Oil & Gas UK Economic Report 2015

Average month-ahead NBP prices fell to a four-year low of 51 p/th ($8.40/m BTU) in 2014, in response to acute demand-side weakness rather than the collapse in oil price. The influence of lower oil prices can be seen in the progressive erosion of prices for delivery in the winter of 2015-16 from 60 p/th in mid-2014 to 45 p/th at the time of writing. Prompt NBP prices in the summer of 2015 have so far avoided the collapse seen in 2014, and the full-year average is expected to be in the range of 42-49 p/th. The slide in forward winter prices, despite the recent severe restrictions on production from the large Dutch Groningen field, indicates that there is adequate supply

in European gas markets even at times of peak winter demand. Excess supply is conventionally kept in check by export restraint by the holders of uncontracted pipeline gas. This role of regulating supply and defending NBP/TTF hub prices may be more difficult to perform once new sources of LNG enter the market in late 2015 and 2016, unless European demand unexpectedly reverses its policy-induced downward trend.

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Figure 7: Daily National Balancing Point Prices, January 2010 to August 2015

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0 10 20 30 40 50 60 70 80 90 100 Gas Price (p/th)

Day Ahead

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Front Winter

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Source: ICIS Heren

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ECONOMIC REPORT 2015

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