New Market Research Report: Ukraine Oil & Gas Report Q2 2011

May 5, 2011 - PRLog -- The latest Ukraine Oil & Gas Report from BMI forecasts that the country will account for 5.24% of Central and Eastern European (CEE) regional oil demand by 2015, while providing just 0.54% of supply. CEE regional oil use of 5.42mn barrels per day (b/d) in 2001 rose to an estimated 6.09mn b/d in 2010. It should increase to around 6.93mn b/d by 2015. Regional oil production was 8.89mn b/d in 2001 and in 2010 averaged an estimated 13.78mn b/d. It is set to rise to 15.08mn b/d by 2015. 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 rose to an estimated 7.69mn b/d in 2010 and is forecast to reach 8.15mn b/d by 2015. Azerbaijan and Kazakhstan have the greatest production growth potential, although Russia will remain the most important exporter.

In terms of natural gas, the region in 2010 consumed an estimated 636.3bn cubic metres (bcm), with demand of 736.3bcm targeted for 2015, representing 15.7% growth. Production of an estimated 787.9bcm in 2010 should reach 954.2bcm in 2015, which implies net exports rising from an estimated 151.6bcm in 2010 to 217.9bcm by the end of the period. Ukraine's share of gas consumption in 2010 was an estimated 7.49%, while its share of production is put at 2.54%. By 2015, its share of demand is forecast to be 7.36%, with the country accounting for 2.10% of supply.

The 2010 full-year outturn was US$77.45/bbl for OPEC crude, which delivered an average for North Sea Brent of US$80.34/bbl and for West Texas Intermediate (WTI) of US$79.61/bbl. The BMI price target of US$77 was reached thanks to the early onset of particularly cold weather, which drove up demand for and the price of heating oil during the closing weeks of the year.

We set our 2011 supply, demand and price forecasts in early January, targeting global oil demand growth of 1.53% and supply growth of 1.91%. With OECD inventories at the top of their five-year average range, we set a price forecast of US$80/bbl average for the OPEC basket in 2011. The unprecedented wave of popular uprisings in the Middle East and North Africa (MENA) that followed the removal of Tunisian President Ben Ali on January 14 has obviously fundamentally altered our outlook, particularly since the unrest spread to Libya in mid-February.

Taking into account the risk premium that has been added to crude prices in response to actual and perceived threats to supply, we have now raised our benchmark OPEC basket price forecast from US$80 to US$90/bbl for 2011 and from US$85 to US$95/bbl for 2012. Based on our expectations for differentials, this gives a forecast for Brent at US$94/bbl in 2011 and US$99/bbl in 2012. We have kept our long-term price assumption of US$90/bbl (OPEC basket) in place for the time being while we wait to see what path events in the MENA region take. We have also retained our existing supply and demand forecasts until the scheduled quarterly revision at the start of April.

Ukraine's real GDP rose by an estimated 3.8% in 2010. We are forecasting average annual growth of 4.3% in 2011-2015. Beyond the weakness of 2009/10, reasonable and consistent growth in oil consumption seems likely, averaging up to 3.0% per annum. This suggests that the country will be consuming around 363,000b/d of oil by 2015. With oil and liquids production likely to slip closer to 81,000b/d, Ukraine will require imports of at least 282,000b/d by 2015. BMI forecasts that gas demand will rise from an estimated 48bcm in 2010 to 54bcm by 2015. Domestic production, largely in the hands of state-owned Naftogaz Ukrainy but with some international oil company (IOC) involvement, should also increase over the near term, from an estimated 20bcm in 2010 to at least 22bcm in 2011-2012.

Between 2010 and 2020, we forecast a fall in Ukraine oil and gas liquids production of 33.8%, with volumes falling steadily from the estimated 2010 level of 95,000b/d to 63,000b/d by the end of the 10- year forecast period. Oil consumption between 2010 and 2020 is set to increase by 33.7%, with growth slowing to an assumed 3% per annum towards the end of the period and the country using 421,000b/d by 2020. Gas production should peak at around 22bcm in 2011-2012, then fall to 16bcm by 2020. Gas imports are set to reach 45bcm by 2020. Details of BMI's 10-year forecasts can be found in the appendix to this report.

Ukraine holds seventh place in BMI's composite Business Environment (BE) ratings table, which combines upstream and downstream scores. The country now holds 14th place, behind the Czech Republic and ahead only of Slovenia, in BMI's updated upstream Business Environment ratings, thanks to only modest hydrocarbons resources. Its gas reserves and favourable licensing regime account for much of the upstream score, but country risk factors and privatisation activity are less impressive. Ukraine arguably has the potential to overtake the Czech Republic, and is at little risk from Slovenia below. Ukraine is in the upper half of the league table in BMI's downstream Business Environment ratings, claiming fourth place below Poland, Russia and Turkey. There are a few high scores, but progress further up the rankings is unlikely. There are good scores for refining capacity, oil and gas demand, retail site intensity and population. Romania is four points below it in the regional rankings, so Ukraine should be at little immediate risk.

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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.