20130613_R4

Source: BBC Radio 4: Today Programme

URL: N/A

Date: 13/06/2013

Event: "2012 saw the largest single-year increase in US oil production ever recorded"

Attribution: BBC Radio 4

People:

    • Tanya Beckett: BBC business journalist
  • James Naughtie: Presenter, BBC Radio 4: Today Programme
  • Christof Ruhl: Chief Economist, BP

James Naughtie: Energy producers in the United States have been breaking records - it's all to do with shale gas. What are the knock-on effects for the rest of the world? Tanya Beckett is back with us to tell us all about it. Tanya.

Tanya Beckett: Jim, thanks very much. Well, this is according to BP, which says that 2012 saw the largest single-year increase in US oil production ever recorded. And the biggest growth in natural gas production, much of it, of course, due to its shale revolution. I spoke to Christof Ruhl, BP's Chief Economist, and asked about its global impact.

Christof Ruhl: What is important about that is that it was created in the US, not by accident but because the US has the kind of competitive environment in energy markets which make these things possible. It's no accident, in other words, that higher production didn't come out of Venezuela or China or the Middle East, where investment is more restricted.

Tanya Beckett: The effect it's had in the United States is that there has been a very large decline of coal consumption. But that's not true elsewhere.

Christof Ruhl: That's a second very interesting shift. This is the second year, now, that we observe the following: coal in the US is being crowded out of power generation by cheaper shale gas, and then it is sort of exiled and looks for a home as cheap exports, comes to Europe, where it is burned in power generation, whereas gas, in the form of these big cargoes of liquefied natural gas, goes from Europe to Asia instead. And so, at the end of the day, what happens is that in the US carbon emissions fall stronger than in Europe, because coal is replaced with gas in power generation, and if you create a kilowatt-hour, then, with gas, you have about half of the CO2 emissions than you have with coal. Vice-versa, in Europe you have some of the impact of renewables offset by the fact that all this cheap coal is coming in and is replacing gas in power generation.

Tanya Beckett: Another very key finding in your report, which I suppose is predictable, is this huge shift in consumption from emerged economies to emerging economies,

Christof Ruhl: Yeah, that is really one of the key trends which we've seen, long-term trends, and by now it has stabilised. And the non-OECD countries, as we call them, account for more than 50% of global energy consumption. Now, one also should not forget another fact. Often you hear people say that "Ah, this will create energy shortages for the rest of us". The developing world is actually producing just about as much energy themselves as the US. Last year, for example, they accounted for 99% of global energy consumption growth, but also for 98% of global energy production growth. That's something people tend to forget.

Tanya Beckett: What can we expect to happen over the next 12 months? Can we assume, for example, that oil prices will stay high and that will continue to be a key driving factor?

Christof Ruhl: One thing to watch out for is whether Chinese coal consumption finally starts to grow a little bit slower. There are the first indications of that, and if the Chinese succeed in rebalancing their economy towards more services and more domestic consumption, that should have a beneficial effect on carbon emissions. And one thing I wish we would see is a more coherent and consistent energy policy, especially in Europe. The US, which is very competitive energy policy, has succeeded in generating lower electricity prices and lower carbon emissions. The European energy policy, so far, has succeeded in very high expenses for renewables and in crowding them out again by allowing cheaper coal in.

Tanya Beckett: Christof Ruhl, there, BP's Chief Economist.