World starts to turn from coal as cheap oil gains market

World starts to turn from coal as cheap oil gains market

Global coal consumption dropped the most on record last year as the U.S. and other major economies started turning away from the most polluting fossil fuel, according to BP Plc’s annual review of energy trends.

As the world begins to tackle the goals of last year’s Paris climate agreement, news of coal’s retreat was tempered by the fact that oil increased its share of energy consumption as low prices spurred demand in both industrialized and developing countries.

“Oil grew exceptionally strong because when price falls, demand increases,” Spencer Dale, BP’s chief economist, said in London as the company presented its Statistical Review. “The big casualty last year was coal. We are seeing a shift in the fuel mix away from coal, driven a lot by environment issues.”

Coal use fell 1.8 percent in 2015, the largest decline in data going back to the mid-1960s, BP said. The fuel accounted for 29.2 percent of consumption, the lowest since 2005, while oil’s share rose for the first time since 1999.

A slump in crude prices over the past two years has made gasoline and diesel more affordable, spurring consumers to drive more. Oil increased its market share to about a third last year as demand rose at almost double the pace of 2014, BP said.

U.S. Phaseout

Consumption of coal has dropped as countries shut power plants that use the fuel and move to cleaner energy. Coal use fell most in the U.S. and China, with declines of 13 percent and 1.5 percent respectively, while demand increased in India and Indonesia, where the fuel is still so cheap that utilities prefer it to natural gas for electricity generation.

In the U.S., gas has overtaken coal as the most popular power-plant fuel, partly because it’s cheaper there and partly because of environmental policies, Dale said. In China, there’s also a “strong desire to shift away from coal to cleaner fuels.”

Oil consumption in the Organization for Economic Co-operation and Development grew 1.1 percent last year compared with an average decline of 1.1 percent over the past decade, BP said. Use in the U.S. climbed 1.6 percent, or 290,000 barrels a day, while in the European Union it rose 1.5 percent. Demand expanded 6.3 percent in China and 8.3 percent in India, which surpassed Japan as the world’s third-biggest oil consumer.

Crude’s Collapse

Crude prices began to sink in mid-2014 as rising production from the U.S., Russia and the Organization of Petroleum Exporting Countries outpaced demand. That created a surplus that pushed prices below $30 a barrel earlier this year. Benchmark Brent futures have increased more than 80 percent since then, but prices remain half their level two years ago.

Oil markets will start to balance in the second half of this year, Dale said. Even then, the world will have to work through all the stockpiled crude that has built up; in the U.S., inventories remain near an 80-year high. That will keep the run-up in prices in check, according to Dale.

Source: Bloomberg

Date: June 2016

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