Many countries would like to have their own crude grades as international benchmarks that others would price their volumes against, however, only very few countries can boast of such a thing. Brent is the leading world benchmark, the first one to get all the letters in what we should call hereafter MAST (movability, availability, scope and transparency). It was moveable across the planet due to its seaborne location and easy access to export infrastructure, it was available because the governments of United Kingdom and Norway guaranteed their non-interference in the companies’ system of operation, it was plentiful because North Sea production was one of the dominant forces in European production growth and it was transparent because relevant companies thought having a retraceable baseline was too noble a cause not to share information about concluded deals.
Throughout the last decades Brent has undergone lots of changes – from being used as a single-source benchmark, it has grown to include first Oseberg and Forties in 2002, then Ekofisk in 2007 and Troll in 2018, all the while battling difficult structural issues such as irrevocable production declines and dropping numbers of reported trade deals in BFOE physical cargoes. Thus, both the scope and transparency elements suffered heavily amidst reoccurring calls for a thorough reform of the benchmarking system. They were, it has to be said, completely legitimate as the whole BFOE basket went from 55.33 million tons of production in 1996 (then UK accounted for 27 percent) to a mere 14.5 million tons by the year 2018 (with Britain just 12 percent).
Source: Norsk Petroleum, UK Oil and Gas Authority.
As one looks at the declining rates of production on the five fields that currently make up the Brent basket, it is reasonable to ask if Johan Sverdrup could solve the lack of traded crude. Johan Sverdrup is the most significant project on the Norwegian continental shelf currently, destined to reach a production plateau of 660kbpd – a quarter of Norway’s total output by that time in the mid-2020s. Even though some have anticipated the inclusion of Sverdrup in the Brent basket, it looks increasingly unlikely that this would be the path forward for the next couple of years. Firstly, this would make Brent a predominantly Norwegian pool, minimizing any British impact on it. Secondly and perhaps even more importantly, Sverdrup is a medium quality crude, with a 28 degree…