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bp world energy review

Friday 26 June, 2009

British Petroleum, the Chicago Council on Global Affairs, Chicagoland & Illinois Chambers of Commerce, brought you this event The 58th Annual BP Statistical Review of World Energy featuring former University of Michigan economics grad Mark Finley (just like me), GM of Global Energy Markets for BP.  Here’s the information contained in the presentation he gave & here’s the story behind the #’s:

Overall:  2008 was a year of volatility & structural change.  Demand for energy by emerging economies exceeded that of developed economies (OECD) for the 1st time ever, especially for natural gas & coal, but not for oil.  World economic growth slowed sharply & exporters suffered most keenly.  Consumer spending was essentially replaced by government spending.  Energy consumption moves with growth & growth slowed, which started in the OECD in 2006-7.

Oil:  consists of 37% of energy consumption & 2/3 of it is traded across borders.  It’s risen for 7 consecutive years, but fell for the 1st time since 1993 & at the biggest rate since 1982.  # of miles driven fell for the 1st time in 30 years.  Diesel & jet fuel grew until the recession hit.  Oil supply changes lag demand changes because it takes a long time to process production changes.  OPEC cut 3M barrels/day.  Countries outside of OPEC cut 600K barrels/day, the most since 1992.  Russia dropped for the 1st time in a decade, but because of tax changes is now up again.  Oil inventories & spare capacity are up to 2o year highs because although production is down since 2007, supply is up, while demand is down.  The world is not running out of oil. Reserves continue to build.  The issue is distribution.  Margins have fallen, so there’s little incentive to produce.

Natural Gas:  mirrors oil.  China showed strong growth.  The US had the biggest growth in history because of greater productvity while Canada showed its biggest decline.  The Atlantic Basin is shipping to China to serve its 12% demand.  There is still too much supply chasing demand.

Coal:   is the fastest growing @ 3.1%, although China fell with it electricity generation in the 4th quarter.  While it’s cheap, prices are more volatile than oil & gas.  Natural gas grew while coal fell in both Europe & the US.  While coal is not as widely traded, Europe shipped coal to Asia & the US.

Renewables:  grew in OECD countries where governments can afford subsidies.  Ethanol increased 31% (60% in the US), but still accounts for only 1% of oil demand.  Wind grew 30% to 1 1/2 % of all power generation.  Solar grew 70%.  CO2 emisssions grew because of the growth in coal.  Australia postponed their carbon credit program because of its affect on the economy.

Q&A:

  • the oil companies recognized the recession before it was announced
  • the cost of cap & trade programs will depend on supply & demand for those credits
  • natural gas is trading at a record discount to oil-coal plays a role too
  • US has shown the biggest growth in renewables (7 wind companies are now headquartered in Chicago)
  • reserves & production change over time which leads to changes in reserves, but figures don’t include new sources, i.e. Canadian oil sands, supplies off the Brazilian coast, etc.
  • there are tons of opportunities to increase procution in the OECD
  • you can’t separate the politics from the economics in hypothesizing about an instability tax-there is too little trust in market mechanisms
  • OPEC cartels have led to higher prices, but the industry is prone to booms & busts, & OPEC didn’t set quotas for 22 years

My take-I was a little disappointed with the lack of focus on new sources/renewables, I guess I shouldn’t be, given this presenation was made by a petroleum company.

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