Republic of Congo Oil and Gas Report Q4 2009

The new Republic of Congo (RoC) Oil & Gas Report forecasts that the country will account for just 0.20% of African regional oil demand by 2013, while providing 2.75% of supply. African regional oil use of 2.98mn barrels per day (b/d) in 2001 rose to 3.60mn b/d in 2008. It should average 3.58mn b/d in 2009 and then rise to around 3.96mn b/d by 2013. Regional oil production was 7.84mn b/d in 2001, and in 2008 averaged 10.20mn b/d. It is set to rise to 11.98mn 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 4.86mn b/d. This total had risen to 6.60mn b/d in 2008 and is forecast to reach 8.02mn b/d by 2013. Angola has the greatest production growth potential, with Nigerian exports set to soar if it can resolve recent quasi-political issues.

In terms of natural gas, the region in 2008 consumed 115bn cubic metres (bcm), with demand of 181bcm targeted for 2013. Production of 211bcm in 2008 should reach 354bcm in 2013, which implies net exports rising from 96bcm in 2008 to 173bcm by the end of the period. RoC makes no significant current contribution to regional gas supply or demand.

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 gasoil forecast is for an average price of US$68.62/bbl, assuming a monthly high of US$92.49/bbl in December. The full year 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.

RoC real GDP growth is now forecast at 5.5% for 2009, down from 7.6% in 2008. We are assuming 6.6% growth in 2010, and 3.5% in 2011-13. We expect oil demand to rise from an estimated 6,300b/d in 2008 to 8,040b/d in 2013. State oil company Société Nationale des Pétroles du Congo (SNPC) operates in partnership with various international oil companies (IOCs). Around a third of the oil produced goes directly to the government and is sold by SNPC on behalf of the state. Thanks to higher recent IOC investment, combined oil and gas liquids output is forecast to increase from 249,000b/d in 2008 to a peak of 350,000b/d in 2010, before easing to 329,000b/d in 2013. Gas production should reach 1.5bcm by 2013. Consumption is expected to track the production trend.

Between 2008 and 2018, we are forecasting an increase in RoC oil and gas liquids production of 19.6%, with volumes peaking at 350,000b/d in 2010, before falling steadily to 298,000b/d by the end of the 10- year forecast period. Oil consumption between 2008 and 2018 is set to increase by 62.9%, with growth slowing to an assumed 5.0% per annum towards the end of the period and the country using 10,300b/d by 2018. Gas production is expected to rise to 3bcm by the end of the period. With demand moving in line, there is unlikely to be a need for imports or any potential for net exports. Details of the 10-year forecasts can be found in the appendix to this report.

RoC now shares second place in the updated Upstream Business Environment rating with Gabon and Nigeria, although three points behind regional leader Libya. It is in no position to move higher over the medium term, and could come under pressure from Gabon or Nigeria currently alongside. The county’s score benefits from reasonable oil and gas output growth prospects, respectable reserves to production ratios (RPR) and relatively attractive licensing terms. The country’s risk environment is shaky, but this is hardly uncommon in the African region. The country is in the lower half of the league table in the updated Downstream Business Environment rating, with no high scores and progress further up the rankings unlikely. It is ranked eighth behind Sudan and Libya, thanks to low scores for refining capacity, oil and gas demand, likely refining capacity expansion, nominal GDP and forecast GDP per capita growth. The growth outlook for oil consumption and the country’s low retail site intensity represent relatively strong suits.