Platts plans shake-up of Brent crude pricing

The Ocean Vanguard offshore drill rig, operated by Diamond Offshore Drilling, stands anchored in the Cromarty Firth in Cromarty, UK. Simon Dawson / Bloomberg

One of the energy industry’s major benchmarkers will broaden how it calculates its Brent crude price to include oil produced in Eastern Europe and Africa, amid falling production in the North Sea and lower global prices.

Platts, the oil price assessment agency owned by McGraw-Hill, may add new crude grades to Dated Brent before 2020, the company said.

“As we get closer to 2020, somewhere before that period we are going to add something,” Jorge Montepeque, Platts’ global editorial director of market reporting, said at the company’s Middle East Crude Oil Summit held this week in Dubai. “I think [the assessment] is geology dependent and the recent price decrease is going to impact some of that geology.”

Brent has shed more than 40 per cent of its value to about US$65 a barrel from about $115 in June due to concerns about a supply glut, weaker growth in Europe and China and a stronger dollar. Dated Brent as priced by Platts is a marker of physical prices.

The slump to near five-year lows is expected to affect oil production around the world.

Oil production from the UK’s North Sea peaked in 1999 and has been in decline since. Last year, production fell by 8 per cent to 1.4 million barrels of oil equivalent per day (boepd) from a year earlier. Before 2010, production fell by between 5 and 10 per cent annually over a decade.

Platts’ system, which depends on traders voluntarily providing information for the calculation of prices for the physical delivery of products, including Dated Brent, has been under scrutiny as regulators investigate manipulation of financial measures around the world.

Mr Montepeque has been leading the charge to improve transparency of pricing for energy markets.

Dated Brent, which is made up of four oil grades, is used to price up to 70 per cent of the world’s physical oil. The North Sea crude streams used to set the dated benchmark are Brent, Forties, Oseberg and Ekofisk, also known as BFOE. Brent and Forties are produced in UK waters and Oseberg and Ekofisk in Norway.

“What we are looking at is crudes from Eastern Europe, from Russia – like Urals is one of the ones we have been talking about – crudes from Kazakhstan if there are any major exports or North Africa or Brazil,” said Mr Montepeque.

Platts is also looking at using West African and Eastern European crudes in its assessment.

Crude from Libya, which produced about 1.6 million barrels per day (bpd) in 2010, could factor in. But stability in the country is key to that decision, as oil production has plummeted to an average of 450,000 bpd during January to November this year, according to the US Energy Information Agency.

Mr Montepeque said Platts is also looking at North Africa, “but we need to make sure the predictably of exports is still there, predictability of the quality, predictability of willingness to sell into the area. It is a very complicated process,” said Mr Montepeque.

The agency said it was not currently looking to change the Dubai benchmark assessment, which is used by most countries in the Middle East to price crude mainly headed to Asia. Platts has looked at a number of crudes to add to the Dubai assessment, which is calculated from the values of three grades: Dubai, Oman and Abu Dhabi’s Upper Zakum crudes.

“We are looking at [Iraq’s] Basra. We are looking at Qatari grades. We are always looking at any other potential additional grades. We are looking at [Qatar’s] Al Shaheen, but we are not taking any action right now,” Mr Montepeque said. He said new grades would need to be considered only if overall production of the aggregate was falling.

For Dubai, “the production is actually growing because Abu Dhabi is going to expand the production of Upper Zakum. So there is no immediate pressure” to introduce new grades into the mix, he added.

Abu Dhabi plans to spend as much as US$14 billion to boost production at Upper Zakum, the UAE’s biggest field. Adnoc and its partners at Zakum Development Company (Zadco) plan to boost production by 28 per cent to 750,000 bpd by 2017.

Adnoc has a 60 per cent stake in Zadco, and the rest is held by ExxonMobil and Japan Oil Development, two partners that will contribute to the investment to reach its target output.

The country’s largest field has oil reserves estimated at 50 billion barrels and is currently producing 585,000 bpd. The partners are studying the prospect of ramping up production to 1 million bpd by 2024.

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