BP 2011 Annual Report Download - page 22

20 BP Annual Report and Form 20-F 2011
Our market
Natural gas prices
Natural gas prices diverged globally in 2011, reflecting different regional dynamics.
The average US Henry Hub First of Month Index fell to $4.04/mmBtu, 8% lower
than the prices in 2010, while in Europe prices increased.
After a record increase in 2010, global gas consumption growth moderated
in 2011. In the US, economic momentum supported gas use in the first half of
the year and a hot summer raised demand. Yet domestic production outpaced
consumption growth due to further increases in the availability of shale gas.
Henry Hub gas prices fell and traded below coal parity in US power generation
throughout the year, leading to the displacement of coal by gas. Unusually mild
winter weather weakened prices at the end of year. The differentials of production
area prices to Henry Hub prices continued to narrow as pipeline bottlenecks were
reduced.
In Europe, spot gas prices at the UK National Balancing Point increased
by 33% to an average of 56.33 pence per therm for 2011 – the highest level
since 2008. The loss of Libyan gas supply raised continental European demand
for Russian gas in early 2011, but LNG supply and weak general demand kept
spot gas prices below oil-indexed contract levels. Competition between spot
and contract pipeline supplies continued. High volumes of LNG were available
to Europe, despite the Japanese earthquake and tsunami in March 2011, which
caused major nuclear outages and significantly increased LNG purchases in
Japan. This contributed to a tightening global LNG market over the year.
The economic rebound had led the average Henry Hub First of Month Index
to recover in 2010 from eight-year lows, rising by 10% to $4.39/mmBtu. In the
UK, National Balancing Point prices averaged 42.45 pence per therm in 2010 –
38% above the depressed prices in 2009.
In 2012, we expect gas markets to continue to be driven by the economy,
weather, domestic production, LNG supply and reductions in nuclear power
generation following the Fukushima disaster in Japan in March 2011.
Left Operations at
BP’s Na Kika field in
deepwater Gulf of
Mexico. BP is one of
the largest producers
of hydrocarbons in
the region.