Oil & Gas UK Activity Survey 2016

The first cargo of LNG to be exported from the US Gulf coast is due to be loaded inMarch 2016. Although investment in US Gulf coast liquefaction capacity was contractually underpinned by demand for LNG in Asia, much of the LNG will be capable of being delivered to Europe when Henry Hub-NBP price spreads are favourable. If US Henry Hub prices remain in the range of $2-3/m BTU, US LNG may find itself competing in Europe with low-cost Russian pipeline gas and Qatari LNG in Europe. Talk of a new ‘gas price war’ in Europe may be premature but there is little doubt that any recovery in NBP and TTF gas prices may be capped by the growing supply-side competition in European markets.

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Figure 5: Regional Hub Gas and Spot LNG Prices

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NBP Month Ahead

Henry Hub Front Month

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Far East Spot LNG DES

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Gas Price ($/Million BTU)

2008

2009

2010

2011

2012

2013

2014

2015

2016

Source: ICIS Heren, NYMEX

Carbon Prices The EU Emissions Trading Scheme (EU ETS) remains the principal instrument of EU climate change policy and all electricity generators and large industrial users of energy are required to participate in the cap-and-trade scheme. Operators of most UKCS offshore installations and onshore terminals are included in the ETS and are consequently obliged to buy allowances if they do not hold sufficient free allowances to cover their annual verified emissions (14.8 million tonnes CO 2 in 2014). Since the 2008-09 recession, which severely reduced EU energy demand, there has been a persistent over-supply of allowances and prices have remained depressed. In 2015, prices of ETS allowances staged a gradual recovery, reaching a three-year high of €8.50/te in November. However, they gave up most of these gains in December 2015 and January 2016 as energy commodity prices collapsed, falling back below €6/te (see Figure 6 overleaf).

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