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We are cutting energy use - but it is dirtier

..BP's report shows the world is reacting to soaring oil and gas prices by stemming its energy use. In 2005 world energy demand grew by 2.7 per cent, down sharply from 4.4 per cent the previous year....In the US, the world's largest energy consumer, demand actually fell - even though the economy grew by 3.5 per cent. So, for the first time in more than two decades, the US combined above-trend growth with an absolute decline in fuel consumption.

How fast is global energy use growing? Is climate change getting worse? And will we face a worldwide oil shortage soon? These questions, and more, were addressed at last week's launch of BP's Statistical Review of World Energy.

For more than half a century, BP has produced an annual compendium of data on global energy trends. Always of interest, this year's effort left me reassured, but worried too.

The backdrop to this report, of course, is a sharp rise in energy prices - particularly oil. Brent crude averaged $55 a barrel in 2005, up from $38 the previous year. So far in 2006, oil has surged again, averaging $65 a barrel and peaking at $74 in May.

For a while the global economy sailed on regardless. But in recent months expensive oil has begun seeping through into inflation. Across the world, interest rates are rising and stock markets convulsing as a result of sky-high energy costs.

The UK is not immune. A rate rise is now almost inevitable, possibly as soon as August, after last week's news that inflation had breached the Bank of England's 2 per cent target. Again, the reason is the cost of fuel.

Yet BP's report shows the world is reacting to soaring oil and gas... more [truncated due to possible copyright]  

How fast is global energy use growing? Is climate change getting worse? And will we face a worldwide oil shortage soon? These questions, and more, were addressed at last week's launch of BP's Statistical Review of World Energy.

For more than half a century, BP has produced an annual compendium of data on global energy trends. Always of interest, this year's effort left me reassured, but worried too.

The backdrop to this report, of course, is a sharp rise in energy prices - particularly oil. Brent crude averaged $55 a barrel in 2005, up from $38 the previous year. So far in 2006, oil has surged again, averaging $65 a barrel and peaking at $74 in May.

For a while the global economy sailed on regardless. But in recent months expensive oil has begun seeping through into inflation. Across the world, interest rates are rising and stock markets convulsing as a result of sky-high energy costs.

The UK is not immune. A rate rise is now almost inevitable, possibly as soon as August, after last week's news that inflation had breached the Bank of England's 2 per cent target. Again, the reason is the cost of fuel.

Yet BP's report shows the world is reacting to soaring oil and gas prices by stemming its energy use. In 2005 world energy demand grew by 2.7 per cent, down sharply from 4.4 per cent the previous year.

In the US, the world's largest energy consumer, demand actually fell - even though the economy grew by 3.5 per cent. So, for the first time in more than two decades, the US combined above-trend growth with an absolute decline in fuel consumption. That is good news.

BP's data shows that the world is tailoring its energy use, too - switching to relatively cheaper sources. Gas prices, for instance, have risen much less than the price of oil. As a result, global gas demand grew by 2.3 per cent last year while oil use rose by only 1.3 per cent. That, again, is reassuring.

But when you look elsewhere in the report, you discover that coal - the "dirtiest" fuel source - has taken up much of the energy slack. Coal is the world's fastest growing fuel, with consumption up by 5 per cent last year, driven in large part by an almost insatiable demand from power stations in China.

This is worrying. The current concentration of carbon dioxide in the atmosphere is 380 parts per million. As the world switches away from expensive oil and gas towards cheap coal, the environment is taking the strain. As Lord Browne, BP's chief executive, observed: "The level of emissions worldwide is now about 20 per cent higher than when the Kyoto protocol was signed in 1997."

Nor is it likely that "renewable" energy sources will come to the rescue. BP stressed its commitment in this area - announcing a £270m investment to create a "biosciences energy research laboratory" attached to a major university.

But its report makes clear that wind power accounted for only 0.7 per cent of global electricity production in 2005. Even the much-vaunted use of ethanol generated energy equivalent to a mere 0.4 per cent of global oil use.

Perhaps the biggest long-term concern is that the oil will simply run out - with global production peaking in the near future and then spiralling into decline. Until quite recently, such "peak oil" theories were largely confined to doom-mongers and cranks. But earlier this month the boss of French-owned Total, one of the world's major oil outfits, said global demand was so strong that production could peak as early as 2020.

Browne adopted his most persuasive voice to try to knock this view into touch. "There isn't a shortage of oil reserves," he said. "There really isn't". But buried in BP's report is an interesting - and chilling - fact.

Between 1985 and 1995 global oil reserves grew by 3 per cent per year as new fields were discovered. Last year, in contrast, reserves increased by only 0.55 per cent - despite sky-high prices and a desperate search for new oil.

I look forward to next year's BP Energy Review, particularly to seeing that crucial figure on the growth in oil reserves.

A slippery slope

Sticking with oil, last week I visited Richard Edward - a small, family-run printing outfit in Thamesmead. If you want to understand the business implications of high energy costs, I suggest you give them a call.

"High oil prices are killing us," says company executive Louisa Moger. "Our paper suppliers are energy intensive, we're energy intensive and so are our distributors. And just as our fuel costs are going through the roof, competition from Asia means we can't pass these costs on to customers".

This phenomenon - the impact of high oil prices on profitability - is the subject of a new study by BDO Stoy Hayward, the business services firm. It shows that in the past six months the rising crude price has cost UK businesses an additional £11.3bn.

Perhaps inevitably, manufacturing has been hit worst, suffering £2.3bn of additional oil-related costs. As a result, the report predicts a sharp rise in UK manufacturing firms going bankrupt - from 1,800 in 2005 to 2,150 this year.

But the report shows the striking detrimental impact of oil in other sectors too - including transport, pharmaceuticals, agriculture and construction.

High oil has, so far, provoked UK inflation - and the expectation of higher rates. The impact of the black stuff on profits could soon bring us higher unemployment too. I am usually a fan of 1970s revivalism. But not when it comes to economics.

# Liam Halligan is Economics Correspondent at Channel 4 News.


Source: http://www.telegraph.co.uk/...

JUN 18 2006
https://www.windaction.org/posts/3092-we-are-cutting-energy-use-but-it-is-dirtier
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