Economic Report 2013

Gas Markets

Meanwhile, the gap between Brent and lower priced West Texas Intermediate (WTI) crude oils has narrowed from its range of $10 to $20 per barrel in recent years to less than $10 per barrel. Various new projects are diverting supplies away from Cushing, Oklahoma, where the price of WTI is set, with WTI rising towards Brent and the difference narrowing to as little as $3 per barrel in July 2013. Notwithstanding the above, several significant trends are becoming established in oil markets: • In OECD countries demand is falling, while it continues to rise in non-OECD countries. • As a result of shale oil and oil sands, production in North America is rising, reversing a previous, long term decline. • Middle Eastern oil is increasingly serving the Asia-Pacific region, with less going to the Atlantic basin.

The consequences of Japan’s Fukushima disaster, following an earthquake in March 2011, continue to be felt in Europe’s gas markets. Demand for liquefied natural gas (LNG) remains high in Japan as a result of most of its nuclear power stations being closed (although its current government has indicated that it wishes to re-open a number of them). This led to a reduction of LNG cargoes arriving in western Europe during the winter of 2012-13, when it was not only cooler than in the previous winter, but was characterised by a particularly cold ending, with demand for gas at mid-winter rates throughout March and into early April. This raised gas prices at Britain’s National Balancing Point (NBP) and other trading hubs in the EU, such as the Netherlands, Belgium and Germany.

Figure 3: Wholesale Gas Price at the NBP in Great Britain, January 2008 to July 2013

120

100

2013 Fwd Price

80

2014 Fwd Price

2012 Fwd Price

60

40 Pence per Therm

Day Ahead Price

20

0

-

Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13

Source: Heren Energy

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ECONOMIC REPORT 2013