Global Energy Markets are in a State of Flux

           Energy Markets

The BP Statistical Review was launched on 8th June during which Spencer Dale, BP’s Group Chief Economist, commented that the reduction in energy intensity in 2015 was striking because it had occurred at a time of low energy prices. He added that, while the focus of attention is traditionally given to the energy mix, energy intensity is just as important in addressing emissions.

The aim of the BP Statistical Review is to provide objective data in order to inform debate and decision-making. It gives the historical context, as well as key trends over the course of the previous year. Its overall findings for 2015 were that energy demand still increased but at a rate of 1% (almost half the average rate seen over the past decade), which was largely due to demand from China even though its growth had slowed. A transition in both supply and demand came together in 2015 as output of shale, wind, and solar all showed solid growth, as well as oil and gas, while coal output fell.  Good levels of supply and reduced demand growth led energy prices to fall sharply last year. Some was increase in demand seen for petrol and jet fuel, signifying that the demand came from households as a result of lower prices.

Spencer Dale said, “It seems increasingly clear that global energy markets are in a state of flux: both energy demand and supplies are changing in profound ways”.

China’s energy demand has returned to levels seen in the 1990s, prior to its rapid economic growth, but it remains the highest energy consumer. If China’s recent decline in energy intensity had not occurred, global demand would be 5% higher today even allowing for its economic downturn. Therefore, China’s energy intensity is an important area to watch. Its recent growth has been directed towards service industries and low-carbon fuels. In addition, the output of energy-intensive sectors such as steel fell last year, but BP’s Chief Economist points out that there could a cyclical element to this so we don’t fully know what will happen to China’s energy intensity in the future and what its demand for coal will be.

The report showed that renewable energy in the power sector grew by 15% in 2015 and that the costs of renewables is reducing dramatically, particularly in countries such as Dubai. Market penetration may still take a while, though, based on the historical performance of other forms of energy when they were new to the market. The development of renewable energy has so far been broadly comparable to that of oil, gas, and nuclear power. However, while nuclear power plateaued quite quickly, BP’s view is that the price of renewable energy will continue to fall and so it is possible that we could see a quicker path of penetration for renewables than for any other fuel in history although this is still only likely to be around 8% of primary energy in 20 years’ time.

Carbon emissions flattened in 2015 and saw just 0.1% growth, the lowest level in 25 years (with the exception of the 2009 recession), as demand slowed and a shift away from coal was seen. Growth in US shale gas and the development of environmental policies meant that gas displaced coal. BP sees good progress in emissions reductions but underlines the high challenge that remains. More policy action is required, but BP recommends this is via carbon pricing rather than regulation so that governments don’t have to pick winners and losers when they don’t know how different technologies will evolve.

In looking towards the future and where future trends lie, the main drivers are seen to be demand from China, growth in renewable energy, policies to address carbon emissions, and technological advances.  The full report can be found here.

Nikki Wilson

Nikki joined Alfa Energy in September 2015 as a Carbon Management Consultant where she advises clients on legislation, compliance, and the implementation of carbon management schemes. She is a Practitioner member of IEMA, has a postgraduate diploma in Environmental Decision Making, and has over 15 years’ experience in energy consultancy.