1) The Bord Gáis Energy Index fell in December due to ongoing declines in global oil prices, with the index at 103.
2) A major factor has been the surge in US oil production, which has increased 80% since 2008 and now dominates price behavior after OPEC chose not to cut production in November.
3) Lower oil prices are good for the global economy as consumers benefit but pose challenges for oil-dependent countries and economies that rely on oil revenues to fund budgets.
The Bord Gáis Energy Index from June 2013.
The Bord Gáis Energy Index was stable (-1%) in June as falls in the Irish wholesale electricity, UK Day-ahead gas and European coal prices were counteracted by a rising front month Brent crude oil price.
EY Price Point: global oil and gas market outlookEY
As the last quarter of the second pandemic year draws to a close, we continue to see heightened contrast
between the medical and economic points of view. While COVID-19 cases are close to their all-time highs, so
are equity prices, and a leading investment bank declared (on 2 December, 2021 after the Omicron outbreak in South Africa) that it was “optimistic about the possibility of a vibrant 2022.” When news of the variant hit in
late November, the markets were rocked by the prospect of yet another round of local mobility restrictions and
an interrupted return to normal international travel patterns, on top of the Biden Administration’s announced
release of 50 million barrels of crude from the US Strategic Petroleum Reserve. So far though, with OPEC
standing by its planned gradual return to normal production, oil prices have stabilized, albeit below where they
were in mid-November. Henry Hub prices, always at the mercy of the weather, responded predictably to a
warmer-than-normal early winter in the US, falling from US$6.60/MMBtu in early October to below
US$4.00/MMBtu by mid-December. In Europe and Asia, following a short reprieve at the start of the quarter,
piped natural gas prices have spiked again on concerns triggered by Russian troop buildups on the Ukraine
border and uncertainties surrounding the Nordstream 2 pipeline. Looking forward, OPEC and the U.S. Energy
Information Administration (EIA) in their last forecasts of the year both projected that 2022 oil demand would
be above what we saw in 2019. Although time will tell if those forecasts are realized and other events could
intervene, the response to new virus outbreaks is well-practiced and the trade-off between public health and
economic reality has tipped toward a cautiously optimistic view.
The Bord Gáis Energy Index from June 2013.
The Bord Gáis Energy Index was stable (-1%) in June as falls in the Irish wholesale electricity, UK Day-ahead gas and European coal prices were counteracted by a rising front month Brent crude oil price.
EY Price Point: global oil and gas market outlookEY
As the last quarter of the second pandemic year draws to a close, we continue to see heightened contrast
between the medical and economic points of view. While COVID-19 cases are close to their all-time highs, so
are equity prices, and a leading investment bank declared (on 2 December, 2021 after the Omicron outbreak in South Africa) that it was “optimistic about the possibility of a vibrant 2022.” When news of the variant hit in
late November, the markets were rocked by the prospect of yet another round of local mobility restrictions and
an interrupted return to normal international travel patterns, on top of the Biden Administration’s announced
release of 50 million barrels of crude from the US Strategic Petroleum Reserve. So far though, with OPEC
standing by its planned gradual return to normal production, oil prices have stabilized, albeit below where they
were in mid-November. Henry Hub prices, always at the mercy of the weather, responded predictably to a
warmer-than-normal early winter in the US, falling from US$6.60/MMBtu in early October to below
US$4.00/MMBtu by mid-December. In Europe and Asia, following a short reprieve at the start of the quarter,
piped natural gas prices have spiked again on concerns triggered by Russian troop buildups on the Ukraine
border and uncertainties surrounding the Nordstream 2 pipeline. Looking forward, OPEC and the U.S. Energy
Information Administration (EIA) in their last forecasts of the year both projected that 2022 oil demand would
be above what we saw in 2019. Although time will tell if those forecasts are realized and other events could
intervene, the response to new virus outbreaks is well-practiced and the trade-off between public health and
economic reality has tipped toward a cautiously optimistic view.
EY Price Point: global oil and gas market outlook, Q2 | April 2022EY
The theme for this quarter is rearrangement. The loss, or potential loss, of Russian oil and gas supplies is forcing producers, refiners and traders to rethink the flow of crude oil and refined products from the wellhead to the gas pump in light of sanctions, potential sanctions and the risk of reputational damage. Countries, companies and consumers will all be searching for ways to adapt, and the outcome of the race to bring alternatives to market could alter the global energy landscape for years to come.
It is likely crude oil and LNG prices will remain elevated for some time. The process of diverting Russian oil through countries unwilling to sanction it will take time and there is little indication OPEC members are willing (or able) to increase production to make up for the loss of Russian crude. Spare capacity sat at 3.7 mbpd at the end of 2021, just above where it was in January 2020. Currently, sanctioned Venezuelan and Iranian production (about 3 mbpd below their peak) could fill the gap, but political and commercial obstacles remain. At today’s prices, US shale production is attractive, but the fastest the industry has been able to grow is between 1mbpd and 2mbpd per year. The LNG infrastructure was already stretched before the war in Ukraine and there is little prosect of finding new supplies soon.
As the largest buyer of Russian energy, Europe will be the epicenter. There is a deeply embedded bias there in favor for renewable energy, and the current crisis is certain to result in an all-out effort to accelerate the build-out of wind and solar power. The capacity to add new green energy is limited though by the project pipeline and supply chains for solar panels and wind turbines, and it is likely that much of the shortfall will be made up with the new LNG infrastructure.
The Short-Term Energy Outlook from the U.S. Energy Information Administration (EIA). Each month the EIA predicts what energy prices/supply/demand will do in the next 1-2 years.
EY Price Point: global oil and gas market outlookEY
We enter 2021 on a note of cautious optimism for global health, the world economy, and the oil and gas markets. The first weeks of December brought approval in the US and the UK of the first of several COVID-19 vaccines. The speed with which vaccine development occurred is unprecedented, but certainly welcome. In the weeks following the early November announcement of 90+% effectiveness by the manufacturer of the first approved vaccine, the price of WTI crude oil increased by US$10/bbl to US$48/bbl, the highest level since early March. Sustainability hasn’t returned yet, and whatever time it takes to get the world to normal, it will take even longer for normalization within the oil and gas markets. Inventories remain at historically high levels and, optimistically, it will take until April before inventory returns to levels observed in the preceding five years. That’s an estimate, and there has obviously been some difficulty properly calibrating the expectations of how balance will return and how long it will take. In late November, OPEC met to adjust its output plans because of the anemic rebound in demand. In mid-December, the IEA lowered its demand forecast for 2021 due mostly to continued sluggishness in aviation fuel demand.
A mild winter has interrupted a recovery in North American natural gas prices after a run-up motivated by curtailed capital expenditures, upstream activity and production. After an initial meltdown, with cargo cancellations and dramatic price reversal, LNG markets have made a remarkable comeback, and the spread between Asia and Henry Hub has reached a level we haven’t seen in almost three years. It may be the case that interruption in FIDs has brought us to the cusp of a balance that can support reliable returns.
EY Price Point: global oil and gas market outlook, Q2, April 2020EY
The first quarter of this year has seen some extraordinary events. As if chronic oversupply, prices stuck below sustainable levels, the looming energy transition, and investor pressure to decarbonize weren’t enough, our industry now faces a dramatic, but hopefully temporary, downturn in demand as a result of the ongoing COVID-19 outbreak.
The theme for this quarter is apprehension. In September, the US Federal Reserve announced a third 75 basis point increase in the federal funds rate. In the aftermath, the two-year treasury rate reached the highest level since before the 2008 financial crisis and the spread between two and ten-year rates went below negative 50basis points for the first time since the early eighties. Equity markets have begun to price in the likelihood of a recession and, if history is any indication, the impact on oil markets could be profound.
EY Price Point: global oil and gas market outlook, Q2 | April 2022EY
The theme for this quarter is rearrangement. The loss, or potential loss, of Russian oil and gas supplies is forcing producers, refiners and traders to rethink the flow of crude oil and refined products from the wellhead to the gas pump in light of sanctions, potential sanctions and the risk of reputational damage. Countries, companies and consumers will all be searching for ways to adapt, and the outcome of the race to bring alternatives to market could alter the global energy landscape for years to come.
It is likely crude oil and LNG prices will remain elevated for some time. The process of diverting Russian oil through countries unwilling to sanction it will take time and there is little indication OPEC members are willing (or able) to increase production to make up for the loss of Russian crude. Spare capacity sat at 3.7 mbpd at the end of 2021, just above where it was in January 2020. Currently, sanctioned Venezuelan and Iranian production (about 3 mbpd below their peak) could fill the gap, but political and commercial obstacles remain. At today’s prices, US shale production is attractive, but the fastest the industry has been able to grow is between 1mbpd and 2mbpd per year. The LNG infrastructure was already stretched before the war in Ukraine and there is little prosect of finding new supplies soon.
As the largest buyer of Russian energy, Europe will be the epicenter. There is a deeply embedded bias there in favor for renewable energy, and the current crisis is certain to result in an all-out effort to accelerate the build-out of wind and solar power. The capacity to add new green energy is limited though by the project pipeline and supply chains for solar panels and wind turbines, and it is likely that much of the shortfall will be made up with the new LNG infrastructure.
The Short-Term Energy Outlook from the U.S. Energy Information Administration (EIA). Each month the EIA predicts what energy prices/supply/demand will do in the next 1-2 years.
EY Price Point: global oil and gas market outlookEY
We enter 2021 on a note of cautious optimism for global health, the world economy, and the oil and gas markets. The first weeks of December brought approval in the US and the UK of the first of several COVID-19 vaccines. The speed with which vaccine development occurred is unprecedented, but certainly welcome. In the weeks following the early November announcement of 90+% effectiveness by the manufacturer of the first approved vaccine, the price of WTI crude oil increased by US$10/bbl to US$48/bbl, the highest level since early March. Sustainability hasn’t returned yet, and whatever time it takes to get the world to normal, it will take even longer for normalization within the oil and gas markets. Inventories remain at historically high levels and, optimistically, it will take until April before inventory returns to levels observed in the preceding five years. That’s an estimate, and there has obviously been some difficulty properly calibrating the expectations of how balance will return and how long it will take. In late November, OPEC met to adjust its output plans because of the anemic rebound in demand. In mid-December, the IEA lowered its demand forecast for 2021 due mostly to continued sluggishness in aviation fuel demand.
A mild winter has interrupted a recovery in North American natural gas prices after a run-up motivated by curtailed capital expenditures, upstream activity and production. After an initial meltdown, with cargo cancellations and dramatic price reversal, LNG markets have made a remarkable comeback, and the spread between Asia and Henry Hub has reached a level we haven’t seen in almost three years. It may be the case that interruption in FIDs has brought us to the cusp of a balance that can support reliable returns.
EY Price Point: global oil and gas market outlook, Q2, April 2020EY
The first quarter of this year has seen some extraordinary events. As if chronic oversupply, prices stuck below sustainable levels, the looming energy transition, and investor pressure to decarbonize weren’t enough, our industry now faces a dramatic, but hopefully temporary, downturn in demand as a result of the ongoing COVID-19 outbreak.
The theme for this quarter is apprehension. In September, the US Federal Reserve announced a third 75 basis point increase in the federal funds rate. In the aftermath, the two-year treasury rate reached the highest level since before the 2008 financial crisis and the spread between two and ten-year rates went below negative 50basis points for the first time since the early eighties. Equity markets have begun to price in the likelihood of a recession and, if history is any indication, the impact on oil markets could be profound.
The Bord Gáis Energy Index for September 2014 saw significant increases in the wholesale prices of Natural Gas (21%) and Electricity (17%). This was mostly offset by a fall in Brent Crude Oil as the Bord Gáis Energy Index rises by 3%.
The OPEC Reference Basket averaged $42.68/b in July, representing the first decline in five months. Lower-than-expected demand, high refined product stocks, and rising crude supply were the factors behind the $3.16 drop. ICE Brent ended down $3.39 at $46.53/b, while Nymex WTI fell $4.05 to $44.80/b. Speculators cut long positions further this month in all markets. The ICE Brent-WTI spread widened to $1.75/b in Brent’s favour during July.
declining crude oil pricing:causes and global impactSatyam Mishra
this presentation gives some insight into the causes of declining crude oil pricing and how that is going to affect various oil producing and non oil producing countries across the globe.
The theme for this quarter is momentum meets uncertainty. The upward trend in crude oil, natural gas, LNG and refined product prices that began in Q1 continued into Q2. Crude oil markets began the quarter just below $100/bbl and have closed below that level on only two days since late April. As we begin Q3, there are increasing concerns about the health of the global economy and how that might affect oil and gas demand.
The Saturday Economist Oil Market Update 2015John Ashcroft
What is pushing oil prices lower? What’s the difference between Brent Crude or West Texas Intermediate? Will prices stay low and what are the prospects for oil demand growth? Who are the winners and losers? What is the impact of lower oil prices on the economy? Are lower oil prices good for growth? What does the falling price mean for the consumer? US Oils rigs go up as the oil prices rise, so is the real challenge, Sheiks versus Shale or a Western squeeze on Russian resources?
Check out our oil market update to understand just what is happening in the oil Market
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2. Bord Gáis Energy Index
Commentary
bordgaisenergy.ie December 2014
Bord Gáis Energy Index (Dec 31st 2009 = 100)
The December Bord Gáis Energy Index fell again this month due to the ongoing softening in global oil prices and in
December 2014 the Index stood at 103.
As reported previously, over the last four years global oil prices have been propped up by the Arab Spring, tensions
with Iran over its disputed nuclear programme, war in Syria, and the possibility of the Middle East being torn apart by
ethnic differences and the threatening rise of Islamic State. North American oil has now trumped these concerns and
the reality that the world is awash with oil and has insufficient demand to consume it has caused prices to fall. On 27
November OPEC had the opportunity to support prices. They chose not to act. This marks a significant shift in the world
oil market. Despite some market sentiment that US production now has to slow, this is not expected until the middle of
2015 at the earliest. However, as consumers start to benefit, governments will be concerned by the possible reaction
and consequences for those countries and economies dependant on oil revenues to meet budgetary requirements.
A shock to the global economy has been the fall in the price of Brent crude oil from US$115 in June to US$51 at the start of 2015.
According to Christine Lagarde, “it is good news for the global economy” as consumers benefit from cheaper transportation and
energy. This in turn will enable consumers to spend more money on other goods and services. It is estimated by Oxford Economies
that every US$20 fall in the oil price increases global growth by 0.4% within 2 – 3 years. History also proves that lower oil prices,
in both good and bad times, is good for global growth. In 1986 the oil price more than halved and global growth “surged” to 4.6%
in 1988. Similarly, in 2008 prices fell from US$133 to US$40 and global growth “rebounded” in 2010. However, there are concerns
that the reducing price means that Russia is starting 2015 in a difficult position. Funds to finance the battle against IS face greater
pressure and the US is less likely to play global policeman now that it can satisfy almost 90% of its energy needs from domestic
sources. In addition, with the fall in oil being associated with reduced demand in China, Japan and Europe, weaker prices are
symptomatic of a wider economic shift. Oxford Economies estimate that with an oil price at US$60, 13 European countries will see
their inflation rates fall below zero in 2015.
Summary
1 Mth
3 Mth
12 Mth
Bord Gáis Energy Index 12 Month Rolling Average
-22%
50
100
150
200
Jul-14Jan-14Jul-13Jan-13Jul-12Jan-12Jul-11Jan-11Jul-10Jan-10Jul-09Jan-09
-30%
-10%
3. Bord Gáis Energy Index
Commentary
bordgaisenergy.ie December 2014
Oil Index
Brent crude prices closed the month at US$57.13 per barrel. The decision by members of OPEC on 27 November not
to cut production reflects a shift in the world oil market. In the first half of 2014, price movements were influenced on
one hand by concerns over global economic growth (with a particular significance being placed on China’s slowing
growth levels and that of other emerging economies) and on the other by supply concerns due to the geopolitical
issues that threatened to engulf the Middle East. With Saudi Arabia relinquishing its role as the swing producer on 27
November 2014, the surge in US oil production since 2008 has now come to dominate price behaviour. At the same
time as US oil production reached over 9 million barrels per day (US production has risen by 80% since 2008), Libyan
production had quadrupled to almost 1 million barrels per day (Libyan production was reduced to 500,000 barrels
per day by mid-December as the struggle between the country’s two governments is appearing to descend into a civil
war which shut down the country’s two largest ports, Es Sider and Ras Lanuf). The question that will be answered in
2015 is whether US production can continue to grow with the US benchmark crude price trading at US$53.27 on 31
December. According to the IEA, the impact of lower prices will start to emerge by the second half of 2015. Despite
lower prices, the IEA is forecasting 2015 non-OPEC liquids growth of 1.3 million barrels per day and for demand to rise
by just 904,000 barrels per day. As a result, the 2015 call on OPEC has been reduced by 338,000 and is now forecast
to be 28.9 million barrels per day. The equivalent figure for 2014 was 29.5 million barrels per day.
Another question that may be answered in 2015 is what the consequences of lower oil prices will be on oil producers
that are vulnerable to lower prices. In Venezuela, 65% of government spending comes from oil revenue. In Iran the
number is 50% and 40% in Russia. The economic impact of lower prices is somewhat clear but the political and social
fall-out could prove more uncertain. The fall in the value of rouble has been associated with the falling oil price but
also with declining confidence in the Russian Central Bank and western sanctions against Russia. This could present
a problem for the country and its leaders who have reportedly failed to make clear how they plan to manage the
US$600 billion foreign debt of the country’s banks and businesses.
One thing that is clear is that the drama is far from over. If prices continue to weaken, and they have done so since
the start of 2015, OPEC members may come together again to reassess the market. However, in late December, Saudi
Arabia’s oil minister said that OPEC will not cut production even if the price falls to US$20 per barrel.
50
100
150
200
Jul-14Jan-14Jul-13Jan-13Jul-12Jan-12Jul-11Jan-11Jul-10Jan-10Jul-09Jan-09
Oil
*Index adjusted for currency movements.
Data Source: ICE
1 Mth
3 Mth
12 Mth
-16%
-37%
-41%
(Continued overleaf)
4. Bord Gáis Energy Index
Commentary
bordgaisenergy.ie December 2014
Oil Index (continued)
During December oil supply looked set to continue apace both in the US and internationally and this applied further
pressure on global oil prices. The recent Iraq/Kurdistan Regional Government export deal was expected to increase
global supply by 150,000 barrels. Additionally, exports from Nigeria and Angola were likely to increase 300,000
barrels per day to 400,000 barrels per day as operations reportedly proceeded smoothly in Nigeria and maintenance
ended at the Plutonio deepwater field in Angola. Russian exports this month are expected to increase due to reduced
export taxes effective from 1 January and new pipeline links in the US will put more oil into the Gulf of Mexico refining
complex in January.
5. Bord Gáis Energy Index
Commentary
bordgaisenergy.ie December 2014
Natural Gas Index
The average Day-ahead gas price outturn for December was 53.71p per therm (p/th), in line with the average price
for the previous month of 53.75p/th. A weakening euro helped nudge the cost of gas higher for euro zone buyers of
gas sourced in Britain. Gas supplies were stable over the month and this stability was reflected in wholesale prices.
Of particular note is the continued attraction of the UK market for spot LNG cargoes due to weak Asian LNG prices.
Looking back over the year, prompt wholesale UK gas prices have reduced lower throughout 2014 with temperatures
among the warmest on record. The Day-ahead contract for 2014 averaged 49.91p/th, with UK demand averaging at
220mcm per day. The largest upside risk to gas prices throughout the year stemmed from the Russia-Ukraine crisis.
Russia supplies about one third of all EU gas, much of it via pipelines that transit the Ukraine. However, news flow in
this area has been particularly positive over recent weeks as gas flows from Russia to Ukraine have resumed following
Ukraine’s prepayment for December gas supplies. In addition, Ukraine transferred US$1.65 billion to Gazprom at the
end of 2014 in line with the agreement reached. This was the second and final instalment to repay the agreed gas
debt of over US$3 billion. This news has continued to reduce the risk premium in prices. Given oil indexation remains
a feature of some European contracts, the falling oil price has effected the gas curve contracts throughout Europe.
The summer 15 contract finished the year at 46.50p/th and winter 15/16 closed at 53.08p/th.
Month-on-month, this is a drop of 6.76p/th for the summer 15 contract and 7.08p/th for winter 15/16.
50
100
150
200
250
300
Jul-14Jan-14Jul-13Jan-13Jul-12Jan-12Jul-11Jan-11Jul-10Jan-10Jul-09Jan-09
Natural Gas
1 Mth
3 Mth
12 Mth-17%
*Index adjusted for currency movements.
Data Source: Spectron Group
12%
2%
6. Bord Gáis Energy Index
Commentary
bordgaisenergy.ie December 2014
Coal Index
At US$66.75/mt, the ICE Rotterdam Monthly Coal Futures contract closed the month at its lowest point since July
2009.
The reduction in prices is associated with the milder weather conditions across Europe which has resulted in high coal
stocks.
At US$66.75/mt analysts are questioning whether suppliers will be forced to cut production or idle mines. Traders are
suggesting that there will be no factors to halt the current downtrend. However, it is being reported that the strong
US dollar is helping to temper the impact of lower delivered prices, with weaker currencies in coal origin countries
allowing producers to still make some profit.
50
100
150
200
Jul-14Jan-14Jul-13Jan-13Jul-12Jan-12Jul-11Jan-11Jul-10Jan-10Jul-09Jan-09
Coal
1 Mth
3 Mth
12 Mth-7%
-3%
-7%
*Index adjusted for currency movements.
Data Source: ICE
7. Bord Gáis Energy Index
Commentary
bordgaisenergy.ie December 2014
Electricity Index
Month-on-month the Irish wholesale electricity price fell from an average of €59.48/MWh to €56.23/MWh. The
average clean spark in December was over €3/MWh lower month on month, further reducing the incomes of those
utilities owning or relying on power generated from natural gas.
An influential feature of the Irish power market in December was the volume of electricity produced by the island’s
fleet of wind turbines. Although not reaching the record levels seen in December 2013, wind met a sizeable 21% of
demand throughout the month. High wind volumes typically force more expensive thermal plant off the system and
this reduces the revenues to traditional plant which now have to spread fixed costs over a far lower volumetric output,
placing further question on their commercial viability in the current market structure. During the month, relatively
cheap coal plants had a greater influence on the wholesale cost of power due to these high wind levels. As it is still
cheaper to produce a unit of electricity by burning coal compared to gas, so the greater the influence of coal plants
on setting the wholesale price of electricity. These factors coupled with strong interconnector flows, the testing of
new gas powered plants and no significant outages throughout the month result in significant commercial pressures
on any Generator or Supplier with reduced access to coal, peat or wind power sources.
50
100
150
200
Jul-14Jan-14Jul-13Jan-13Jul-12Jan-12Jul-11Jan-11Jul-10Jan-10Jul-09Jan-09
Electricity
1 Mth
3 Mth
12 Mth-11%
Data Source: SEMO
1%
-5%
8. Bord Gáis Energy Index
Commentary
bordgaisenergy.ie December 2014
The growing possibility that the ECB is about to start a policy of Quantitative Easing (QE) to try and stimulate the
euro zone economies weighed on the euro in December. During the month, the official euro zone inflation rate fell
to just 0.3%. At 0.3% there are fears that the region could be heading for a prolonged period of stagnation. Oxford
Economies estimate that with an oil price of US$60 per barrel, 13 European countries will see their inflation rates fall
below zero, at least temporarily, in 2015. The threat of deflation became a reality as it was revealed in early January that
consumer prices in the euro area fell into negative territory by 0.2% in December. The last time the region’s inflation
was below zero, the economy was struggling to recover from the recession that followed the collapse of Lehman
Brothers Holding Inc. QE (which will involve the buying of government bonds by the ECB) could stop this continued
fall in general prices as it would inject cash into the banking system, stimulate the economy with fresh cash at low
interest rates and ultimately push prices higher. Speaking in an interview with the German newspaper Handelsblatt,
the ECB president said that “we are making technical preparations to alter the size, pace and composition of our
measures in early 2015”. QE would reduce the general level of interest rates in the euro zone banking system. It is this
prospect which weakened the value of the euro on foreign exchange markets. The next ECB policy meeting will be
on 22 January. However, there are no guarantees that QE will materialise. With the hard-left Syriza leading the polls
in Greece before the upcoming election, it would be difficult for the ECB to consider buying Greek bonds. As the ECB
considers deflation and lower interest rates, the US continues to ponder a rate rise with an expanding economy. Most
Fed officials agreed their commitment to be “patient” on raising US interest rates at the last central bank meeting of
2014. It is now expected that there will be no increase in US rates before late April.
0.5
1.0
1.5
2.0
Jul-14Jan-14Jul-13Jan-13Jul-12Jan-12Jul-11Jan-11Jul-10Jan-10Jul-09Jan-09
FX Rates
FX Rates
EURUSD
EURGBP
1 Mth
3 Mth
12 Mth
1 Mth
3 Mth
12 Mth
-3%
-4%
-12%
-6%
-2%
EURUSD EURGBP
0%
9. Bord Gáis Energy Index
Commentary
bordgaisenergy.ie December 2014
Market Outlook
Re-weighting of Bord Gáis Energy Index
The headline figure for total US crude oil production growth in 2015 is sensational - 1 million barrels per day, with most of this
coming from tight oil wells. However, this is based on an assumed WTI price of between US$75 - US$80 per barrel in 2015.
This increase is more than the entire annual production from Ecuador or Qatar, both of which are OPEC member. At the start
of 2015, US production is around 9.2 million barrels per day and this is a year-on-year increase of 1.3 million barrels per day.
However, with the recent drop in the benchmark price of oil, US production growth is expected to stop in the middle of 2015.
If this materialises, it will impact the oil market and create a foundation for a potential oil price recovery. It is estimated that
between 2009 and 2013, a quarter of a trillion dollars has been spent on US oil exploration and production. Of this quarter
of a trillion dollars, around 40% was raised by taking on debt according to IHS Energy. Lower oil prices and stock valuations
will mean that lenders will be averse to providing funding at anywhere near the levels that supported US production growth
in recent years. With OPEC unwilling to act to support oil prices, confidence in future oil price levels has collapsed and this
will make investors more unwilling to lend money to expand US oil production. According to IHS Energy, of the new wells
that come on stream in 2014, 53% have a breakeven price (the price that covers capital and operational costs and generate a
10% return) higher than US$60. The US benchmark oil price closed 2014 at US$53.27. Looking ahead to 2016, if oil prices and
margins for new drilling remain weak, US production could be flat or even decline. However, a potential recovery in oil prices,
lower upstream costs, and improved well productivity could reinvigorate US growth in 2016.
Future economic growth in China will also have a bearing on oil prices. According to reports, Beijing says that additional
growth driven by borrowing and investments has to stop. As a consequence, growth is expected to be slower in 2015 in order
to be better, state-owned enterprises running on empty must be dismantled and private enterprise will have to provide jobs,
especially in the service sector. Since 2008, China’s money supply has expanded from US$7 trillion to US$20 trillion. If China
continues to provide easy money, the risk will grow that popping asset bubbles will further slow the economy that has been
the single largest contributor to global growth this decade.
Following the SEAI’s 2011 review of energy consumption in Ireland,
there was a 6.4% drop in overall energy consumption. Oil continues
to be the dominant energy source with most of the oil used in
transport and the remainder being used for thermal energy. For
the purposes of the Bord Gáis Energy Index, the total final energy
consumption in Ireland fell 1,089 ktoe (toe: a tonne of oil equivalent
is a unit of energy, roughly equivalent to the energy content of one
tonne of crude oil) between 2009 and 2011. This fall was made up of
a 1,022 ktoe drop in oil consumption (down 13.5%), a 20 ktoe drop
in natural gas (down 12.6%), a 7 ktoe drop in electricity (down 0.3%)
and a 40 ktoe drop in coal (down 10.98%). The Bord Gáis Energy
Index has been re-weighted in January 2013 to reflect the latest
consumption data. The impact has been minimal and has resulted in
slight reductions in the share of oil and gas and a slight increase in
the weighting of electricity in the overall Index.
The contents of this report are provided solely as an information guide. The report is presented to you “as is” and may or may not be correct, current,
accurate or complete. While every effort is made in preparing material for publication no responsibility is accepted by or on behalf of Bord Gáis
Energy Limited, the SEMO, ICE Futures Europe, the Sustainable Energy Authority of Ireland or Spectron Group Limited (together, the “Parties”) for
any errors, omissions or misleading statements within this report. No representation or warranty, express or implied, is made or liability accepted by
any of the Parties or any of their respective directors, employees or agents in relation to the accuracy or completeness of the information contained
in this report. Each of the Parties and their respective directors, employees or agents does not and will not accept any liability in relation to the
information contained in this report. Bord Gáis Energy Limited reserves the right at any time to revise, amend, alter or delete the information provided
in this report.
For more information please contact:
Bord Gáis Energy Pressoffice@bge.ie
or Alan Tyrrell at PSG Plus 086 850 8673
Oil
61.96%
Gas
14.72%
Coal
3.1%Electricity
20.22%