National Balancing Point (NBP)
The National Balancing Point, typically referred to as NBP, is a virtual trading location for the sale of UK natural gas supplies. Rather than operating at a centralised location, like the Henry Hub in the United States, the NBP model means that gas anywhere within the national transmission system is priced as NBP gas. This makes it much easier for buyers and sellers to make deals.
The UK sources gas from a variety of different sources: offshore production, piped imports from Norway, Belgium and the Netherlands, and LNG tanker supplies. The NBP gas market allows a wide range of participants to buy and sell gas, allowing prices to be set for same day delivery (within-day), day-ahead, months, quarters, summers, winters and annual contracts.
NBP is used as the pricing and delivery point for ICE Futures Europe gas futures contracts, meaning it has a significant impact on futures gas prices across both the UK and much of Western Europe. National Grid is responsible for the physical transportation of gas within the system, as buyers and sellers only account for a set quantity of gas entering or exiting the NBP system rather than taking responsibility for its transport.
As of 2020, the UK’s own offshore gas production provided around 48% of our total gas demand. The remainder comes from a mixture of different countries, with the largest contributors being Norway, Qatar, the US, and Russia. Much of this now takes the form of shipments of Liquified Natural Gas (LNG). As global demand for gas increases, the greater flexibility that LNG shipments offer in terms of delivery makes for a much more competitive market, contributing to climbing gas prices. Gas shortages across Western Europe have also provided bullish influence on prices. The UK has felt the impact of this particularly sharply, partly due to our location at the far end of a European gas network that originates largely in Russia, and also as we have very little gas storage: around 8.9TWh of capacity, compared to well over 100TWh for France, Germany and Italy.