Economic Report 2019

Figure 12: UK NBP Gas Price and Brent Crude Price

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Brent Crude Price NBP Gas Price

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Average Monthly Brent and NBP Spot Price ($/boe)

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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: EIA, ICIS

In the UK, increased energy efficiency, warmer temperatures and increased wind power capacity have reduced gas requirements for domestic heating and electricity generation. This has resulted in an overall decline in UK gas demand of 14 per cent over the last 20 years (see section 3.1). Whilst the regional nature of gas markets remains, its supply is becoming increasingly globalised — particularly through the influence of the LNG market. This is leading to greater price convergence, with the impact felt in the UK mirrored across global gas markets. International gas prices are dropping as a wave of new LNG supplies come onto the market at a time of weaker demand. In the US, the regional price benchmark (Henry Hub) fell to its lowest level since 2002 in June 2019 and in some cases onshore producers in the US Permian are paying infrastructure owners with spare capacity to offload their excess gas. European prices have been squeezed by the strategies of both Russia and the US to preserve and grow their respective market share. Russian piped gas exports to Europe increased by 8 per cent in the first five months of 2019 compared with last year. At the same time, LNG exports from the US to Europe surpassed those to Asia for the first time and now account for almost 40 per cent of US natural gas exports. This is being driven by the now negligible price differential between Asian and European prices, incentivising the flow of flexible US exports to European markets. The recent trend of declining gas prices is reflected in the financial performance reported by many oil and gas companies, especially those with a greater exposure to gas in their portfolios, and may also affect approvals of new gas projects.

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