Tech Talk - The BP Energy Outlook 2035

BP begins its new forecast for the energy future with the statement:

We project that by 2035 the US will be energy self-sufficient while maintaining its position as the world’s top liquids and natural gas producer.

This illustrates the optimism which BP are projecting in their image of future production. But it carries with it a lot of inherent assumptions, some of which are relatively easy to identify in the summary graphic presentation that accompanied the initial presentation of the new report. Perhaps the most illustrative of their optimism is this plot, which shows the increasingly decoupled changes in energy supply relative to projected increases in GDP.

Figure 1. The reducing dependence on Energy growth as a control on GDP. (All figures are from the new BP Energy Outlook for 2035)

Each year there are significant projections for the future of energy over the next few decades. Recent posts have reviewed this year’s projections from the IEA and ExxonMobil. These projections, were also reviewed last year and those reviews included the previous BP projection although that only projected forward to 2030 – the current review has added five years to this.

The relative contributions of the different fuel sources to the overall mix have not changed appreciably in the past year. Oil is anticipated to continue to shrink in percentage contribution, and coal will also decline in relative contribution after around 2020. Natural gas and renewables are anticipated to make up the supply needed.

Figure 2. Relative contributions of the different fuel sources to overall global energy supply to 2035.

BP have made it a little easier to see how this breaks down by plotting the ten-year increments in fuel contribution as well as the overall totals.

Figure 3. Changes in projected fuel supplies over the period to 2035.

Changing the plot to show the ten-year incremental changes illustrates how coal, now surging as an international fuel source, is anticipated to decline beyond 2020.

Figure 4. Projected ten-year incremental changes in fuel supply through 2035.

Note that in overall total BP is projecting that global consumption will rise by 41% over today’s numbers, most of which increase will come from the rapidly-developing countries of the world.

Figure 5. Regional increments of energy consumption growth over the decades to 2035.

The reliance on the improvements in energy efficiency to stall further growth in energy demand from the OECD countries is evident in this picture.

BP notes that the decade from 2002 to 2012 saw the “largest ever growth in energy consumption in volume terms,” but anticipates that this rate will never be exceeded in the decades to come. And they anticipate that as Chinese growth fades in the decades, so the growth of the Indian and adjacent economies will almost match that of China by the end of the period. As the nations of the world complete their industrialization, so the growth in the demand for fuel will see a greater emphasis on transportation demands.

Interestingly the decline in the demand for coal that BO projects is linked to the completion of industrialization in China, and this assumption is, of course, predicated on oil and natural gas remaining available to meet the demand at a reasonable cost.

Figure 6. Anticipated primary sources for generation of electric power.

The projections for changes in liquid fuel supply are also relatively simply presented. First one can see the projected changes in demand, with the OECD countries declining, as demand increase seems to focus in the Eastern nations.

Figure 7. Anticipated changes in global demand for liquid fuels

It is where this growth in supply is to come from that is of the greatest concern, and BP suggest the following:

Figure 8. The anticipated sources for growth in liquid fuel supply through 2035.

BP note the largest sources of these gains as being:

The largest increments of non-OPEC supply will come from the US (3.6 Mb/d), Canada (3.4 Mb/d), and Brazil (2.4 Mb/d), which offset declines in mature provinces such as the North Sea. OPEC supply growth will come primarily from NGLs (3.1 Mb/d) and crude oil in Iraq (2.6 Mb/d).

One of the more interesting plots in the report shows how, over last year, the changes in US production more than compensated for the declines in production from the MENA countries.

Figure 9. The ability of increased US production to balance declines in production from the nations in turmoil in MENA.

BP anticipates that continued US increases in production will more than balance the anticipated increases in global demand, so that the continued disruptions will not significantly affect global supply even though, as they have historically, they extend for more than ten years. The US gains are anticipated to continue to such an extent that OPEC will be required to rein in their supplies in order to sustain global prices.

Figure 10. Changes in the demand for OPEC oil and the result on their production reserve capacity.

One anticipates, given that KSA has said that they will not increase overall supply much above current levels, that the increases in production that BP anticipate will likely come from Iraq, and Iran if the sanctions are lifted. Given the current situation in those parts the latter seems increasingly more likely than the former. Further BP note that the increasing populations in these countries and their consequent increases in demand for energy is likely to constrain the levels at which these countries can continue to export.

In conclusion, and to justify the heading at the top of this piece, BP anticipate a continued growth in US oil production such that, by 2035 imports are virtually eliminated, being more than offset by the gains in the export of natural gas products. BP anticipates that the latter will increase by 2025 to around 12 bcf/d and continue at about that level.

Figure 11. BP projections for changes in the US oil supply sources for the period to 2035.

Tech Talk - changes in South American exports

One of the large concerns that came up repeatedly over the years of discussions, both of the articles and of Drumbeat at The Oil Drum (TOD) was the subject of growth in domestic demand from some of the larger suppliers of oil and natural gas. This growth would be to the cost of the export market, and will, therefore, over time, reduce the amount available to importing nations. This becomes an even more painful reality to the rest of the world when the projections about future performance turn out to have been overly ambitious. Consider the countries of Latin America, where, back in 2010, the EIA drew the following baseline:

Figure 1. The largest producers of liquid fuels in South America in 2010 (EIA )

The EIA anticipated that Brazilian production would reach 2.8 mbd in 2012, and 3.0 mbd this year. However, as the latest MOMR from OPEC notes, Brazil will likely produce only 2.61 mbd this year, with the potential to rise to 2.67 mbd by the end of the year. However the rise in domestic consumption, and the failure to achieve the production goals expected has had an impact on the exports to the United States.

Figure 2. The changing volumes of US imports from Brazil (EIA )

The EIA reported that Venezuela produced some 2.47 million barrels a day in 2011, of which the USA imported roughly 1 mbd. That volume has, however, been declining for some time. (Note that in the plot below the Virgin Island imports should perhaps be included, because the crude that runs through the refineries on the islands originates in Venezuela, but they are not in this plot). At the same time a significant proportion (250 kbd in 2010) is now being shipped from Venezuela to China.

Figure 3. The changing picture of US imports from Venezuela over the years (EIA )

The situation in Argentina similarly shows that as with the other countries internal consumption is rising, while in this case overall production is falling and there is a consequent impact on exports.

Figure 4. The oil balance in Argentina (EIA )

China has been getting around 20% of Argentinian exports, while, in 2011, the USA got 40%, but the volumes of US imports have now turned negative.

Figure 5. The changing picture of oil imports to the USA from Argentina (EIA )

Of the five countries that were tabulated at the top of the post, Colombia is the exception. Production is still rising significantly, however it should be noted that, back in 2010 when the USA received some 422 kbd of crude and refined products from the country, China was financing a pipeline to carry 600 kbd to the Colombian Pacific Coast.

Figure 6. The increase in oil production with little increase in domestic production in Colombia (EIA )

The oil for the pipeline is anticipated to come from both Venezuela and Colombia, and the preliminary agreement for its construction was signed in May, 2012. Venezuelan agreement is still lacking to the deal and Venezuela, which was supposed by now to be sending natural gas to Colombia (after having received supplies for years) has still not made the switch. Volumes of exports to the USA from Colombia have fluctuated recently, while India and China have been acquiring oil wells and their production, which then ships to Asia.

Figure 7. The changing picture of oil exports to the USA from Colombia (EIA).

And that leaves Ecuador., which for those who might have forgotten, is also a member of OPEC. (It rejoined in 2007 ) It produces around 500 kbd, and with internal consumption running at around 200 kbd, exports the rest.

Figure 8. The changing picture of oil exports to the USA from Ecuador (EIA )

The recent news that the President of Ecuador is opening the rain forest to oil development, after trying to find funds for preservation of the forest without it and failing. Ecuador has an increasing debt with China (about $20 billion) and this is forcing it to use oil exports as a way of servicing that debt. One $2 billion loan, for example, carries a return agreement for some 130 million barrels of oil over six-years (60 kbd). Part of the loan from China will be spent on refineries in country.

The point to note in all five cases is that the imports to the United States have been declining. Given the increase in US domestic production that is not wholly surprising, nor is there yet any immediate cause for concern. But it is what is happening to whatever excess that these countries produce, over that consumed domestically and in the US that is significant. Because, increasingly it is going to China, and to Asia in general.

The concern that this raises is that, should US production not continue to rise at the rates that the more cornucopian of the main stream commentators suggest, then there will come a time when the US will have to go back to its suppliers from the last decade to ask for more. And at that time the odds are going to be high that either the countries won’t be able to meet the demand because their own domestic consumption has consumed the surplus, or that the surplus has been sold to China.

Given that China is making investments at the moment in the South American oil infrastructure, from wells to pipelines, means that it will control this production, and that removes a significant source of supply, at a time when it will be needed.