Activity Survey 2015

ACTIVITY SURVEY 2015

Gas Markets and National Balancing Point Prices The wholesale gas market price followed a different but equally dramatic path in 2014. The annual average price at the National Balancing Point (NBP) fell from 68 pence per therm (p/th) in 2013 to 50 p/th in 2014. However, this decline had little to do with the slide in the oil price, at least until the last few weeks of 2014. The collapse in oil prices was not matched by those of gas and, by January 2015, the gap between Brent and NBP prices, expressed in barrels of oil equivalent (boe), was the narrowest since the 2009 recession.

Figure 2: Dated Brent and National Balancing Point Prices

140

Dated Brent NBP Month Ahead

120

100

80

60

Price ($/boe)

40

20

0

2008

2009

2010

2011

2012

2013

2014

2015

Source: Argus Media, ICIS Heren

The influence of oil prices on NBP gas prices is reflected in forward winter prices because of the inclusion of oil prices with a lag in some long-term contracts in continental Europe, and the need for the UK to attract gas from the continent to meet peak winter demand. The slide in Brent prices from $110/bbl to $55/bbl in the second half of 2014 was accompanied by a decline in forward NBP prices for delivery in winter 2015-16 from 60 p/th to 48 p/th. If oil prices stabilise at $50-60/bbl, NBP month ahead prices are expected to settle in the range of 40-50 p/th, assuming normal weather and supply patterns. The main reason behind the fall in NBP prices from 60 p/th to 35 p/th between January and June last year was the extraordinarily warm weather in the winter of 2013-14. This left the entire European market with excess stocks at the end of the winter and depressed demand for storage injection in the summer months. The slide in NBP prices was all the more remarkable because it occurred against a background of persistent fears that there would be an interruption to Russian gas supplies to Europe arising from the Ukraine-Russia crisis and European and US sanctions against Russia following its annexation of Crimea in March. Prices then recovered ahead of the winter but still reflected the effects of warmer than normal temperatures.

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