United Kingdom Oil and Gas Report Q4 2009

The latest UK Oil & Gas Report forecasts that the country will account for 12.72% of developed European regional oil demand by 2013, while contributing 26.30% to supply. In Developed Europe, overall oil consumption reached 13.62mn barrels per day (b/d) in 2008. It is set to ease to around 13.60mn b/d by 2013. Developed Europe regional oil production was 6.97mn b/d in 2001, and in 2008 averaged 4.90mn b/d. 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. The UK’s share of gas consumption in 2008 was 21.08%, while it contributed 25.89% to production. By 2013, its share of gas consumption is forecast to be 19.86%, with production accounting for 21.96% of the regional market.

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 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.

The UK’s real GDP is now forecast to fall by 4.2% in 2009, compared with growth of 0.7% in 2008. We are assuming average annual growth of 1.1% growth in 2009-2013. We are currently forecasting 1.49mn b/d of oil output in 2009. By 2013, UK oil production is unlikely to be above 0.99mn b/d. Oil consumption is expected to have reached 1.73mn b/d by 2013, providing a net crude import requirement of at least 740,000b/d.

Between 2008 and 2018, we are forecasting a decrease in UK oil production of 45.6%, with output slipping steadily from 1.54mn b/d in 2008 to 0.84mn b/d at the end of the 10-year forecast period. Given oil consumption forecast to decrease by 1.0%, imports rise from 0.16mn b/d to 0.85mn b/d during the forecast period. Gas production should fall from 2008 level of 70bcm to 48bcm in 2018. Demand is forecast to rise from 94bcm to 100bcm, requiring imports reaching 52bcm, largely in the form of pipeline gas, with some LNG. Details of the 10-year forecasts can be found in the appendix to this report.

According to BMI’s Country Risk team, the UK’s long-term political risk score is 92.5, 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 72.3, above the Developed Markets average of 70.0 and the global average of 53.7. The UK has a privatised energy sector operating under EU guidelines. There is a major, but mature and highly competitive upstream oil and gas segment, featuring most key national and international companies. The downstream oil segment is also competitive and de-regulated. International and domestic operators control gas distribution and supply, as well as electricity generation and distribution.