Kuwait Oil and Gas Report Q1 2010

The latest Kuwait Oil & Gas Report forecasts that the country will account for 2.68% of Middle East (ME) regional oil demand by 2014, while providing 10.65% of supply. Regional oil use of 8.24mn barrels per day (b/d) in 2001 rose to an estimated 11.38mn b/d in 2009. It should average 11.66mn b/d in 2010 and then rise to around 12.68mn b/d by 2014. Regional oil production was 22.87mn b/d in 2001 and in 2009 averaged an estimated 24.79mn b/d. It is set to rise to 28.65mn 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 14.63mn b/d. This total had fallen to an estimated 13.41mn b/d in 2009, but is forecast to reach 15.96mn b/d by 2014. Iraq has the greatest production growth potential, followed by Qatar.

In terms of natural gas, the region consumed an estimated 406.5bn cubic metres (bcm) in 2009, with demand of 545.1bcm targeted for 2014, representing 34.1% growth. Estimated production of 420.6bcm in 2009 should reach 652.8bcm in 2014 (+55.2%), which implies net exports rising to 108bcm by the end of the period. Kuwait consumed an estimated 3.94% of the region’s gas in 2009, with its market share forecast at 5.01% by 2014. It contributed 3.17% to estimated 2009 regional gas production and by 2014 will account for 3.06% of supply.

For 2009 as a whole, we have assumed an average OPEC basket price of US$59.00 per barrel (bbl), a 37.3% decline year-on-year (y-o-y). This represents an upgrade from the US$55.00/bbl forecast we were using in the previous quarter. For 2010, we expect to see a significant oil price recovery to US$83.00/bbl for the OPEC basket price, gaining further ground to US$85.00/bbl in 2011 and to US$90.00/bbl in 2012 and beyond.

For 2009, the report has assumed a global average gasoline price of US$67.46/bbl, with the fuel having peaked in June at almost US$80.00/bbl. The overall y-o-y fall in 2009 gasoline prices is put at 33.7%. The gasoil forecast is for an average price of US$70.59/bbl, assuming a monthly high above US$94/bbl in December 2009. The full-year outturn represents a 41.8% y-o-y fall. The annual jet price level for 2009 is estimated at US$68.45/bbl. This compares with US$124.95/bbl in 2008. The 2009 average naphtha price is put at US$52.66/bbl, down 39.7% from the previous year’s level. Kuwait’s real GDP is estimated to have fallen by 2.2% in 2009, compared with 6.2% growth in 2008. We are assuming average annual growth of 3.1% 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 2.78mn b/d in 2009 to 2.90mn b/d in 2014, subject to OPEC quotas. Gas production should reach 20.0bcm by 2014, up from an estimated 13.3bcm in 2009. Consumption is expected to rise from an estimated 16.0bcm to 27.3bcm by the end of the forecast period, requiring imports of 7.3bcm.

Between 2009 and 2019, we are forecasting an increase in Kuwaiti oil production of 45.1%, with crude volumes rising steadily to 3.65mn b/d by the end of the 10-year forecast period. Oil consumption between 2009 and 2019 is set to increase by 33.0%, 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 almost 27bcm by the end of the period. With 2009-2019 demand growth of 167.6%, this provides an import requirement rising to more than 16bcm by 2019. Details of the 10-year forecasts can be found in the appendix to this report.

Kuwait now shares seventh place with Israel in the updated Upstream Business Environment rating, which is a surprising outcome in view of its vast oil and gas wealth. It is just one point behind Oman and could mount a challenge if its competitive landscape were to improve. The country’s score suffers from strict government control of the upstream industry, undermining the healthy resource position. The country is in the lower half of the league table in the Downstream Business Environment rating, with a few high scores and near-term progress up the rankings a possibility. It is ranked equal seventh alongside Oman, thanks largely to excellent country risk factors that outweigh a highly regulated and largely state-controlled industry. Iraq and Bahrain are below it in the regional rankings, but are unlikely to pose much of a threat over the next few quarters.