In the mix: the evolving US energy market

Last edited: 4 July 2017

The latest edition of BP’s Statistical Review of World Energy sheds new light on the long-term transitions and shorter-term adjustments shaping global energy markets in 2016. The numbers and charts indicate that the world is moving toward cleaner fuels, but what does the data reveal about how this energy evolution is progressing in the United States?

Mark Finley, BP’s general manager of global energy markets and US economics, provides a fuel-by-fuel breakdown of the remarkable shifts within the US energy mix last year.

Swing to natural gas helps cut US carbon emissions...

US natural gas production in 2016 fell for the first time since the shale revolution began in the mid-2000s. Despite this decline, gas continues to gain market share within the US power sector, helping to drive down carbon emissions

“Even with a decline in production, the US remains the world’s top natural gas producer, accounting for 21% of global gas output in 2016. Gas made up 32% of total US energy consumption - second only behind oil, which was at 38%. 

With natural gas and renewables displacing coal in power generation, the US had the world’s largest decline in carbon emissions from energy consumption for the second consecutive year. Total US emissions from energy use fell by 2% in 2016, which is almost double the historical average rate of decline.
Graphic shows US as number one country for natural gas consumption in 2016
And since they peaked in 2005, US emissions from energy consumption have fallen by a little over 12%.

There’s been a lot of focus on the policy and regulatory environments, but we think the biggest cause of this switch away from coal and toward natural gas has been cheap shale gas. The shale revolution is enabling gas to top coal.”

Despite production declines, US tight oil stays resilient...

Graphic shows that oil remains the dominant fuel in US energy mix in 2016

US oil production fell for the first time since 2008, marking the largest decline in the world in volume terms. Despite this drop, the US remained the world’s biggest oil producer in 2016.

“The US oil industry, and tight oil in particular, has proven itself to be highly responsive to prices. When it comes to the resilience of shale, it’s not that lower oil prices don’t matter — it’s that US industry has responded to those lower prices by significantly improving its cost competitiveness and the productivity of its operations. Now that prices have begun to recover a bit compared to last year, the rig count for tight oil has more than doubled, and production is growing again. It has proven it can take a punch and still stay in the game.

At the global level, we can see how this has influenced OPEC’s behaviour.
By 2014, in the face of rapidly-growing US production, it was clear that shale was not a temporary phenomenon - it was permanent. This permanence makes US tight oil a major force on global oil prices. OPEC, being another force, retains significant influence particularly in terms of its ability to deal with temporary phenomena, such as moving production from one time period to another to help balance global oil inventory levels.”

US coal plummets to record lows...

US coal consumption declined in 2016 to the lowest level since 1978. Meanwhile, US coal production fell to the lowest level since at least 1981, when BP’s coal production dataset begins.

“US coal consumption declined in 2016 by almost 9% and the drop in domestic coal production was even bigger, at 19%. Coal is getting pinched because electricity demand is flat, and cheap natural gas and renewables are pushing it out on the supply side. The weakness in the coal market isn’t just a function of domestic circumstances, but in fact a broader global story. 

The demand for electricity hasn’t changed in the US and other industrialized economies around the world since the recession, even though the economy has been growing.
Graphic shows decline in coal consumption in US in 2016

And, as in the US, coal is getting squeezed out of power generation globally by renewables and natural gas. In addition, coal consumption in China - the world’s largest consumer - fell for a third consecutive year. So, not only were US coal producers getting squeezed in the domestic market, they were also getting squeezed in the export market due to a weak global marketplace.”

US renewables ramp up - but fall behind China...

Graphic shows that renewables made up 4% of US energy consumption in 2016

Renewable power generation in the US grew by nearly 17%, but the US dropped to the world’s second largest producer, after China.

“On the supply side, renewables are growing rapidly because they continue to have significant policy support and their costs are coming down dramatically. While most of that growth was in wind energy, the solar sector actually grew at a faster rate last year. US wind grew by 18% and solar grew by 44% — but solar is coming from a smaller base. 

Although renewables in power generation grew at an above-average rate in the US, they grew even faster in China, by 33%. The Chinese government is pushing hard to expand the use of renewable energy and, more broadly, to diversify their energy mix.”

Power sector emerges as a bellwether for the energy transition...

For the first time ever, natural gas surpassed coal as the top fuel for generating electricity in the US. 

“The long-term transition of the world’s energy system is multi-faceted. One aspect is that energy use is likely to become more efficient relative to economic activity over time. We’ve certainly seen an indicator of that, as electricity demand has stalled in the world’s industrialized economies since the recession even as modest economic growth has resumed. 

The other facet is how electricity is generated. There’s a lot more competition in the power sector compared to other sectors, such as transportation.
Graphic shows natural gas as the leading source of power generation in the US in 2016
It’s an area where we see a dramatic reduction in the carbon content of the energy used in that sector, driven by renewables and natural gas pushing coal out in terms of market share. 

The US is at the forefront of that movement. In both of these structural dimensions - a slowing need for electricity and greater energy efficiency, as well as the diversification toward lower-carbon sources of fuel in generating electricity - the US is right in the mix.”

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