Posts Tagged ‘BIS

The Powers of Fossil Fuels, an Update with Data per 2017

This post is an update and small expansion of The Powers of Fossil Fuels spanning more than two centuries of the history of the world’s energy, primarily fossil fuels (FF), consumption.

  • Between 2002 and 2017 world energy consumption grew with about 39%, world Gross Domestic Product (GDP) by 130% and world total debts by more than 160% (market value and expressed in US dollars).
  • The narrative of the growth story of the world economy (GDP) appears as a rule to leave out two participants:
    1. DEBT and the accelerating debt growth since the 1980’s, more notably since the start of this millennium and how this unprecedented growth in total world debt helped pull forward ENERGY demand.
      Post the Global Financial Crisis (GFC in 2008/2009) the continuity of economic growth became facilitated by concerted policies by the world’s major central banks by their low interest policies and Quantitative Easings (QE).
      Lower interest rates allowed room for more DEBT on most balance sheets and growth in total DEBT is important for continued economic growth.
    2. ENERGY (and primarily FFs) consumption and its strong growth facilitated by the rapid growth in DEBT.
  • Simplistic explained is GDP a monetary measure of the annual volume of transactions.
    These transactions involve the exchange of products and services which require some input of ENERGY and in recent years growing amounts of DEBT allowed for this to happen.
    This illustrates that money/currency is a claim on ENERGY.
    The orderly retirement of the growing DEBT is a claim on future ENERGY.
  • This post also takes a brief look at the recent years’ growth in solar and wind (renewables, RE) and how their growth measured up against FFs since 1990 and Year over Year (YoY) changes for FF and RE since 2000.

Figure 1: The chart shows the developments in total world energy consumption split on sources as of 1800 and per 2017.
Energy sources are stacked according to when these were introduced into the world’s energy mixture.
The black line (plotted versus the left hand scale) shows development in the world’s GDP in current US dollars since 1980 based on data from the International Monetary Fund (IMF).

In the early 1800s biomasses (primarily wood) were humans’ primary source for exogenous energy. Coal was gradually introduced into the energy mixture after the successful development and deployment of the steam engine which gave birth to the Industrial Revolution. Coal is a nonrenewable, abundant and a denser energy source than wood.

The growing use of biomasses had led to deforestation in those areas serving energy intensive industries like mining and metals.

The steam engine and its use of abundant coal as an energy source made it possible to rapidly expand the industrial production, create economic growth and thus the Industrial Revolution was made possible by fossil fuels.

With the most recent discoveries and introduction of fossil oil and natural gas there appeared to be several abundant sources of volumetric dense energy that could entertain exponential debt fueled economic growth.

Fossil fuels represent natures’ legacy stock of dense energy (ancient sunlight) that during some decades has been subject to an accelerated depletion.

Several reports in the media may now leave the impression that we are at the threshold for a smooth transition from FFs to RE (solar and wind).

How does this measure up against hard data for RE (solar and wind) versus FFs?

Read the rest of this entry »

Developments in Energy Consumption and Private and Public Debt per 2016

For some time I have explored the relations in developments for total debt [private and public], interest rates, Gross Domestic Product (GDP) energy consumption and thus also the oil price.

My theory has been that there are relations between changes to total debt and energy consumption and thus energy prices. Changes to total credit/debt should thus be reflected in energy consumption. Price formation is also influenced by several other factors and most prominently supply and demand balances.

To me, demand appears to be the one that is poorly understood and demand has been, is and will continue to be what one can pay for.

All transactions involving products and services require some amount of energy thus currency/money becomes a claim on energy.

During the last decades the world was in a gigantic experiment with debt expansion, most recently fueled by low interest policies which allowed to pull demand forward and for some time negate higher prices when demand ran ahead of supplies.

Debt expansions can go on until they cannot, as some economies already have experienced. In the recent decades, growth in total debt was higher than the growth in GDP (ref figure 1) and there is a strong relation between changes to total debt and GDP.

Figure 1: The chart above shows [stacked areas] developments in total private and public debt in Japan (black/grey), Euro area (yellow), US (blue) and China (red).
In the chart is also shown [stacked lines] developments on the Gross Domestic Product (GDP) for the same 4 economies.
NOTE: All data are market value, US$.
The GDP (lines) have been stacked. The bottom line shows Japan, next is (Euro area + Japan) and the top line [China] also shows the total for the 4 presented economies.
Data on private and public debt from Bank for International Settlements (BIS).
Data on GDP from the World Bank [WB]. WB GDP data for 2016 were not publicly available as this was posted.
Note that total GDP for these 4 economies declined from 2014 to 2015.

In this post I also present a closer look at developments in energy consumption and total debts [private and public] for China, Italy, Japan, Spain, United Kingdom and USA.

As of 2016 these 6 countries had about 47% of the total global energy consumption and 42% of the total global petroleum consumption.

As the private sector debt growth slowed/reversed the public sector took over and it appears that public debt growth is not as potent to stimulate growth in energy consumption [and possibly GDP], but sustains or slows the decline in total energy consumption.

Part of the explanation for this may be that much  of the increased public deficit spending is directed towards social programs (more unemployment benefits etc.) which at best may sustain demand.

The 6 countries are presented in the sequence of how I perceive how far they are into the debt deleveraging cycle.

There are other forces at play here as well, as oil companies entered into a bet that high oil prices would be sustained by consumers continuing to have access to credit/debt, which would allow the oil companies in an orderly manner to retire their steep growth in debts required to develop the costlier oil. The debt fuelled growth in investments gradually created a situation where supplies ran ahead of demand, thus collapsing the oil price in 2014.

To me the sequence of events is:

Changes in credit/debt => Changes in energy consumption => Changes in GDP

Read the rest of this entry »

The Oil Price and EMEs growth in Credit and Petroleum Consumption since 2000

In this post I present a closer look at the credit growth for 6 Emerging Market Economies (EME) together with the developments in their and the net oil exporters petroleum consumption for the period 2000 to 2014.

The 6 EMEs are; Brazil, China, India, Indonesia, Malaysia and Thailand.

  • Where did the lion’s share of growth in global petroleum consumption end up since 2000?
  • What was the likely mechanism/vehicle that allowed for this?

This post is an update and expansion to my post “Changes in Total Global Credit Affect The Oil Price”

  • The credit growth for the EMEs was strong in absolute and relative terms (also as a percentage of GDP) since 2009. As from 2013 the EMEs credit growth slowed (decelerated).
  • The EMEs credit growth gained momentum as the big central banks lowered interest rates and started Quantitative Easings (QE), refer also figures 02 and 04.
  • As the EMEs enter debt saturation (little room left on their balance sheets {little remaining quality collateral} to take on more credit/debt) expect this to affect their consumption and their potential to pay for higher priced oil.
  • Potential for continued [global] credit growth will for some time become one of the vital factors that define the sustainable ceiling for the oil price.
  • Demand is what one can pay for. In other words, demand is monetary in nature. Credit acts as money and adds to aggregate demand.
    Credit growth also made it possible to bid up and pay for higher priced oil during the recent years.
  • If the oil price, for whatever combination of reasons, moves to a sustainable higher level, it should be expected that those who are left with limited/no access to more credit will reduce their consumption/demand for oil.

Figure 01: The stacked areas in the chart show the growth in petroleum consumption for the 6 EMEs and the net oil exporters from 2000 to 2014 [2000 has been used as a baseline]. Total growth for the 6 EMEs are shown by the black dotted line. The red dashed line shows the change in total global petroleum consumption since 2000. [These are shown versus the right axis]. The development in the oil price is shown by yellow circles connected by a grey line versus the left axis.

Figure 01: The stacked areas in the chart show the growth in petroleum consumption for the 6 EMEs and the net oil exporters from 2000 to 2014 [2000 has been used as a baseline]. Total growth for the 6 EMEs are shown by the black dotted line.
The red dashed line shows the change in total global petroleum consumption since 2000. [These are shown versus the right axis].
The development in the oil price is shown by yellow circles connected by a grey line versus the left axis.

The chart above shows several interesting developments.

  • The strong growth in petroleum consumption from the 6 EMEs and net oil exporters since 2000.
  • Early in the previous decade the OECD countries also grew their petroleum consumption as a response to central banks’ lowered interest rates that allowed for further credit expansion [kicking the can until there is no more road left].
  • A shift occurred post the Global Financial Crisis (GFC) in 2008.
    The 6 EMEs and net exporters outbid OECD (and others) for a portion of their petroleum consumption.
    (This is shown by the growth in global petroleum consumption [the red dotted line] which since 2008 did not fully meet growth in consumption from the 6 EMEs and net oil exporters.
    The 6 EMEs and the net oil exporters increased their total petroleum consumption with 17.1 Mb/d (from 26.7 Mb/d in 2000 to 43.7 Mb/d in 2014), while global consumption grew by 15.2 Mb/d to 92.1 Mb/d.
  • OECD reduced its petroleum consumption from 48.0 Mb/d (2008) to 45.1 Mb/d (2014).
    OECD countries slowed and/or reversed credit expansion (deleveraged [default is one way to deleverage]) and introduced austerity measures in a bid to manage their credit overhang.
  • The net oil exporters (countries/regions) that saw noticeable growth in their petroleum consumption in the period are; Canada, Mexico, Colombia, Ecuador, Venezuela, Azerbaijan, Kazakhstan, Norway, Russian Federation, Turkmenistan and the regions Middle East and Africa. There are other small net oil exporters like Denmark, Trinidad&Tobago which had small changes to their petroleum consumption.
  • Indonesia became a net petroleum importer as of 2003 and Malaysia as of 2011.

The net oil exporters spent some of the increased revenues from higher priced oil for social programs to improve living standards and as leverage for increased investments to sustain and/or grow oil supplies (which require energy!) for what looked like a sustained growth in demand/consumption that would support a lasting high oil price.

Read the rest of this entry »

Written by Rune Likvern

Saturday, 5 September, 2015 at 19:01

error: Alert: Content is protected !!
%d bloggers like this: