Oil & Gas UK Economic Report 2014

January 2009, may yet play an important role in price formation for winter 2014-15. UK gas demand decreased by 1.1 per cent to 77.9 billion cubic metres (bcm) in 2013. This is the lowest since 1995 when the ‘dash for gas’ was in full swing. The UK mean temperature in 2013 (8.7 degrees Celsius) was almost identical to that in 2012 and in line with the long-term average; the only unusual feature was the exceptionally cold March at the end of the winter 2012-13 which provoked a spike in NBP prices. Gas demand from the domestic sector (mainly households) in 2013 was almost unchanged at 31.3 bcm. Demand from industry and the service sector increased slightly, but for generating electricity it fell by six per cent to 18.6 bcm; only 27 per cent of the UK’s electricity was generated from gas. As recently

as 2008, gas use in electricity generation was 34.3 bcm, representing 48 per cent of total UK generation. This sharp contraction in gas-fired generation is due to the decline in electricity demand to its lowest since 1998, the wide fuel cost advantage enjoyed by coal since 2011 and the steady rise of subsidised renewables to 15 per cent of total generation in 2013. A further contraction in gas use occurred in the first half of 2014, suggesting that stabilisation of gas-fired generation may have to await either further coal plant closures or a recovery in power demand. The exceptionally mild and windy weather in early 2014 and the reduction in gas-fired generation in the first half of this year indicate that UK gas demand in 2014 may turn out to be less than 75 bcm.

1

2

3

4

5

6

Figure 4: UK Gas Demand by Sector from 1995 to 2014

Domestic Industrial Electricity Generation Other Sectors Services

120

7

100

8

80

60

40

20

UK Gas Demand (Billion Cubic Metres)

0

1995

2000

2005

2010

Source: DECC, Oil & Gas UK

21

ECONOMIC REPORT 2014