web site is filled with a wide range of Gulf-spill related updates.
The energy giant is overwhelming visitors with frequent updates in
a bid to show that it is taking matters quite seriously.
Lost in all those updates, investors may have missed a fairly
important annual document that has just been released called the
"Statistical review of world energy." BP takes a fresh look at the
global oil picture every June, and they've reached some interesting
Efficiency Gains are Starting to Take Root
The global economic slowdown led to a hefty drop in energy demand
last year, but consumption dropped even faster in economically
developed countries in Europe and North America. That's because the
West is driving ever-smaller cars, building large solar and wind
farms, and adding more intelligence to national electricity grids.
The report notes that the "OECD (Organization for Economic
Development and Cooperation) consumed less primary energy last year
than 10 years ago, although
since then has risen by 18%." Just last year, energy demand in
Europe and the United States fell by -5%.
Energy produced by wind and solar power grew by +31% and +47%,
respectively, in 2009. And we're just getting started. Total
spending on clean energy technology is expected to set a record in
2010. As these technologies improve even more during the next few
years, the cost/benefit analysis of switching to clean energy will
become more apparent.
Notably, much of the current spending is taking place in China,
which is also the place where energy consumption is rising the
fastest. Chinese central planners have increasingly decreed that
energy-intensive export-oriented industries should receive less
government support (although those words have not yet been matched
by deeds). If China can boost its economy by +5% annually but also
increase its dependence on solar, wind and efficiency efforts by a
commensurate amount, then its net power demand will stay flat.
We're not there yet, but China's energy requirements are starting
to grow at a slower rate than its
gross domestic product (
The Gulf's Importance
While the United States has been a massive importer of oil in
recent decades, the tide has began to turn. For example, the output
from many U.S. coal mines has increasingly been shipped abroad --
especially to China. Coal's long-term role in the global economy
remains unclear. Engineers' efforts to search for ways to scrub
carbon dioxide out of coal have proven futile, as most approaches
are proving quite costly. That said, demand for coal remains strong
-- it now accounts for 29.7% of global energy consumption -- and
ratios for coal producers remain very low.
Yet it's the Gulf of Mexico which has become the real game changer
for energy, at least here in the United States. The estimated
amount of untapped natural gas is 50% higher than 10 years ago.
Despite the pain associated with the current BP-related debacle,
high output in the Gulf has sharply lowered natural gas prices,
enabling many energy-intensive firms such as chemical makers and
utilities to lower their expenses.
It's not just natural gas output that is rising: "The world's
largest increase in oil production by far came from the US, mainly
from the Gulf of Mexico," BP reports, adding that "this is not an
excuse for anything, but a piece of the reality in which we all
live." BP's analysts found that North America held an estimated
69.5 billion barrels of oil in 1999. Even after a decade of heavy
oil production, the level of proven reserves has actually risen to
73.3 billion barrels. In Central and South America, proven untapped
oil reserves have doubled to 199 billion barrels in the past 10
years, largely due to new discoveries in Venezuela and Brazil.
The United States remains the third-largest oil producer in the
world after Saudi Arabia and Russia, accounting for 8.5% of global
output in 2009. (OPEC members still account for 77% of the world's
untapped oil fields). Sadly, we also accounted for 21.7% of total
oil consumption last year. The Obama administration's mandate to
sharply raise fuel economy standards should make a dent in that
The notion that the world is approaching "Peak Oil" is just not
supported by the facts. We may still be getting closer to a peak,
but the world has far more untapped oil than anyone could have
imagined 10 years ago.
Simple Math: Supply Exceeds Demand
Rising oil production and slumping demand yielded a predictable
result. "Oil prices declined for the first time since 2001," and
fell by the largest amount in Europe and North America on a
percentage basis since 1986, notes the report. Oil prices are up
from the start of the year and are unlikely to continue that upward
move right away. Moreover, even with last year's pullback, oil
prices are still three times higher than in 2001. But over time it
is increasingly clear that the world has ample energy reserves
despite the scary super-spike of 2008.
OPEC states cut output by -7% in 2009, which is fairly remarkable
considering the predilection for OPEC members to stealthily exceed
their quotas. Whether they maintain that resolve will determine
whether oil prices stay in their current range, or plunge.
Major oil companies such as
Exxon Mobil (NYSE:
and BP are no longer the dominant energy players. Their role in the
global energy market has been supplanted by the nationalized oil
companies in places such as Saudi Arabia, Mexico and Venezuela.
The publicly-traded oil majors have been in low-growth mode for
some time and are best seen as vehicles for massive
generation. These companies have increasingly looked to buy back
stock or offer juicy dividends rather than seek new development
opportunities. The fields they look to develop are mainly meant to
replace declining output from existing fields.
Action to Take -->
But a world of stable energy prices can yield some real winners.
Airlines, for example, can better manage their funding requirements
and are less vulnerable to profit-sapping price spikes. Chemical
makers such as
, which was
, can sharply boost their profit spreads. Spending on agriculture
can also rise as less fuel is needed to run tractors or make
fertilizer. With more cash in their pockets, farmers can buy more
farm needs from the likes of
. Most importantly, consumers will have more to spend on many items
if they don't have to fill up their tank with $4 gas.
-- David Sterman
Disclosure: David Sterman does not own shares of any security
mentioned in this article.
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