Parsing BP’s review of world energy

6th July 2012 By: Jeremy Wakeford

UK-based oil giant BP recently released its annual Statistical Review of World Energy, which provides a wealth of reserve, production, consumption and price data on all the major primary energy sources. This instalment of Energy Matters highlights the review’s key findings on fossil fuels.

One of the biggest surprises is that Venezuela now claims to hold the largest oil reserves in the world, at 296.5-billion barrels – or gigabarrels (Gb) – or 17.9% of the world’s total. Saudi Arabia, with 265 Gb (16.1%), has been demoted to second place, followed by Canada with 175 Gb (10.7%).

But what the raw data do not say is that not all the oil is of the same quality. Three-quarters of Venezuela’s reserves are heavy oil, which needs more intensive refining than regular crude. Most – 97% – of Canada’s reserves are oil sands, which require huge volumes of water and natural gas to be converted into synthetic petro- leum fuels.

It must also be noted that BP’s reserve data are drawn from official country estimates, most of which have not been independently verified. Some – especially in the case of Organisation of the Petroleum Exporting Countries member States – may be influenced by political and economic motivations. Venezuela’s increase in reserves could be at least partially justi- fied by the sharp rise in oil prices, which helps to make heavy oil more commercially viable.

Last year, world oil output rose by 1.3% to 83.6-million barrels a day (mbpd), the highest on record. BP reports that total consumption of oil, biofuels and other liquid fuel substitutes climbed by 0.7% to 88 mbpd.

The European Union’s (EU’s) economic vulnerability is exacerbated by the fact that it boasts just 0.4% of proved oil reserves and, in 2011, produced 2% but consumed 16% of the world’s oil. Similarly, the US has less than 2% of the world’s oil reserves, but consumed over 20% of world oil output last year, while producing 8.8%. It is no small wonder then that the Middle East, with 48% of proved reserves, continues to be a focal point for Western geopolitical strategies.

China’s oil consumption rose by 5.5% in 2011 to 9.8 mbpd. The world’s second- largest economy and oil consumer accounted for 85% of the net increase in global oil consumption as demand in the US and the EU continued its multiyear decline.

The average price of Brent crude oil rose to $111/bl in 2011 from $80/bl the year before. Predictably, economic growth is once again slowing down across the world, as it did in 2008, when oil averaged $97 a barrel.

Proved natural gas reserves are even more highly concentrated in the hands of a few nations. Russia boasts 21.4%, Iran 15.9%, Qatar 12% and Turkmenistan 11.7%. North America – including Mexico – holds just 5.2% of conventional gas reserves.

The US accounted for a fifth of world gas production, just ahead of Russia with an 18.5% share. Otherwise, gas output is spread thinly amongst about 50 countries.

The US also dominates consumption of gas (21.5%), followed by the EU (13.9%) and Russia (13.2%). The EU remains highly dependent on Russian gas supplies – a key geopolitical lever for President Vladimir Putin. China’s gas consumption rocketed by 22% in 2011, compared with the pre- vious year, but accounted for just 4% of the world total. Japan upped its gas intake by 12% as it substituted for nuclear power generation shut down after the Fukushima disaster.

Globally, gas consumption grew 2.2% last year, slightly less than the 2000 to 2010 average of 2.8%. Gas prices in different regions have diverged in recent years, thanks mainly to a glut in the US, caused by the boom in shale gas.

According to BP’s figures, 92% of the world’s coal reserves are held by the top ten countries, led by the US, China, India, Australia, Germany, Ukraine and South Africa.

China totally dominates coal production and consumption, accounting for almost half of the world totals. Chinese coal use grew 9.7% last year, spurring a 5.4% rise in world demand – much faster growth than that of oil and gas consumption. India’s appetite grew 9.2%, taking the country’s share up to 7.9% and ranking the country third, behind the US with 13.2%.

Coal prices tracked the rise of oil prices in Europe and Japan, but were some- what subdued in the US as power utilities switched to cheaper gas.

There are several take-home messages from these data. First, the global economy is still highly – and increasingly – dependent on fossil fuels. Second, the bulk of remaining fossil fuel reserves is concentrated in a handful of countries, and, with some notable exceptions, these are not the largest energy-consuming nations. Third, our carbon emissions continue to grow as we use more coal and dirtier types of oil. Finally, it will take huge policy shifts and/or major fossil fuel price increases to tip the world onto a low-carbon, sustainable energy trajectory.