Oman Oil and Gas Report Q4 2009

The latest Oman Oil & Gas Report from BMI forecasts that the country will account for just 0.64% of Middle East (ME) regional oil demand by 2013, while providing 2.57% of supply. Regional oil use of 8.24mn barrels per day (b/d) in 2001 rose to 11.25mn b/d in 2008. It should average 11.30mn b/d in 2009 and then rise to around 12.17mn b/d by 2013. Regional oil production was 22.87mn b/d in 2001, and in 2008 averaged 26.29mn b/d. It is set to rise to 28.01mn b/d by 2013. 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 risen to 15.04mn b/d in 2008 and is forecast to reach 15.84mn b/d by 2013.

Iraq has the greatest production growth potential, followed by Qatar. In terms of natural gas, the region in 2008 consumed 391.5bn cubic metres (bcm), with demand of 512.8bcm targeted for 2013, representing 31.0% growth. Production of 389.5bcm in 2008 should reach 610.4bcm in 2013 (+56.7%), which implies net exports rising to 98bcm by the end of the period. In 2008, Oman consumed 3.22% of the region’s gas, with its market share forecast at 3.21% by 2013. It contributed 6.19% to 2008 regional gas production, and by 2013 will account for 5.73% of 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, BMI 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 BMI 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 by BMI at US$49.06/bbl, down 43.9% from the previous year’s level. Oman’s real GDP growth is now forecast by BMI at 0.4% in 2009, down from 13.0% in 2008. We are assuming 2.5% growth in 2010, 3.3% in 2011, followed by 3.4% in 2012 and 2.3% in 2013.

We expect oil demand to rise from 63,000b/d in 2008 to 78,000b/d in 2013. Partly state-owned Petroleum Development Oman (PDO) accounts for more than 90% of the oil and gas produced in the country, but relies on international oil companies (IOCs) to maintain volumes. Our estimates assume 760,000b/d of 2009 oil and liquids production, with output peaking at 770,000b/d in 2010, before volumes sink to 720,000b/d by the end of the forecast period. Gas production should reach 35.0bcm by 2013, up from 24.1bcm in 2008. Consumption is expected to rise from 12.6bcm to 16.5bcm by the end of the forecast period, allowing exports of 18.5bcm. Between 2008 and 2018, we are forecasting a decrease in Omani oil production of 20.0%, with crude volumes peaking at 770,000b/d in 2010, before falling steadily to 582,000b/d by the end of the 10-year forecast period.

Oil consumption between 2008 and 2018 is set to increase by 57.6%, with growth slowing to an assumed 5.0% per annum towards the end of the period and the country using 99,000b/d by 2018. Gas production is expected to peak at 35bcm by 2013-2015, before slipping to 30bcm by the end of the period. With 2008-2018 demand growth of 51.6%, this provides an export capability peaking at 18.5bcm in 2013, before falling to just under 11.0bcm by 2018. Details of BMI’s 10-year forecasts can be found in the appendix to this report. Oman still occupies sixth place behind Iran and Turkey in BMI’s updated Upstream Business Environment rating.

The country’s score benefits from a sound country risk profile, good licensing terms and a healthier privatisation trend than that seen elsewhere in the region. The country is in the upper half of the league table in BMI’s updated Downstream Business Environment rating, with a few high scores but near-term progress up the rankings unlikely. It is ranked fourth behind Israel and in front of Qatar in spite of low scores for refining capacity, oil demand, retail site intensity and the gas demand growth outlook. Healthy country risk factors, oil demand growth potential and moves towards deregulation and privatisation help bolster the overall score, but Israel will probably remain out of reach.