Sluggish growth in global energy consumption for the third straight year signals a world in transition, with increasing demand limited to developing economies, particularly China and India, according to the “BP Statistical Review of World Energy 2017,” released on June 13.

“Stability and energy don’t go together,” Spencer Dale, BP’s group chief economist told a worldwide audience via Internet linkup.

Dual forces dominate the 66th edition of the annual report, Dale said:

  • Short-term adjustments as the oil market works through a sustained period of oversupply; and
  • A long-term transition toward slower energy growth and a shift away from traditional developed economies to those that are developing.

The average price of Brent crude oil in 2016 was $43.73 per barrel (bbl), the lowest annual average since 2004. This happened in spite of a strong global increase in demand of 1.6 million barrels per day (MMbbl/d) coupled with relatively weak additions to supply of 400,000 (Mbbl/d).

Led by Iran, Iraq and Saudi Arabia, OPEC recorded solid production growth of 1.2 MMbbl/d in 2016. It was non-OPEC countries, most notably U.S. producers of tight oil, that pulled down production by 800 Mbbl/d, the sharpest decline in 25 years. China’s oil production decreased by 300 Mbbl/d last year, which was the largest drop in its history. (China's May 2017 oil output is its lowest on record.)

Dale sought to steer clear of generalizations, citing the difference in oil extracted from the Permian Basin and that produced in the Eagle Ford. But he emphasized how the production strength of OPEC is balanced by the resilience of U.S. tight oil, which he compared to the “Weebles” toy.

“The key thing about Weebles is that Weebles wobble but they don’t fall down,” he told the audience on the webcast, quoting the toy’s advertising campaign. “Tight oil is not the marginal barrel in the longer run. As the market adjusts and prices recover, it will spring back. It may fall over but it will bounce back.”

Tight oil’s resilience is directly tied to efficiencies put into effect by U.S. producers, Dale said. Since the oil price crash in late 2014, production per rig increased by 40% in both 2015 and 2016.

“Despite rigs in the Permian falling by over 75%, output continued to grow,” Dale wrote in the report. “Put differently, a rig operating in the Permian today is equivalent to more than three rigs at the end of 2014.”

What has not proved resilient in the energy space is coal, he said.

“Perhaps the most striking development was the continuing decline of coal,” Dale said. “The speed of deterioration in the fortunes of coal has been stark. The scale of the declines in recent years does seem to signal a decisive break from the past.”

If the shift to natural gas to replace coal as the prime feedstock for power generation in the U.S. forces coal producers to seek export markets, that strategy may not be durable. While China has resumed its position as the world’s largest importer of coal, that title is tied to the country’s record production decline of 7.9% in 2016. China’s consumption of coal was down 1.6% for its third straight annual decline.

Demand and production of natural gas were both weak in 2016, with consumption growth of 1.5% that was well below the 10-year average of 2.3%. Global production inched up 0.3%, the weakest gain in 34 years except for the immediate aftermath of the financial crisis.

Much of that weakness derived from the 2.5% production decline in the U.S. However, the debut of several LNG export terminals in Australia boosted that country’s production by 25.2%.

Global LNG supplies are primed to grow another 30% by 2020, the report forecasts, with a new LNG train coming onstream every two to three months for the next four years. It’s a pace that the BP report terms “quite astonishing growth.”

Joseph Markman can be reached at jmarkman@hartenergy.com and @JHMarkman.

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