The latest Kuwait Oil & Gas Report from BMI forecasts that the country will account for 2.84% of Middle East (ME) regional oil demand by 2014, while providing 10.49% of supply. Regional oil use of 7.47mn barrels per day (b/d) in 2001 rose to an estimated 10.64mn b/d in 2009. It should average 10.98mn b/d in 2010 and then rise to around 11.95mn b/d by 2014. Regional oil production was 22.83mn b/d in 2001, and in 2009 averaged an estimated 24.66mn b/d. It is set to rise to 27.18mn 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 15.36mn b/d. This total had eased to an estimated 14.02mn b/d in 2009 and is forecast to reach 15.23mn b/d by 2014. Iraq has the greatest production growth potential, followed by Qatar.
In terms of natural gas, the region consumed an estimated 367.6bn cubic metres (bcm) in 2009, with demand of 492.5bcm targeted for 2014, representing 28.7% growth. Estimated production of 429.9bcm in 2009 should reach 657.8bcm in 2014 (+39.8%), which implies net exports rising to 165.0bcm by the end of the period. Kuwait consumed an estimated 3.81% of the region's gas in 2009, with its market share forecast at 4.82% by 2014. It contributed 3.07% to estimated 2009 regional gas production and by 2014 will account for 2.90% 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 year-on-year (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.
Kuwait's real GDP is assumed by BMI to have fallen by 1.0% in 2009, followed by forecast 1.7% growth in 2010. We are assuming average annual growth of 2.1% in 2010-2014. We expect oil demand to rise from an estimated 303,000b/d in 2009 to 339,000b/d in 2014, lagging the underlying rate of economic expansion. State oil company Kuwait Petroleum Corporation (KPC) is responsible for all domestic oil and gas operations. In spite of the absence of near-term international oil company (IOC) investment, crude production is forecast to increase from an estimated 2.49mn b/d in 2009 to 2.85mn b/d in 2014, subject to OPEC quotas. Gas production should reach 19.1bcm by 2014, up from an estimated 13.2bcm in 2009. Consumption is expected to rise from an estimated 14.0bcm to 23.8bcm by the end of the forecast period, requiring imports of 4.7bcm.
Between 2010 and 2019, we are forecasting an increase in Kuwaiti oil production of 43.7%, with crude volumes rising steadily to 3.60mn b/d by the end of the 10-year forecast period. Oil consumption between 2010 and 2019 is set to increase by 31.7%, with growth slowing to an assumed 3.0% per annum towards the end of the period and the country using 403,000b/d by 2019. Gas production is expected to climb to 26.5bcm by the end of the period. With 2010-2019 demand growth of 132.7%, this provides an import requirement rising to almost 11.0bcm by 2019. Details of the BMI 10-year forecasts can be found in the appendix to this report.
Kuwait shares eighth and last place with Saudi Arabia in BMI's composite Business Environment (BE) Ratings table, which combines upstream and downstream scores. The Gulf state now holds seventh place above Oman and Saudi Arabia in BMI's updated upstream Business Environment Ratings, which is a surprising outcome in view of its vast oil and gas wealth. It is five points behind Iran and could only mount a challenge if the latter's risk environment were to deteriorate further. Kuwait's score suffers from strict government control of the upstream industry, undermining the healthy resource position. Kuwait is in the lower half of the league table in BMI's downstream Business Environment Ratings, with a few high scores and near-term progress up the rankings a possibility. It is ranked eighth ahead only of Iraq, thanks to excellent country risk factors that fail to counter the highly regulated and largely statecontrolled industry. Bahrain is just above it in the regional rankings, and may prove to be within Kuwait's reach over the next few quarters.
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