The latest Azerbaijan Oil & Gas Report from BMI forecasts that the country will account for 1.47% of the Central and Eastern European (CEE) regional oil demand by 2014, while providing 9.58% of supply. CEE regional oil use of 5.42mn barrels per day (b/d) in 2001 rose to an estimated 5.81mn b/d in 2009. It should average 6.03mn b/d in 2010 and then rise to around 6.69mn b/d by 2014. Regional oil production was 8.88mn b/d in 2001, and in 2009 averaged an estimated 13.35mn b/d. It is set to rise to 14.57mn b/d by 2014. Oil exports are growing steadily, because demand growth is lagging the pace of supply expansion. In 2001, the region was exporting an average 3.46mn b/d. This total had risen to an estimated 7.54mn b/d in 2009 and is forecast to reach 7.88mn b/d by 2014. Azerbaijan and Kazakhstan have the greatest production growth potential, although Russia will remain the key exporter.Azerbaijan Oil and Gas Report Q4 2010
Business Monitor International
In terms of natural gas, the region in 2009 consumed an estimated 668.5bn cubic metres (bcm), with demand of 780.0bcm targeted for 2014, representing 13.7% growth. Production of an estimated 830.3bcm in 2009 should reach 1,025.7bcm in 2014, which implies net exports rising from an estimated 162bcm in 2009 to 246bcm by the end of the period. Azerbaijan’s share of gas consumption in 2009 was an estimated 1.65%, while its share of production is put at 1.93%. By 2014, its share of gas consumption is forecast to be 1.98%, with the country accounting for 3.02% of supply.
We are sticking with our forecast that the OPEC basket of crudes will average US$83.00/bbl in 2010. Wide variations in crude differentials so far in 2010 make forecasting tricky for Brent, West Texas Intermediate (WTI) and Urals, but we believe the three benchmarks will average around US$85.11, US$88.22 and US$83.62/bbl respectively, with Dubai coming in at US$83.14. By 2011, there should be further growth in oil consumption and more room for OPEC to regain market share and reduce surplus capacity through higher production quotas. We are assuming a further increase in the OPEC basket price to an average US$85.00/bbl. For 2012 and beyond, we continue to use a central case forecast of US$90.00/bbl for the OPEC basket.
For 2010, the BMI assumption for premium unleaded gasoline is an average global price of US$96.83/bbl. The y-o-y rise in 2010 gasoline prices is put at 38%. Gasoil in 2010 is expected to average US$92.45/bbl, with the full-year outturn representing a 37% increase from the 2009 level. For jet fuel in 2010, the annual level is forecast to be US$95.58/bbl. This compares with US$70.66/bbl in 2009. The 2010 average naphtha price is put by BMI at US$82.46/bbl, up 39% from the previous year’s level. Azeri real GDP is assumed by BMI to have risen by 9.3% in 2009, followed by forecast 11.0% growth in 2010. We are assuming average annual growth of 7.4% in 2010-2014. Domestic oil consumption, having tumbled since the 1990s, should now have resumed a growth tack, and is estimated at an average of 7% per annum. By 2014, the country is projected to be using 98,000b/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 1.04mn b/d in 2009 to 1.40mn b/d by 2014. Gas output should increase from an estimated 16bcm in 2009 to 31bcm during the forecast period.
Between 2010 and 2019, we are forecasting an increase in Azeri oil and gas liquids production of 20.5%, with volumes reaching a peak of 1.45mn b/d in 2016/17, before falling to 1.35mn b/d by the end of the 10-year forecast period. Oil consumption between 2010 and 2019 is set to increase by 83.9%, with growth averaging an assumed 7.0% per annum towards the end of the period and the country using 138,000b/d by 2019. Gas production should rise from the estimated 2009 level of 16bcm to 33bcm by 2019, providing export potential increasing to at least 13bcm.
Azerbaijan takes second place behind only Kazakhstan in BMI’s composite Business Environment (BE) Ratings table, which combines upstream and downstream scores. The country continues to occupy second place in BMI’s updated upstream Business Environment Ratings, now just three points behind neighbour Kazakhstan. Its oil and gas production growth outlook, asset immaturity, high reserves-to-production ratios (RPR) and competitive landscape work in the country’s favour, but are undermined by a relatively unappealing risk environment. Azerbaijan is around the mid-point of the league table in BMI’s downstream Business Environment Ratings, ranked eighth ahead of Hungary with some high scores, but progress further up the rankings is unlikely. The low level of retail site intensity represents a strong suit, along with region-leading oil demand growth prospects.
