slowest rate since the Asian crisis in 1998. Chinese coal consumption stalled in 2014 due to the slow-down in Chinese energy demand, rebalancing of the economy and the strength of hydro. The biggest absolute increase in coal consumption was in India. Global coal production fell but mostly in high-cost producing countries while production grew in Indonesia and Australia, low cost countries, pushing down coal prices.

Global gas production grew by 5.0 Bcf/d, also mostly from the US, while demand only grew by 1.2 Bcf/d. The biggest increases in demand were in the US and China, but Chinese growth has slowed and there were significant falls in demand in the EU (back to levels not seen since the mid-1990s, due to mild weather and renewables) and also in South Korea (due to nuclear). Overall, with the exception of the GFC, the growth in gas demand was the weakest in almost 20 years, causing consternation in the global gas industry. At the World Gas Conference in June, Shell CEO Ben Van Beurden noted that the gas industry has been better at finding gas than selling it (both commercially and politically).

Non-fossil fuels (biofuels, renewables, nuclear and hydro) accounted for less than 15% of total primary energy but added more to global energy growth than fossil fuels for the first time in 20 years, other than when the world economy has been in recession. Renewables made a significant contribution to the growth in primary energy although they grew at the slowest rate since 2003, reflecting less government support for wind in the US and EU.

The slower growth in demand, together with the shift in the fuel mix, meant that global carbon emissions from energy use are estimated by BP to have risen by just 0.5% (187 MtCO2) in 2014 the slowest rate for over 15 years other than in the immediate aftermath of the GFC. According to BP, the vast majority of the slowdown in carbon emissions can be attributed to China, reflecting the slowdown in energy consumption growth and the shift in the fuel mix away from coal, particularly to hydro but also to gas, nuclear and renewables.

There are big differences in fuel mix trends in major economies over the last five years (2010-14). In the EU primary energy consumption has fallen in absolute terms by 7.6%. The biggest losers have been gas and oil, while coal consumption has been steady and renewables have nearly doubled. In the US energy consumption has been steady. Gas and renewables have been the winners but coal and to a lesser extent oil the losers. The difference in the role of gas between the EU and US reflects price differences. US gas prices have been half those in Europe. In the US gas now generates more electricity than coal.