Italy Oil and Gas Report Q4 2009

The report forecasts that Italy will account for 12.61% of Developed European regional oil demand by 2013, while contributing 4.12% to supply. In Developed Europe, overall oil consumption reached 13.62mn b/d in 2008. It is set to ease to around 13.60mn barrels per day (b/d) by 2013. Developed Europe regional oil production was 6.97mn b/d in 2001 and averaged 4.90mn b/d in 2008. It is set to fall to just 3.77mn b/d by 2013. Oil imports are growing steadily, because supply is contracting and demand is rising, albeit slowly. In 2008, net crude imports were 8.72mn b/d. By 2013, they are expected to have reached 9.84mn b/d. Norway will remain the only major net exporter, with the UK becoming a net importer.

As regards natural gas, the Developed Europe region in 2008 consumed 445bn cubic metres (bcm), with demand of 478bcm targeted for 2013, representing 7.3% growth. Production of 269bcm in 2008 should rise to 278bcm in 2013, which implies net imports rising from the 2008 level of 176bcm to some 267bcm by the end of the period. Italy’s share of gas consumption in 2008 was 17.44%, while it contributed around 3.12% to production. By 2013, its share of gas consumption is forecast to be 17.46%, with a 2.88% contribution to regional supply.

For 2009 as a whole, we are now assuming an average OPEC basket price of US$55.00 per barrel (bbl), a 41.5% decline year-on-year (y-o-y). This represents an upgrade from the US$52 forecast we have stuck with during the past three quarters. Our OPEC basket assumption delivers likely Brent, WTI, Urals and Dubai prices of US$56.30, US$57.50, US$55.60 and US$55.60/bbl respectively. For 2010, we expect to see a recovery to US$60.00/bbl for the OPEC price (up from our previous forecast of US$58), gaining further ground to US$65.00 in 2011 and to US$70.00/bbl in 2012. Our post-2010 forecasts are unchanged and we are continuing to use a long-term price assumption of US$70.00 for 2013-2018.

In 2009, the report is now assuming a global average gasoline price of US$62.12/bbl, with the fuel having peaked in June. The overall y-o-y fall in 2009 gasoline prices is put at 40.0%. The the gasoil forecast is for an average price of US$68.62/bbl, assuming a monthly high of US$92.49/bbl in December. The fullyear outturn represents a 43.4% fall from the 2008 level. The annual jet price level for 2009 is forecast to be US$65.17/bbl. This compares with US$124.95/bbl in 2008. The 2009 average naphtha price is put at US$49.06/bbl, down 43.9% from the previous year’s level.

Italian real GDP is now forecast to fall by 4.5% in 2009, compared with the 1.0% decline in 2008. We are now assuming an average annual growth rate of 0.2% between 2009 and 2013. By 2013, we expect to see the country consuming 1.72mn b/d of oil. A rise in near-term domestic oil production is expected. We are assuming oil production of 170,000b/d by 2010, but imports are set to reach 1.56mn b/d by 2013. Use of gas in power generation is the key to demand growth and consumption looks set to reach 83.5bcm by 2013. Imports are likely to have reached 75.5bcm at this stage.

Between 2008 and 2018, we are forecasting an increase in Italian oil production of 11.1%, with output peaking at 170,000b/d in 2010 before slipping to 120,000b/d at the end of the 10-year forecast period.

Given oil consumption forecast to increase by just 0.41%, imports can be expected to fall from 1.58mn b/d in 2008 to a low of 1.49mn b/d in 2009, before rebounding to 1.58mn b/d by the end of the forecast period. Gas demand should rise from the 2008 level of 77.7bcm to 92.2bcm by 2018. Production of 8.4bcm in 2008 is expected to fall to 7.0bcm by 2018, requiring imports up from 69.3bcm to 85.2bcm, in the form of pipeline gas and LNG. Details of the 10-year forecasts can be found in the appendix to this report.

According to the Country Risk team, Italy’s long-term political risk score is 80.3, compared with the Developed Markets average of 87.5 and the global average of 63.6. Our long-term economic rating for the country is 66.1, below the Developed Markets average of 70.0 and above the global average of 53.7. Italy has a privatised energy sector operating under EU guidelines. There is a significant upstream oil and gas segment featuring domestic and foreign operators. Downstream oil is highly competitive and involves a mixture of international oil companies (IOCs) and domestic companies. Both the gas and power markets are privatised and open to competition.