US natural gas production has now expanded for eight straight years, driven primarily by shale gas production since 2007. However growth was somewhat slower in 2013 than in the previous seven years:

Russia and China may both be on the verge of their own shale gas booms. According to EIA estimates, Russia has the ninth largest technically recoverable shale gas resource in the world. China has the largest recoverable shale gas resource (the US is fourth behind Argentina and Algeria), and China’s 9.5 percent production increase in 2013 — best of all countries in the top 10 — may be indicative of things to come.

Like the US, China consumes more gas than it produces, and last month China and Russia signed a 30-year, $400 billion gas deal that would annually deliver equivalent of about 20 percent of China’s current annual demand. So both countries have a major incentive to develop their shale gas resources, although China’s geology and water scarcity provide some challenges.

Coal

In the same pattern as oil and natural gas, global coal demand increased 3 percent to a new all-time high of 3.83 billion metric tons of oil equivalent (MTOE). China dominated both coal consumption with 1.93 MTOE consumed (50.3 percent of global coal consumption), and coal production with 1.84 MTOE produced (47.4 percent of global production). No other country comes close in either category.

Top 10 Global Coal Consumers in 2013, million metric tons of oil equivalent per day

Note that most of the countries with the largest supply/demand imbalances are located in the Asia Pacific Region. Indonesia is a regional producer with a significant surplus that it exports to the Asia Pacific region. Australia is the world’s third largest producer of coal but a relatively small consumer, and its 224 million MTOE coal surplus also feeds Asia’s demand.

This is a major challenge for US coal producers seeking their own share of the overseas markets. They are at a geographical disadvantage to Australia and Indonesia, and if other factors are comparable an Australian coal miner would probably be a better investment for someone wanting exposure to this sector.

Coal demand declined 2.5 percent in the EU, but Germany bucked this trend for the second year in a row. As a result of the phaseout of its nuclear power plants, Germany’s consumption of coal (and natural gas) is rising, along with its much more publicized increase in renewable power consumption. However, for perspective, while Germany’s renewable power consumption increased by 2.2 MTOE from 2012 to 2013 (and I will be covering this in more depth in the next issue), its natural gas consumption increased by 4.8 MTOE and coal consumption by 1.2 MTOE over that period.

Coal consumption in the US rebounded by 4.7 percent last year after two years of declines, but is still down more than 20 percent over the past decade. Coal’s story, however, is the story of explosive growth in the Asia Pacific region:

While China produces and consumes the most coal, the US has the largest coal reserves at 237 billion metric tons — 26.6 percent of the global total. This is enough coal for 266 years of production at 2013 production rates (the so-called reserve/production, or R/P ratio). Russia is in second place with 157 billion metric tons of reserves accounting for 17.6 percent of the world’s total. China’s reserves are the third largest globally at 114.5 billion metric tons — 12.8 percent of the world’s total. But because Russian coal production is much lower, its R/P ratio is 452 years, versus just 31 years for China.

Nuclear Power

In each of the two years following Japan’s Fukushima Daiichi nuclear disaster, global nuclear power consumption declined. Following the disaster I generally advised investors to avoid companies involved in the nuclear power industry because it was likely to suffer for a few years. After all, nuclear power never regained the growth trajectory it enjoyed from 1970 until 1986 — when the Chernobyl accident took place.

But it’s becoming clearer by the day that developing countries like China and India are going to turn to nuclear power to meet the future energy needs of their large and growing populations. So while countries like Germany look to phase out nuclear power, I expect this industry to resume growth as the developing world searches for firm power with a low carbon footprint.

Last year reversed the steep two-year decline following Fukushima, with nuclear power consumption actually rising 0.9 percent. This certainly doesn’t represent a return to glory days for the industry, but China’s 13.9 percent increase (and its doubling of nuclear power consumption since 2006) is likely a sign of things to come. Strong percentage gains in nuclear consumption were also reported by Iran (194 percent), Mexico (35 percent), and South Africa (10.4 percent), but these countries in the aggregate equaled only about 27 percent of China’s nuclear power consumption.

On the other end of the nuclear spectrum, nuclear power consumption fell in the Netherlands 30.6 percent, was down another 18.6 percent in Japan (and has declined by 95 percent since the Fukushima accident), and declined 16.2 percent in Pakistan. Germany, which has plans to phase out all its nuclear reactors by 2022, only notched a 1.9 percent decline in nuclear power consumption in 2013.

The US is by far the world’s largest nuclear power consumer with 33.4 percent of the global total. France was second with 17 percent, and Russia third with 10.4 percent. OECD countries were home to 79.4 percent of all nuclear power consumption in 2013, but China’s rapid growth rate will see that share diminish over the next decade.

Over the next few years Germany and some other developed countries will likely to continue to phase out nuclear power, but there are 73 new nuclear reactors under construction around the world. Most of these are being built in Asia, with 29 under construction in China alone (where another 118 reactors remain on the drawing board). Barring another major nuclear accident, the next few years will see slow growth as some nuclear capacity is phased out, but ultimately rapid gains in China will overtake the loss of capacity in countries like Germany, and the global growth rate for nuclear power will pick back up.

Conclusions

According to the latest release of the BP Statistical Review of World Energy, 2013 was another record year for energy production and consumption. All major categories of fossil fuels and nuclear power saw increased consumption in 2013, and new production and consumption records were recorded for oil, natural gas, and coal. On the consumption side, growth continues to be dominated by developing countries, while the biggest story on the production side is the continued growth of US oil and gas production as the US shale boom enters its seventh year.

In the next issue of The Energy Strategist, I will take a look at the remainder of the report, which focuses on carbon dioxide emissions and renewables. I will supplement the discussion with more details from the Renewables 2014 Global Status Report.

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