Christof Rühl, who is also a BP vice president, said that over the past 10 years, there have been two trends – the rapid growth of shale gas production in the United States and the rapid growth in liquefied natural gas trade. In the last year, shale gas production continued at a slower level, and LNG trade suddenly declined.
What emerged behind these trends was a “very interesting interfuel competition between coal and gas,” Rühl said. Globally gas consumption rose 2.2% faster in 2012 compared to a year earlier, but below the long-term average. The growth is largely US-driven, as gas consumption in the world’s largest economy has increased more than in any other region of the world.
At the same time, the EU and the former Soviet states have registered the largest regional declines in gas consumption, said Rühl, who presented BP’s 2013 edition of the Statistical Review of World Energy.
In terms of regional gas prices, a record decline was registered in the US while hitting an all-time high on the Japanese market to compensate for the closure of nuclear reactors following the 2011 Fukushima disaster. On the European spot market, prices increased, although not as high as in Japan.
In the US, drilling activities have shifted from shale gas to shale oil, because gas prices fell while oil remained expensive. Rühl illustrated this shift with figures, the increase in shale gas production in the US having been 84 billion cubic metres (bcm) in 2011, compared to an increase of only 10 bcm in 2012.
The oversupply of gas in the US has been so high, according to the BP economist, that exports to Mexico by pipeline or LNG exports had not been sufficient to absorb it. He said that the only sector which was big and flexible enough to absorb the oversupply of gas was the power sector. However, this sector required that prices for gas be so low that they could compete with coal, he explained.
What took place has been “an amazing shift”, Rühl said, with 44 bcm of gas that went into the power sector, an increase of 21%, the biggest in US power generation history. Consequently US coal consumption fell by 12%.
What happened in the EU is exactly the mirror image of the US developments, Rühl said. With increasing Asian demand, Europe did not compete for LNG and its imports to Europe fell by 25%, he said.
“That should have been good news for traditional gas exporters to the EU, Norway and Russia,” Rühl said. He added that they could have raised their prices, but this didn’t happen, as they were faced with competition from an unexpected quarter – cheap coal.
The BP chief economist explained that the coal that was used in US power generation was now available for Europe, cheap enough to compare with natural gas in Europe. On average, generating power in Europe is 45% cheaper with coal rather than with gas, he said.
Norway overtakes Russia
As Russia’s gas prices remained tied to oil prices, and as Norway’s had left this system of indexation, imports from Norway rose 12%, while imports from Gazprom fell 10%. And 2012 became the first year when Norway sold more gas to the EU than Russia, Rühl said.
Rühl said the increased use of coal had a negative impact on Europe’s carbon emissions, but the problem remained more serious in China, which is consuming half of the world’s coal for the first time. A substantial increase of carbon emissions also is taking place in Japan, he added.
Global emissions increased again last year, by 1.9%, slightly higher than the increase of the world’s energy consumption, which is largely due to the increased use of coal, BP’s energy report says.
At the other extreme, the biggest decrease of CO2 emissions came from the US. In Europe's emissions declined, though at a slower rate than in previous years.
“That’s highly surprising,” Rühl said. “We think about the European Union as an entity which has decades of energy and climate change policies behind it, and the US as an entity where climate policy is not particularly prominent.”