The Brent Oil Price Marker cover

The Brent Oil Price Marker: Future Prospects

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This report, produced by Consilience, takes a look at the decline in production of the four blends that comprise the BFOE basket (Brent, Forties, Oseberg and Ekofisk). Using field production data compiled by Deloitte LLP, Consilience has been able to analyse the production forecasts of all the major blends in the North Sea, Brent, Forties, Oseberg and Ekofisk (“BFOE”) – including the production from future fields that have not yet come on-stream. This process has allowed Consilience to take a view on what, if anything, can be done to secure Brent’s role as a price benchmark out to 2020.

To ensure the robustness of the “Brent” basket volume, some market participants have suggested bringing Russian or West African grades into the BFOE basket in order to shore up the supply. Consilience argues that this step is unnecessary because there are other local North Sea blends that could be introduced to the basket to secure Brent’s future out to 2020. Bringing in oil blends from further afield would present unnecessary complexities by introducing grades from different geographical locations, subject to different shipping economics. Instead, if the Brent basket could be supported in the short-to-medium term, say out to 2020, by adding other local North Sea blends to the basket. This would buy the time necessary for other regional benchmarks to develop, reducing Brent’s unsettling dominance in the pricing of global oil.

The report provides an overview of the current ownership of production in the major North Sea blends and how that picture will change going forward as new prospects come onstream. This information has been compiled in painstaking detail and is vital to any  consideration of the future of the Brent benchmark. Ownership of influential blends or key fields provides leverage to particular companies and will be a relevant factor in the decision-making process about the future of the key Brent benchmark basket.

Special consideration is given to the Johan Sverdrup field in the Norwegian sector, which is forecast to provide a huge boost to North Sea supply from 2019/2020. Production of this field is forecast to peak at around 550,000 – 650,000 barrels/day. Whether or not this large volume will be added to an existing blend remains to be seen. However its discovery, quality  and the choice of development options raises some important questions about which blends should be added to the BFOE basket.

The study goes on to address the issue of the custodianship of the Brent benchmark. This remains in the hands of parties with a vested interest. Therefore any changes suggested to the BFOE basket should be treated with care as different parties draw swords to steer the evolution of Brent in their own favour. Consilience proposes the establishment of a regulated forum in which the future of the Brent benchmark can be discussed openly and refereed by an impartial regulator.

This report has been produced by Consilience using Deloitte LLP’s provided unique original field-by-field production data, which Consilience has collated into the blend data that is the subject of this study. This study of North Sea Blends would not have been possible without the Deloitte data.

 

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Table of Contents

  1. The Study
  2. Acknowledgement
  3. Introduction
  4. Brent: The Story So Far
  5. The Characteristics of a Benchmark
  6. The Buzzard Quality Issue
  7. Where has all the Forties Gone?
  8. Quality Premia (QPs)
  9. The Difference between Dated Brent and Forward Brent
  10. Dated Brent/BFOE
  11. Forward Brent and Brent Futures
  12. The Current Brent “BFOE” Basket
  13. Brent Blend
  14. Forties Blend
  15. Oseberg Blend
  16. Ekofisk Blend
  17. Candidates for Inclusion in the Basket
  18. Flotta Blend
  19. Troll Blend
  20. Johan Sverdrup
  21. Duc Blend
  22. The Case of a New Basket or a New Basket Case?
  23. Geography
  24. Quality
  25. Volume of Production
  26. Who is Calling the Shots?
  27. Appendix One: Company Shares of BFOE Production 2014‐2020
  28. Appendix Two: Company Shares of BFOE/Flotta/Troll/DUC Combined Production 2014‐2020
  29. Appendix Three: Deloitte LLP

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