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Is demand for oil and gas attributed to weather?

Credit: Evgeniy Biyatov | RIAN

Based on the 2018 results, consumption of energy in the world has increased significantly, especially the energy generated by natural gas, claims BP Group Chief Economist Spencer Dale who presented the Statistical Review of World Energy at the Russian Academy of Sciences’ Institute of World Economy and International Relations.

Oil and gas producer BP estimates that last year, the consumption growth rate almost reached 3% (2.9% to be precise), which is almost double the average growth rate in the past decade. The United States, India and China are the three countries that account for the largest demand. The GDP and global oil price growth dynamic was supposed to have a reverse effect and more likely result in decreased energy consumption. Weather conditions appear to be literally the main factor that triggered this surge in the primary energy consumption around the world. An unusually large number of days that were either too hot or too cold translated into extra expenses on heating and cooling of housing, believes Dale, which eventually led to higher energy consumption.

“Much of the surprising strength in energy consumption in 2018 may be related to weather effects,” explained Spencer Dale.

The higher energy consumption was driven by weather conditions in several countries, including the United States, China and Russia. For example, the number of total days when US consumers had to heat or cool their housing last year was the highest since the 1950s. The expert believes that industrial production remains another important factor. Thus, since 2017 China has experienced a growth of energy-consuming production, including iron and steel industries.

Spencer Dale clarified that in Russia, the energy consumption growth was due to climate specifics as well as growing energy-intense production of ammonia and ammonia fertilizers.

To the largest extent (40%), the energy consumption growth was satisfied by natural gas. According to the BP report, consumption of natural gas in the world increased by 195 bcm (or by 5.3%), which is the fastest growth since 1984. The United States, China, Russia and Iran are the largest gas consumers. Global production of natural gas increased by 190 bcm and almost half of this amount was delivered by the United States. Gas production also increased in Russia (34 bcm), Iran (19 bcm) and Australia (17 bcm).

Consumption of oil and coal grew slower (by 1.4% to 1.5%) but still at a higher than average rate. The demand for ‘black gold’ is maintained by China and the United States while Indonesia and China are the major consumers of coal. Global consumption of oil grew at the rate of 1.4 mln bbl per day. Global production of oil increased at 2.2 mln bbl per day, the United States responsible for almost the entire net growth.

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