BP launches Statistical Review of World Energy 2001

Oil and gas is constantly wracking it's brains in the search for reasons-politic for the current level of fluctuation and upheaval in the industry. According to one of the industry's top financial executives, the behaviour of Iraq and OPEC; supply surpluses; refinery capacity; varying inventory data and a host of other imponderables -- even the weather -- combine to give analysts and others a headache when second-guessing the current and future state of the markets.
In an effort to solve the mysteries, BP launched in New York earlier its Statistical Review of World Energy 2001 -- accompanied this year by a special review of the US energy scene.
Speaking of the review, BP's top economist Peter Davies said, "Energy markets, both globally and within the US, are in the midst of what is perhaps best described as "testing times". The US is the world's largest single energy market, representing more than 25 % of world consumption of oil, gas coal and nuclear energy and is first or second in the global production of all four energy sources.

The two 40-page documents are packed with statistics -- the raw data that are invaluable for analysts, policy makers and all involved in the industry. But interpretation of them will vary. Also speaking at the launch BP's CEO, Sir John Browne in his own words, "drew out some themes from the data". After stressing that there is no fundamental energy shortage, his message was loud and clear: "Markets work," he said. "All the evidence is that, however painful some of the adjustments have been, markets are working" Some pundits might find this almost heretical, but Browne explained, "Markets respond to price signals. Price movements stimulate substitution and the development and application of new technologies."
Browne said the market was the best means of adjusting to changing patterns of demand and supply -- with higher prices, for instance, encouraging the development of new resources.
"Trade helps markets to work more effectively," said Browne, "by promoting diversity and competition." By encouraging efficiency, the market is beginning to meet at least part of the environmental challenge posed by continuing increase in energy demand: world energy consumption grew by 2.1 % last year -- oil up to 73, 905, 000 bpd and gas to 2404.6 bn cm, while oil production increased by 4 % to 74, 510, 000 bpd and gas by 4.3 % to 2422.3 bn cm) and rising incomes and population are generating rising energy consumption.

In effect, world oil capacity is now rising faster than world oil consumption. Markets to-day are more international than ever with 58 % of daily consumption of oil worldwide traded and 27 % of gas traded -- and that figure is rising very rapidly. And now a spot market has developed for LNG, mainly because of reduced costs and deregulating markets.
"Energy trade is a good thing, because it helps to ensure that consumers have a greater security of supply, a fact which is being reinforced at the moment by the growing diversity of production sources around the world", said Browne. The US imports 51 % of its daily oil needs -- but those supplies come from more than 50 different countries, and no single supplier has more than 15 % of the market there.

The picture is similar for natural gas, with a whole range of actual and potential sources of supply including Canada, Trinidad, Nigeria and Algeria. And BP itself is looking at ways to bring some 40 tcf of gas from Alaska to the market in the US.
"The greatest problems seem to occur in those areas where the market is hampered -- where there is an absence of open competition and choice and where the signals imposed by regulation set the wrong incentives for both consumers and producers, " said Browne. Browne also welcomed the news that UK prime minister Tony Blair is launching the first comprehensive energy policy review in Britain for 20 years.
"It seems to me that is the starting point for any debate on energy policy," said Browne. "How to use market mechanisms to resolve problems and to produce a better outcome: how to remove the barriers that prevent the market working effectively.

Browne finished his remarks on a positive note. "I think those market mechanisms have a good chance of working," he said, "because there is no shortage of physical and technical potential... to ensure that the energy we all want can be supplied and consumed without doing damage to the environment."