Papua New Guinea Oil and Gas Report Q4 2010

The new Papua New Guinea (PNG) Oil & Gas Report from BMI forecasts that the country will account for 0.13% of Asia Pacific regional oil demand by 2014, while providing 0.38% of supply. Regional oil use of 21.42mn barrels per day (b/d) in 2001 is set to reach a forecast 27.15mn b/d in 2010, then to rise to around 30.21mn b/d by 2014. Regional oil production was around 8.35mn b/d in 2001 and is forecast to average an estimated 8.82mn b/d in 2010. It is set to increase only slightly to 8.89mn b/d by 2014. Oil imports are growing rapidly, because demand growth is outstripping the pace of supply expansion. In 2001 the region was importing an average of 13.07mn b/d. This total will rise to a projected 18.32mn b/d in 2010 and is forecast to reach 21.32mn b/d by 2014. The principal importers will be China, Japan, India and South Korea. By 2014 the only net exporter will be Malaysia.

In terms of natural gas, in 2010 the region will consume an estimated 496bn cubic metres (bcm) and demand of 625bcm is targeted for 2014. Production of a forecast 415bcm in 2010 should reach 522bcm in 2014, which implies net imports rising from around 81bcm to 104bcm. This is thanks to many Asian gas producers being major exporters. PNG's share of gas consumption in 2010 is an estimated 0.03%, while its share of production is put at 0.04%. By 2014, its share of gas consumption is forecast to be 0.04%, with the country accounting for 3.83% of supply.

We continue to predict a 2010 OPEC basket oil price level of US$83.00/bbl. This equates to Brent at just under US$85.00, WTI at almost US$87.60, Urals averaging US$83.60 and Dubai at US$83.55. The 2011 OPEC assumption is US$85.00/bbl, rising to an average of around US$90.00 in 2012 and beyond. For the whole of 2010, we are currently assuming an average global jet fuel price of US$95.50/bbl, compared with around US$70.66 in 2009. The 2010 average global gasoil price, calculated by BMI, is US$92.67/bbl, against US$68.96 in 2009. The 2010 average naphtha price is estimated at US$83.09 – compared with US$59.30/bbl in 2009. For global unleaded gasoline, BMI is now forecasting an average US$95.66/bbl in 2010, up from around US$70.17/bbl in 2009.
There is indirect state involvement in the upstream oil and gas industry, as the government is a minority owner of leading producer Oil Search, which is responsible for the country's current oil and gas supply, as well as being a partner in a planned gas export scheme that is due to enter production by 2014. We are assuming that oil and gas liquids will fall to less than 34,000b/d by 2014. Consumption is forecast to increase by around 5.0% per annum, implying demand of at least 39,100b/d by 2014. The import requirement would therefore be around 5,600b/d by the end of the forecast period.

Between 2010 and 2019, we are forecasting a decrease in PNG oil production of 28.00%, with crude volumes falling steadily to 27,000b/d by the end of the period. Oil consumption between 2010 and 2019 is set to increase by 55.13%, with growth averaging around 5.0% per annum during the forecast period and the country using 50,000b/d by 2019. Gas production is expected to rise rapidly, from an estimated 0.2bcm in 2010 to a possible 38.0bcm by 2019. Even with demand growth of almost 106%, this provides export potential rising to 37.7bcm, all in the form of LNG. Details of BMI's long-term oil and gas outlook can be found at the rear of this report, including regional and country-specific forecasts to 2019. PNG holds fifth place, behind Vietnam, in BMI's composite Business Environment (BE) league table. The country is now ranked fourth, ahead of Malaysia, in BMI's updated Upstream Business Environment Rating, benefiting from its strong gas production/export potential, an attractive licensing environment and a lack of state involvement. PNG is considerably further down the league table in BMI's Downstream Business Environment Rating, reflecting its limited size as an energy market with its more restricted growth potential. It now shares 13th place with Malaysia, above only Taiwan, and is unlikely to challenge Vietnam above and make a near-term move up the rankings if country risk scores improve elsewhere in the region.