Analysis or Advocacy? The IEA’s Global Energy Report Numbers Don’t Add Up

This month’s International Energy Agency (IEA) Global Energy and CO2 Status report showcased a preliminary assessment of global energy demand in 2017.

By the IEA’s standards, the summary was more a strange exercise in excited journalism than measured analysis: and that is a problem when compounded with questionable math.

When the IEA’s full report is released we can analyse it further: but for now, even a brief review of its headline commentary and oil sector overview raises a number of questions on the data, and particularly the conclusions.

The IEA headline reports a 2.1% increase in 2017’s global energy demand, double that of the change in 2016, with increasing carbon emissions and coal use and a “stable” proportion of  fossil fuels at 81%.

Looking at oil in particular, the IEA noted that the increase of 1.6% in demand, “double the previous decade”, was “driven by the transport sector (in particular a growing share of SUVs and trucks in major economies) as well as rising petrochemical demand.”

So much for the energy transition seems to be the IEA’s take.

In fact it ends the oil section with the following:

“While a slowdown in oil demand growth may be likely in coming years, there are no signs of a peak in demand anytime soon. As noted in the IEA’s recent World Energy Outlook 2017 and Oil 2018 reports, it is too soon to write the obituary for oil.”

Strong stuff – so let’s take a closer look at the IEA’s primary energy and oil demand analysis below.

We’ll also use BP’s 2017 Statistical Review of World Energy as a reference point throughout as comparison.

Here are six areas where the IEA analysis may be unsafe.

1 – Primary Energy Growth

The IEA propose that 2017 primary energy demand has grown by 2.1% to 14,050 million tonnes pa.

If accurate,  this is over 5% more than BP’’s total of 13,276 million tonnes for 2016.

So, first point – baseline data of the two sets of analysis seem very different.

Second, BP’s data also shows that over the past decade the average annual primary energy increase was 1.8%.

The 2.1% increase is large compared to the 1% last year, true, but not exceptional compared to the last decade.

However, it is probably better to hold off further until detailed numbers appear, than to analyse this assessment further.

2 – Fossil Fuels a “stable” 81% of the total energy mix

Two issues here.

First, again a major divergence from BP data. BP calculate fossil fuels as 86% of energy use in 2015, and 85% in 2016.

A plunge to 81% in 2017 would be a huge shift in the global energy mix, indicating peak fossil fuels had occurred last year.

But assuming that we again have data comparison issues, we need to understand what that phrase “stable” means.

Does it indicate flat and even? Does it mean slightly up or slightly down? And why be obtuse or qualitative here: was it less than last year or more, and by how much?

Even the world “stable’ is loaded: it suggests a desired state, safe, acceptable.

3 – Oil demand up 1.6%, “double the previous decade”

The IEA’s own data as presented contradicts this headline in the summary report. Here is their chart.

It depicts 2017’s growth rate of 1.5 mb/d and 1.6% annual growth rate.

However you calculate the “last decade” from the chart above eg 2006-15, or add in 2016, the lowest comparison is 0.9mb/d and 1%pa – 2017 is therefore at most an increase of 66%.

Where does the doubling come from?

In any event, BP’s data indicates that oil product demand has grown by typically 1.2% pa over the past decade, with 1.6% in 2016, or 1.55 million b/d, and over 2% in 2015.

Oil Demand Growth – 2014-17, via BP, IEA Estimate

The IEA seem keen to fit the data to an over-arching narrative of fossil fuel resilience – but a 1.6% growth in oil demand is flat with 2016 and down compared to 2015.

And – as we’ll see below in section 5, it is also far from certain that the demand growth is actually coming from crude oil.

4 – Oil demand “driven by the transport sector (in particular a growing share of SUVs and trucks in major economies)”

Exceptional claims require exceptional data.

But what numbers we have do not support this theory.

The largest gasoline consuming economy by far, the US, actually posted a zero increase in consumption in 2017 vs 2016 at 9.32 mb/d of gasoline, following a 1% increase in 2016 vs 2015. It also posted a decrease in overall vehicle sales of 1.9%, continuing a secular decline that began in 2005.

There was an uptick in US diesel demand, but latest forecasts for diesel plus gasoline use in China also show a marked decrease from 2015-16.

(Note – an often unremarked fact of global gasoline consumption is that the Chinese fleet at over 250million is comparable in size to the US fleet – yet it uses less than a third of the gasoline: newer cars, shorter travel, plus EVs perhaps)

It is therefore far from clear that there is any demand increase compared to 2016 in gasoline and diesel sales in the US and China, the world’s two largest passenger car economies. If the EU and perhaps India have been able to fill this gap, the detailed analysis will let us know.

In any event, the comment re SUVs in particular is unnecessarily specific – and unlikely to be easily proven  from even detailed analysis.

For example, if consumers buying SUVs did so via cashing in 15 year-old clunkers, average fleet fuel consumption would still decline.

Overall this is hand-waving  – too many other factors are in play here.

5 – Oil demand increasing due to “rising petrochemical demand.”

Part of the IEA future narrative is that petrochemical demand will replace the slow-down in oil product demand, leaving aggregate crude oil growth robust.

There is no doubt that “Other” (covering Natural Gas Liquids, NGLs and smaller fractions) has been the highest growth category for oil liquid demand over the last few years.

source: BP  – note: proportion of oil product demand growth by type, 2012-16. 

However, in recent years, mainly due to the shale oil and gas boom is the US, a large proportion of these NGLs have been produced via gas plant production, and not from crude oil fractionation, especially in the US.

US shale gas growth is also impacting global crude oil demand by competing for petrochemical feed-stock.

As the Baker Institute analysis notes:

“As China’s demand for light oil products continues to drive incremental consumption growth, an interesting theme is becoming apparent: commodities that are framed as “oil products” are increasingly not actually made from crude oil.”

What the IEA need to recognise more clearly is that the robust growth in future petrochemical demand may now be met in large part from gas fields, not crude oil – a point made in detail by Liam Denning of Bloomberg recently.

Just because convention has added NGLs to spreadsheets of global oil demand does make them a part of world oil production growth – in fact they currently compete with it directly.

6 – “it is too soon to write the obituary for oil”

The IEA sign-off comment in the oil section tends toward an ideological position – which is unfortunate as an international energy agency should, to a large extent, be agnostic toward energy sources.

Whether or not oil is near decline or decades from it, as the IEA may assume, it is a matter for debate and analysis, implications and assessment – not op-ed style assertion.

The comments above should allow for a debate on oil’s relative health, rather than enthusiastic assertion either way.

Analysis or Advocacy ?

In the end, it is not for the IEA, surely, to advocate on behalf of one form of energy over another, but objectively assess the energy landscape, develop key issues, and avoid framing data inside any hard assumptions.

It’s current Energy Report does not seem to meet this standard, and we therefore highlight three major issues that the current framing overlooks or dismisses in terms of the oil market:

  1. The decline of growth in core transportation fuels in the world’s largest two markets (US and China), and thus potentially very soon in global demand.
  2. The continued dismissal of the impact of EV growth, which will accelerate this current marginal decline in growth, especially in the Chinese market
  3. The growth of gas (primarily US shale) as the source of NGLs for incremental petrochemical demand, directly substituting crude oil

If the intent of the IEA’s summary is to advocate for a “stable” energy supply market, it is not contributing to that aim by providing false comfort to one side of these debates.

And indeed, its summary on other areas of the energy such as electricity seems at first look to over-emphasise traditional energy sources such as  nuclear (24TWh increase) versus PV Solar and Wind (ten times higher at 240TWh).

Enough for now.

When more detailed data is available, and the final BP assessment of 2017 published, we’ll come back to this analysis and those preliminary conclusions from the IEA.


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