Higher oil prices starting to sap global demand growth: BP
London: Global oil demand has already started to show signs of weakening this year in response to higher oil prices, following another year of robust demand growth above the 10-year average, BP said Wednesday.
- Oil demand grew 1.7 million b/d in 2017
- Proven oil reserves slipped in 2016
- ‘Worrying’ power sector fuel mix
Global oil demand grew 1.7 million b/d last year, up 1.8% from 2016, keeping demand over the last five years at its highest since the peak of the last commodities “super-cycle” of 2006-7, BP said in it’s latest annual Statistical Review.
But with Brent trading around $76/b, crude oil prices have risen by nearly 75% since mid-2017, curbing demand for road fuels despite an underlying robust global economy.
As crude production in the North Sea continues to evolve, its role in an increasingly globalized market has started to shift, having an impact on Dated Brent and its position as a global oil benchmark. In this report, S&P Global Platts delves into the dynamics affecting the North Sea and Northwest Europe crude markets and the continuing evolution of Dated Brent.
“Already this year data you can see the price effect is waning, with gasoline demand growth slowed and diesel demand, which is more aligned with industrial activity, picking up,” BP’s chief economist Spencer Dale told reporter while presenting the review.
Oil demand in 2017 continued to be driven by oil consumers benefitting from the “windfall” of low prices, with both Europe and the US showing demand growth of 300,000 b/d and 200,000 b/d respectively, Dale said.
The International Energy Agency last month trimmed its 2018 oil demand growth forecast by 100,000 b/d to 1.4 million b/d, citing an expected slowdown in the global economy due to higher oil prices which hit $80/b last month.
“If we saw oil prices stay at these types of levels, I think that would eat into oil demand,” Dale said. “One of the lessons we’ve learned over the last few years is that oil demand does respond to pricing laws.”
OIL RESERVES SLIP
BP said 2017 was a strong year for natural gas demand, with consumption up 3% and production up 4% — the fastest growth rates since immediately following the global financial crisis.
The biggest single factor fueling global gas consumption was the surge in Chinese gas demand, where consumption increased by over 15%, driven by government environmental policies encouraging coal-to-gas switching, BP said.
On supply, BP said global oil production rose 600,000 b/d last year, below average for the second consecutive year as OPEC-led output cuts helped tighten the oil market.
According to BP’s benchmark annual compendium of global energy data, global proven oil reserves slipped slightly last year to 1.696 trillion barrels from 1.697 trillion barrels in 2016. The change, which saw the original 2016 estimate revised down from 1.707 trillion barrels, largely reflects a 1.7 billion barrel fall in Canadian proven reserves offsetting a 1.4 billion barrel rise in Venezuelan reserves.
Dale said part of the fall last year likely reflects low average oil prices which generally affects the volumes of oil a country considers recoverable.
The 2017 reserves total would be sufficient to meet 50.2 years of production at 2017 levels, BP said.
POWER SECTOR MIX
Overall, BP’s 2017 data shows a coal use increasing for the first time in four years, while carbon emissions from energy usage rose by 1.6%, after three years of little or no growth. Dale said, while disappointing, the trend was largely anticipated as global GDP was growing at below average rates in recent years, and output from China’s most energy-intensive sectors was falling.
“From an energy transition perspective, these numbers look a little bit disappointing after three exceptional years,” Dale said “This is not entirely unexpected…but a lot of those structural factors that are driving energy transition are still there,”
Solar and wind growth was very strong in 2017 and China’s “surge” in gas demand was key, BP said.
Plotting the fuel mix in the global power sector for the first time, BP’s latest Statistical Review reached the “striking” conclusion that coal’s share of the power generation mix had remained unchanged at 38% since 1998.
The move comes despite the growth of renewables, with the share of renewables actually lower than it was 20 years ago as the sector has not grown sufficiently fast to offset the impact of a contraction in nuclear power generation.
Carbon emissions from the sector have also grown despite the “extraordinary growth” in renewables in recent years, and policy efforts to encourage a shift away from coal into cleaner, lower carbon fuels.
“This is really worrying…how much progress have we made in 20 years? none,” Dale said. “I think this is a wake-up call for all of us.”
“To have any chance of getting on a path consistent with meeting the Paris climate goals there will need to be significant improvements in the power sector,” he said.
The share of non-fossil in 2017 is actually a little lower than it was 20 years ago, although gas use in the power sector has risen and oil-fired power generation has fallen, BP said.
Source: platts
