Economic Report 2019

ECONOMIC REPORT 2019

Along with this, the re-imposition of US sanctions on Iran, political conflict in Libya and the economic crisis in Venezuela have removed an estimated 830,000 bpd from the market. At current production rates, the UK is now producing more oil than Venezuela (averaging more than 1.1 million bpd compared with 884,000 bpd) despite Venezuela having 120 times greater proven oil resources. Looking ahead to 2020, it is anticipated that the global supply will continue to increase, largely due to US output, however significant additions are also expected from other non-OPEC nations such as Brazil and Norway. This will place pressure on OPEC to maintain production cuts to prevent a significant oversupply in the market. Gas Markets Gas prices have seen significant reductions in the first half of 2019, as both increased supply and lower demand exerted negative price pressure. The average National Balancing Point (NBP) price for the first six months of the year was 40 pence per therm (p/th), one-third lower than the 2018 average of 60 p/th. Moreover, prices hit a low of 23 p/th in June — the lowest daily spot price since 2016 and the lowest monthly average price since 2004.

Figure 11: UK NBP Gas Price

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NBP Nominal Monthly Gas Price (p/th)

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Source: ICIS

When considered in oil equivalent terms, Brent has traded at a premium to the NBP price, with a significant differential seen in 2019. In the first half of the year Brent averaged more than double the NBP gas price in equivalent terms ($66/boe compared to $30/boe). As a result, the rates of return from UK gas production will be lower than oil on a like-for-like basis. This is an important consideration in the context of the transition to a net-zero carbon economy (see section 5).

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