BP 2013 Annual Report Download - page 30

BP Annual Report and Form 20-F 201326
Our markets
2013 2012 2011
Average oil marker pricesa$ per barrel
Brent 108.66 111.67 111.26
West Texas Intermediate 97.99 94.13 95.04
Average natural gas marker prices $ per million British thermal units
Average Henry Hub gas priceb 3.65 2.79 4.04
pence per therm
Average UK National Balancing Point
gas pricea 67.99 59.74 56.33
a All traded days average.
b Henry Hub First of Month Index.
Crude oil benchmark prices
Brent remains an integral marker to the production portfolio, from which a
significant proportion of production is priced directly or indirectly. Certain
regions use other local markers, which are derived using differentials or a
lagged impact from the Brent crude oil price.
Crude oil prices, as demonstrated by the industry benchmark of dated
Brent, averaged $108.66 per barrel in 2013, compared with an average of
$111.67 per barrel in 2012. This represented the third consecutive year with
the dated Brent average price above $100 per barrel. Prices weakened in
early 2013 amid strong growth of light, sweet oil production in the US, but
rebounded later in the year due to a range of supply disruptions and
heightened market perceptions of risks to supply.
Amid continued high oil prices, global oil consumption increased, rising by
roughly 1.2 million barrels per day for the year compared with 2012 (1.3%),
in part boosted by cold weather early in the year.c The growth in
consumption was slightly exceeded by growth in non-OPEC production,
which was dominated by continued strong growth in US output. However,
OPEC crude oil production fell due to ongoing Iran sanctions and renewed
outages in Libya. As a result, OECD commercial oil inventories remained
relatively balanced.
Global oil consumption in 2012 grew by roughly 0.9 million barrels per day
compared with 2011 (0.9%).d OPEC production met most of the growth
in consumption, driven by the recovery in Libyan production.
We expect oil price movements in 2014 to continue to be driven by
the pace of global economic growth and its resulting implications for
oil consumption, by supply growth in North America, and OPEC production
decisions. Risks to supply remain a key uncertainty.
c From Oil Market Report 21 January 2014©, OECD/IEA 2014, page 1.
d BP Statistical Review of World Energy June 2013.
Natural gas prices
Natural gas prices continued to show wide differentials between regions in
2013, although widening of the differentials stagnated as US gas prices
recovered from their 2012 lows. The Henry Hub First of Month Index
averaged $3.65 in 2013, an increase of 31% versus 2012.
12
15
6
9
3
Henry Hub ($/mmBtu)
2012
5-year range 2013
Jan Feb Mar Apr May Jun Jul Aug Sep
Oct Nov Dec
The US natural gas market saw a gradual return to balance in 2013,
following the dramatic loss of heating demand in 2012 due to unusually
warm winter weather, which pushed gas prices down to 10-year lows.
A return to more normal weather in 2013 restored heating demand for
gas, which meant less pressure on gas to compete with coal for a share
of the power generation market, allowing gas prices to recover. US
gas supply continued to expand in 2013, reaching yet another record
production level, supported in particular by rising liquids-rich (wet)
gas production.
In Europe, gas prices at the UK National Balancing Point increased
by 14% to an average of 67.99 pence per therm for 2013. Record-low
inventory levels, coming out of a prolonged winter, coupled with
declining European gas production and continued diversion of LNG to
the higher-priced Asian market, caused European spot prices to climb
to a five-year high. European demand remained weak, especially in
power generation where gas remained uncompetitive against coal.
Global LNG supply expanded in 2013, following a contraction in supply
in 2012. However the LNG market remained tight, with continued
strong demand in Asia due to economic growth and nuclear power
outages, and also in Latin America due to the impact of a drought on
hydroelectric production.
In 2012 the strength of shale gas production in the US, combined with
an unusually warm winter, led the average Henry Hub First of Month
Index to fall by 31% to $2.79/mmBtu. In the UK, National Balancing
Point prices averaged 59.74 pence per therm, 6% above prices in 2011.
In 2014 we expect gas markets to continue to be driven by the
economy, weather, production, trade developments and continued
uncertainty surrounding nuclear power generation in Japan. Futures
markets indicate that the large gap between US and European gas
prices is expected to persist through 2014.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2012
Brent ($/bbl)
120
150
60
90
30
5-year range 2013