Market Report, "Azerbaijan Oil & Gas Report Q4 2010", published

Oct. 24, 2010 - PRLog -- 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 9.66% of supply. CEE regional oil use of 5.42mn barrels per day (b/d) in 2001 will rise to an estimated 6.02mn b/d in 2010. It should increase to around 6.68mn b/d by 2014. Regional oil production was 8.89mn b/d in 2001 and in 2010 will average an estimated 13.67mn b/d. It is set to rise to 14.44mn 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 of 3.47mn b/d. This total will rise to a projected 7.65mn b/d in 2010 and is forecast to reach 7.76mn b/d by 2014. Azerbaijan and Kazakhstan have the greatest production growth potential, although Russia will remain the key exporter.

In terms of natural gas, the region in 2010 consumed an estimated 638.6bn cubic metres (bcm), with demand of 728.8bcm targeted for 2014, representing 14.1% growth. Production of an estimated 788.4bcm in 2010 should reach 936.4bcm in 2014, which implies net exports rising from an estimated 149.8bcm in 2010 to 207.5bcm by the end of the period. Azerbaijan's share of gas consumption in 2010 is an estimated 1.33%, while its share of production is put at 2.28%. By 2014, its share of gas consumption is forecast to be 1.59%, with the country accounting for 2.24% of supply.

For 2010 as a whole, we continue to assume an average OPEC basket price of US$83.00/bbl, +36.4% year-on-year (y-o-y). Risk is now clearly on the downside, thanks to the slow progress made during June. However, a full-year outturn in excess of US$80 remains a strong possibility and we see no need to review our assumptions at this point. The 2010 US WTI price is now put at US$87.63/bbl. BMI is assuming an OPEC basket price of US$85.00/bbl in 2011, with WTI averaging US$89.74. Our central assumption for 2012 and beyond is an OPEC price averaging US$90.00/bbl, delivering WTI at just over US$95.00.

For 2010, the BMI assumption for premium unleaded gasoline is an average global price of US$95.45/bbl. The overall y-o-y rise in 2010 gasoline prices is put at 36%. Gasoil in 2010 is expected to average US$93.23/bbl. The full-year outturn represents a 35% increase from the 2009 level. For 2010, the annual jet price level is forecast to be US$95.90/bbl. This compares with US$70.66/bbl in 2009. The 2010 average naphtha price is put by BMI at US$83.53/bbl, up 41% from the previous year's level.

Azeri real GDP is expected to have risen by 5.0% in 2010. We are assuming average annual growth of 6.2% 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 1.06mn b/d in 2010 to 1.40mn b/d by 2014. Gas output should increase from an estimated 18bcm in 2010 to 21bcm during the forecast period.

Between 2010 and 2019, we are forecasting an increase in Azeri oil and gas liquids production of 27.4%, 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 2010 level of 18bcm to 32bcm by 2019, providing export potential increasing to at least 16bcm.

Azerbaijan takes first place, ahead of 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 two 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 just above the mid-point of the league table in BMI's downstream Business Environment ratings, sharing fifth place with Romania thanks to some high scores. Progress further up the rankings seems unlikely. The low level of retail site intensity represents a strong suit, along with region-leading oil demand growth prospects.

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Fast Market Research is an online aggregator and distributor of market research and business information. We represent the world's top research publishers and analysts and provide quick and easy access to the best competitive intelligence available.