The latest Israel Oil & Gas Report from BMI forecasts that the country will account for 2.40% of Middle East (ME) regional oil demand by 2013, while making no appreciable contribution to rising oil supply.

Regional oil use of 8.24mn 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 consumed 391.5bcm n 2008, 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. Israel in 2008 consumed 1.79% of the region’s gas, with its market share forecast at 2.05% by 2013. It contributed 1.80% to 2008 regional gas production and, by 2013, will account for 1.15% of supply.

For 2009 as a whole, we are now forecasting an average OPEC basket price of US$55.00 per barrel (bbl), a 41.5% decline year-on-year (y-o-y). This is 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 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 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 by 43.9% from the previous year’s level.

Israel’s real GDP is now forecast to fall 1.9% in 2009, compared with growth of 5.5% in 2008.

We assume 2.4% growth in 2010, 2.5% in 2011, 2.6% in 2012 and 2.7% in 2013. We expect oil demand to rise from 285,000b/d in 2008 to 292,000b/d in 2013, although the state would like to minimise dependency on imports and exploit fully the country’s modest gas resources. A lack of serious upstream prospects and limited international oil company (IOC) participation mean Israel is likely to continue importing virtually all the oil needed to supply its domestic refineries. Domestic gas production has risen following the start-up of the Tethys Sea project, with up to 7bcm of supply available. Gas imports could be as high as 3.5bcm per annum by 2013.

Between 2008 and 2018, we forecast an increase in Israeli oil consumption of 10.3%, with demand rising steadily from 285,000b/d to 314.000b/d by the end of the 10-year forecast period. Refining capacity between 2008 and 2018 is set to increase by 59.1%, reaching 350,000b/d by 2018. Gas production is expected to climb from 6bcm to a plateau of 7bcm. With 2008-2018 demand growth of 91.4%, this provides an import requirement increasing to 6.4bcm during the forecast period. Details of the 10- year forecasts can be found in the appendix to this report.

Israel shares seventh place with Bahrain in the updated Upstream Business Environment ratings, although Kuwait just one point below could challenge its position as it has far greater upstream potential – should the competitive environment improve. Israel’s score benefits from the state’s non-involvement in the upstream segment, the licensing terms and privatisation progress, plus the healthy country risk outlook. The overall score is dragged down by the lack of hydrocarbon resources and growth prospects.

The country is well in the upper half of the league table in the updated Downstream Business Environment rating, with a few high scores but near-term progress further up the rankings unlikely. It is ranked third, two points behind the UAE and four points ahead of Oman, thanks largely to excellent country risk factors that outweigh a modest showing in terms of oil/gas demand, oil demand growth and likely refining capacity expansion. Oman represents little immediate threat, but the UAE is likely to remain out of reach.