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ACTIVITY SURVEY
2015
page 12
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
0
20
40
60
80
100
120
140
2008
2009
2010
2011
2012
2013
2014
2015
Price ($/boe)
Dated Brent
NBP Month Ahead
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.