BP Report Shows Economic Growth Still Dependent on Oil

Posted by Jeff Rubin on June 22nd, 2011 under SmallerWorldTags: , ,  • 7 Comments

The relationship between energy and global economic growth has never been more clear than in BP’s World Energy Statistical Review for 2010. No sooner had the global economy shook off the shackles from the last recession than energy demand exploded. It grew by more than 5.5% last year, the largest annual increase in more than 30 years.

Not surprisingly, oil played a centre stage role in last year’s spectacular increase in global energy demand. It is, after all, the world’s single most important fuel, accounting for more than a third of all the global energy produced last year.  What makes last year’s global oil numbers particularly interesting is the fact world oil demand had fallen in the two previous years – a victim to the global recession. They were the first annual declines in global annual oil consumption since 1983.

Unfortunately, no sooner had the global economy regained its footing, did it regain its enormous appetite for oil. Not only was all of the much-touted demand destruction during the last recession reversed but world oil consumption grew by over 3% in 2010. This established a year-end new consumption record of almost 87.5  million barrels a day.

What made the rebound even more impressive was the fact it happened amid the second highest oil prices on record. Brent averaged nearly $80 per barrel in 2010.

Whether world oil consumption will continue to grow and reach BP’s forecast of a new pinnacle of more than 89 million barrels a day by the end of this year looks increasingly uncertain.

Notwithstanding Saudi’s claim of being able to ramp production up to 10 million barrels per day, world crude supply hasn’t even made up for the loss of Libyan oil production, let alone shown any capacity to accommodate another couple million barrels a day or so of global demand growth.

But global production may not need to grow by that much. As Congress and the Obama administration haggle over the size of the U.S. federal debt ceiling, vital fiscal stimulus in the world’s largest oil-consuming economy is rapidly coming to a close. So too is monetary stimulus with the end of the U.S. Reserve Board’s quantative easing program.

In Europe, meanwhile, Greece teeters on the brink of default, an event that will likely trigger similar defaults among fellow fiscal reprobates: Portugal, Ireland and, possibly, Spain. The Chinese economy, the world’s second largest oil-guzzling and largest overall energy consuming economy, faces the prospects of huge power blackouts this summer that could exact a sizeable toll on its economic growth.

The good news about the pending global economic slowdown is we may soon be burning less oil again in the second half of the year. But the bad news contained in BP’s recent energy review is global economic growth remains as oil dependent as ever.

 

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  • Abitibidoug

    It is understandable why emerging market economies like China or India want their economies to grow to lift millions of people out of poverty. What about us in more mature economies like Canada, the U.S. or European countries? Economists are fixated on the idea of growth forever, but does that really make sense in a mature economy? In such an economy growth just creates more congestion and more of a rat race, increases energy and resource use, and consumes more prime agricultural land and for little gain. In addition, a lot of existing infrastructure is in serious need of repair, so why aggravate the problem with building even more? Wouldn’t it be better to allocate financial resources to existing infrastructure?  In the same way a mature adult person doesn’t grow anymore, why should a mature economy grow? What would be wrong with a steady state economy? Such an economy would free up more resources and energy for emerging economies to grow. This idea is not new. Some economists like Peter Victor are convinced (and rightly so) that developed economies could manage just fine without growth.

  • Worried.

    Saudi is now considering using nuclear power because it’s oil consumption is growing so fast that it will not have any oil left for export in 20 years.

  • Dhouston1

    That goes without saying

  • Rojelio

    Even if aliens come and deliver us a bunch of free oil, humanity is running out of virtually every other necessary resource, thus putting the brakes on anyway for all this supposed growth that everyone is looking for.

  • Anonymous

    Jeff and others

    The report available at this link is a very worthwhile read:

    http://www.consumerenergyreport.com/2010/09/02/leaked-study-peak-oil-warns-severe-global-energy-crisis/

    Its already a year old, and already many of the predictions and concerns discussed are already becoming a reality in mid-2011.

  • Anonymous

    Like it was said in previous comments, oil won’t even touch 120$ again before Greece defaults, then we’re back into 60$ and another bumpy string of defaults, bail-outs, and recessive austerity. Then, in 2014,  oil consumption ramps up again to the tune of 150 million new drivers in the BRICS and we’re back to this exact point again.

    What an absurd merry-go-round!

  • Abitibidoug

    If oil prices drop by anywhere near that much, it will be a good time to invest in energy stocks or mutual funds that invest in them.