Economic Report 2016 - Oil & Gas UK

ECONOMIC REPORT 2016

2. Industry at a Glance

The following summarises the key findings of Oil & Gas UK’s Economic Report 2016 . Figures are given in 2015 money unless stated. Energy Demand • Oil and gas provided 70 per cent of the UK’s total primary energy consumption in 2015, with oil for transport and gas for heating being dominant uses.

• Global oil demand grew strongly in 2015 by 1.8 million barrels per day (mb/d). Although demand is expected to continue to rise this year, the rate of growth is expected to slow.

• Gas demand in the UK rose moderately by 2.2 per cent in 2015 to 72 billion cubic metres (bcm), but is still 30 per cent below the peak in demand in 2004.

• Gas use in electricity generation changed little at 19.3 bcm last year, accounting for 30 per cent of UK generation compared with 24.6 per cent for renewables and 22 per cent for coal. Oil and Gas Prices • The price for Brent oil averaged $41 per barrel (bbl) over the first eight months of 2016, briefly dropping to a 12-year low of $28/bbl in January.

• The price for Brent oil averaged $52.50/bbl in 2015, almost half the average price in 2014.

• After reaching a low of 28 pence/therm (p/th) in April, month-ahead NBP 1 prices have traded in a narrow range of 30-35 p/th this year.

• The NBP month-ahead gas price fell to an average of 42.6 p/th in 2015, down from 51 p/th in 2014.

Profitability • The UK Continental Shelf (UKCS) is expected to generate a free cash-flow deficit of around £2.7 billion in 2016. This is an improvement on the £4.2 billion deficit seen in both 2015 and 2014 due to the reduction in expenditure and increase in production. • 2016 will be the fourth consecutive year of free cash-flow deficit. This has led to a rise in the average gearing ratio 2 across the UKCS over the last two years as companies increase their net-debt positions to maintain existing business and develop new capital projects.

• The average rate of return for extraction companies fell to just 0.2 per cent in quarter one 2016 compared to more than 50 per cent over the same period in 2011.

1 National Balancing Point (NBP) is a virtual trading location for the sale and exchange of natural gas within the UK. 2 A financial ratio that compares borrowed funds to the equity in business defined as: long-term liabilities/(equity + long-term liabilities).

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