Global power use to hit low this year

Tamsin Carlisle

• Last Updated: May 23. 2009 8:57PM UAE / May 23. 2009 4:57PM GMT

Energy ministers from the Group of Eight (G8) leading economies will hear Sunday that worldwide electricity use will fall this year for the first time since records began in 1945.

In a report to be presented at a meeting in Rome, the International Energy Agency (IEA) will forecast a 3.5 per cent contraction in global power consumption this year, according to its chief economist, Dr Fatih Birol.

“This shows how deep a recession we are in,” Dr Birol said yesterday. “Oil demand has declined in the past due to oil price shocks and financial crisis, but electricity consumption has never decreased. If you want to measure the health of an economy, you look at the electricity consumption.”

The IEA projection is among the key findings of its analysis of the effects the world financial crisis has had on energy investments. The report was prepared for the G8 ahead of its annual summit in July.

The Paris-based energy adviser to 28 industrialised countries expects electricity consumption to decline this year by 10 per cent in Russia, almost 5 per cent across countries of the Organisation for Economic Co-operation and Development, and by 2 per cent in China. Falling industrial demand would account for three quarters of the expected global drop, Dr Birol said.

Last November, before the full effects of the global financial crisis became clear, the IEA projected a 32.5 per cent rise in electricity consumption from 2006 to 2015. Global power demand grew by 2.5 per cent last year, after a 4.7 per cent rise in 2007.

The IEA’s electricity findings support the view that the recent rebound in oil prices to above US$60 a barrel is due to market sentiment, rather than any signs of economic recovery.

While crude advanced 5 per cent in New York last week to $61.55, US natural gas prices fell 14 per cent in their biggest weekly drop since Aug 2007. They have fallen 37 per cent this year, as oil prices have pushed higher.

Demand for gas, much more than oil, is closely linked to power consumption and industrial output in the world’s biggest economy.

On Friday, the futures contract for gas on the New York Mercantile Exchange fell 2.4 per cent to $3.51 per million British thermal units, after Eric Rosengren, the president of the Federal Reserve Bank of Boston, predicted US economic recovery would be “slow”.

US gas supplies last week were 22 per cent above the seasonally adjusted five-year average, pushing inventories higher as factories and power plants bought less, according to US government data.

A 56 per cent decline in production since September has failed to cut gas output enough to compensate for the fall in demand.

The IEA will also reiterate warnings today that falling investment in oil production could trigger a supply squeeze in 2012.

Companies have cancelled at least US$170 billion (Dh624.32bn) of planned investments that would have added 2 million barrels per day (bpd) of production capacity, and have delayed a further 4.2 million bpd of extra capacity by at least 18 months, Dr Birol said.

tcarlisle@thenational.ae