Introduction
Last’s week column identified several key trends on the demand side of the global energy market. This was done in order to contextualize Guyana’s future insertion into this market, when its production and export of oil and natural gas come on stream in the early 2020s. To complete this contextualization, today’s column considers the supply side of the global energy market.
To recall, the two demand trends singled out last week were 1) declining global energy demand, mainly from China, and 2) dramatic improvements in energy efficiency, across many countries. In spite of these trends, however, China is still forecast to remain for some time well into the future the world’s largest market for energy. Further, as a consequence of all the demand trends indicated last week, analysts view global energy demand as being in a state of fundamental transition. Of special note, the British Petroleum (BP) report which wascited last week went on to assert: “if energy demand is in a process of transition, global supply is surfing a technological wave” (BP 2016 p2).
For the remainder of today’s column I shall explore this extremely bullish description of the supply side of the world’s energy market. This will, in all likelihood, affect Guyana’s future oil and natural gas production and export.
A time of plenty
The BP review of the global energy market has referred to the recent expansion of energy supply as signifying an “age of plenty”, manifesting itself in both the fossil fuels and non-fossil fuels sections of the global energy market. The review labelled the United States shale revolution as the “poster child” of the fossil fuels segment of the energy market. It estimates that this shale revolution has already increased technically recoverable oil and natural gas resources at the global level by at least 15 per cent. And, of equal significance, productivity gains in this sector are proceeding rapidly apace.
The review also notes that the technological strides in the non-fossil fuels section of the global energy market are “arguably more striking”. It points to sharp cost reductions accompanying the growth of renewable sources of energy. It gives the example of solar power production having increased by more than sixty-fold over the past decade; with its capacity doubling every 20 months.
It seems evident to me that COP21, the Paris Agreement, along with their accompanying national pledges to cut carbon emissions in order to combat global warming and climate change (intended nationally determined contributions, INDCs) are strengthening the shift towards cleaner lower-carbon energy supplies, thereby making non-renewables and natural gas the principal beneficiaries.
This trend towards a transition in global energy demand combined with greatly augmented supplies of global energy (both fossil and non-fossil fuels) came together in 2015 to dominate the global energy market. Predictably energy prices fell substantially in response to the imbalance between energy demand and energy supply observed in 2015. Prices fell, especially for oil, natural gas, and coal. In the next section I shall summarize the main responses of individual fuels.
Individual fuels
Individual fuels have had varied outcomes in the global energy market. This is to be expected, given the exceptional flux triggered by slower demand growth combined with rapid supply increases. Thus oil has had solid supply growth in 2015, (1.9 per cent, 80 million tonnes of oil equivalent, 80 Mtoe). This rate was twice the average rate of growth for the decade, and was mainly in response to the sharply lower oil prices last year. Indeed it was observed that oil’s share of global primary energy supply rose for the first time since 1999.
The review also reported that natural gas supply “bounced back” in 2015, from a weak performance in 2014. Output rose to 54 Mtoe, and grew at 1.7 per cent. This growth rate, however, was somewhat below the historic level of growth, 2.3 per cent per annum.
Renewable and non-fossil fuels energy supplies, as noted above, maintained their striking performances last year. Supplies reached 48 Mtoe, and grew overall at 15.2 per cent in 2015. The BP review classifies these, especially solar and wind, as “the next big thing” in global energy. Hydro and nuclear power are however expected to perform more modestly.
Coal was easily the poorest energy performer in 2015. It witnessed a huge decline of =71 Mtoe with supply decreasing by =1.8 per cent Not surprisingly, coal’s share of global primary energy supply fell to its lowest for the decade. As the BP review aptly describes it: 2015 was an “annus horribilis” for coal.
Predictably the BP 2015 review noted that energy prices had fallen in response to the observed imbalance between global energy demand and global energy supply. The prices of oil, natural gas, and coal were all sharply lower. These outcomes suggest that global energy markets are working and are likely to remain flexible and adjustable over the medium to long term, well after Guyana’s time of oil production and export arrives.
Conclusion
To conclude the discussion on the supply side of the global energy market, I point readers to two over-riding considerations. First, I believe the global effort to contain carbon emissions represents, at this point in time, the greatest influence on that market. As we now know, in 2015 carbon emissions from energy had grown by only 0.1 per cent. This low rate of growth compares to an average rate of growth of 1.5 per cent over the past decade.
Second, as indicated in last week’s demand side analysis, China’s performance going forward will be the main driver of outcomes. Here two tendencies contend: one is its rapidly increasing energy efficiency, and, the other is its domestic policy shift towards non-fossil fuels.
Next week I conclude consideration of the global energy market.
