2009-11-11 17:10:28 - Fast Market Research recommends "Azerbaijan Oil & Gas Report Q4 2009" from Business Monitor International, now available

The latest Azerbaijan Oil & Gas Report from BMI forecasts that the country will account for 2.23% of the Central and Eastern European (CEE) regional oil demand by 2013, while providing 9.69% of supply. CEE regional oil use of 4.65mn barrels per day (b/d) in 2001 rose to an estimated 5.36mn b/d in 2008. It should average 5.42mn b/d in 2008 and then rise to around 5.99mn b/d by 2013. Regional oil production was 8.83mn b/d in 2001, and in 2008 averaged an estimated 13.00mn b/d. It is set to rise to 14.44mn b/d by 2013. Oil exports are growing steadily, because demand growth is lagging the pace of supply expansion. In 2001, the region was exporting an average 4.18mn

b/d. This total had risen to an estimated 7.64mn b/d in 2008 and is forecast to reach 8.45mn b/d by 2013. In terms of natural gas, the region in 2008 consumed an estimated 637bn cubic metres (bcm), with demand of 749bcm targeted for 2013, representing 17.5% growth. Production of an estimated 783bcm in 2008 should reach 913bcm in 2013, which implies net exports rising from around 145bcm in 2008 to 164bcm by the end of the period. Azerbaijan's share of gas consumption in 2008 was an estimated 1.57%, while its share of production is put at 1.92%. By 2013, its share of gas consumption is forecast to be 1.96%, with the country accounting for 2.41% of supply. In terms of the OPEC basket of crudes, the average price in Q408 was an estimated US$52.53 per barrel (bbl), down sharply from the US$113.49 recorded during the previous three months. The full year 2008 average is put by BMI at US$94.08/bbl, representing a 36% year-on-year (y-o-y) increase.

North Sea Brent, WTI and Russian Urals are believed to have averaged US$97.06/bbl, US$99.33/bbl and US$94.56/bbl respectively during 2008. For 2009, we are now assuming an average OPEC basket price of US$52.00/bbl (-45% y-o-y), with Q109 expected to deliver US$40.00/bbl. The new full-year forecast implies Brent crude at US$55.65/bbl, WTI averaging US$56.63/bbl and Urals at US$52.48/bbl for 2009. For 2010, we expect to see a recovery to US$58.00/bbl for the OPEC price, gaining further ground to US$65.00 in 2011 and US$70.00/bbl in 2012. We are now using a long-term price assumption of US$70.00 for 2013-2018, down from our previous assumption of US$90.00/bbl. In 2009, we see monthly average global wholesale gasoline prices ranging from US$38.90/bbl in January to a high of US$64.90/bbl reached in August and in December, providing a full-year average of US$56.20/bbl - just over 55% of the 2008 outturn. The 2009 BMI gasoil forecast is for an average price of US$67/bbl, assuming a monthly low of US$46.40 in January and a high of US$77.30/bbl in December. The full-year outturn represents a 45% downturn from the 2008 level. For 2009, the monthly average jet fuel price is forecast to range from US$47.90/bbl in January to US$79.80/bbl in August, proving an annual level of US$69.20/bbl.

Azeri real GDP growth is estimated by BMI at 3.8% for 2009, following an estimated 11.8% in 2008. We are assuming 5.9% growth in 2010, 6.9% in 2011, followed by 7.6% in 2012, and 7.2% in 2013. Domestic oil consumption, having tumbled since the 1990s, should now have resumed a growth tack, estimated at an average 7% per annum. By 2013, the country could be using 134,000b/d of oil. The main government vehicle, Socar, currently accounts for almost half of domestic oil production but, in partnership with international oil companies (IOCs), should raise national output from an estimated 925,000b/d in 2008 to 1.40mn b/d by 2012-2013. Gas output should increase from an estimated 15bcm in 2008 to 22.0bcm during the forecast period. Between 2007 and 2018, we are forecasting an increase in Azeri oil and gas liquids production of 38.3%, with volumes reaching a plateau of 1.4mn b/d in 2012-2014, before falling to 1.2mn b/d by the end of the 10-year forecast period. Oil consumption between 2007 and 2018 is set to increase by 101.6%, with growth slowing to an assumed 7.0% per annum towards the end of the period and the country using 188,000b/d by 2018. Gas production should rise from the estimated 2008 level of 15bcm to 22bcm by 2018, providing export potential increasing to at least 7bcm.

Details of BMI's 10-year forecasts can be found in the appendix to this report, which provides global, regional and country-specific projections. Azerbaijan continues to occupy second place in BMI's updated Upstream Business Environment rating, behind neighbour Kazakhstan. Its oil and gas production growth outlook, asset immaturity, high reservesto- production ratios (RPR) and competitive landscape work in the country's favour, but are undermined by a relatively unappealing risk environment. The country is above the mid-point of the league table in BMI's Downstream Business Environment rating, with some high scores but progress further up the rankings somewhat unlikely. The low level of retail site intensity represents a strong suit, along with region-leading oil demand growth prospects. Kazakhstan is four points behind it in the regional rankings, and there is some long-term chance of the rival Caspian state challenging for Azerbaijan's fifth place.

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