The latest South Korea Oil & Gas Report from BMI forecasts that the country will account for 8.25% of Asia Pacific regional oil demand by 2012, while making no appreciable contribution to supply. Asia Pacific regional oil use of 21.4mn barrels per day (b/d) in 2001 reached an estimated 25.56mn b/d in 2007. It should rise to around 29.38mn b/d by 2012. In terms of natural gas, the region consumed an estimated 436bn cubic metres (bcm) in 2007, with demand of 591bcm targeted for 2012, representing growth of 35.57% between 2007 and 2012. Production of an estimated 354bcm in 2007 should reach 455bcm in 2012, but implies net imports rising from an estimated 82bcm per annum to 136bcm.

South Korea’s share of gas consumption in 2007 was an estimated 8.08%, while its share of production was minimal. By 2012, its share of gas consumption is forecast to be 6.91%. In Q108, we estimate that the OPEC basket price averaged US$92.64 per barrel (/bbl) – up around 9% from the Q407 level. The OPEC basket price had exceeded US$102 by the middle of March, slipping back towards US$96/bbl later in the month. The estimated Q108 average prices for the main marker blends are now US$96.54 for Brent, US$97.31 for WTI and US$93.44/bbl for Russian Urals (Mediterranean delivery). Our projections for 2008 as a whole are revised upwards from BMI’s last quarterly report.

We are now assuming an OPEC basket price average of US$81/bbl for 2008, compared with the US$74 estimate provided by our last quarterly report. Based on recent price differentials, this implies Brent at US$84.71/bbl, WTI averaging US$85.63/bbl and Urals at US$81.88/bbl. South Korean real GDP growth is forecast by BMI at 5.1% for 2008, up from an estimated 4.9% in 2007. We are assuming 4.9% growth in 2009, 4.7% in 2010, 4.6% in 2011 and 4.8% in 2012. Several South Korean oil companies, including state interests, are engaged in securing international upstream production, but the domestic market offers little potential for oil or gas. Oil consumption is forecast to increase by no more than 1% per annum to 2012, implying demand of 2.42mn b/d by the end of the forecast period. Gas demand is forecast to rise from the estimated 2007 level of 35.2bcm to 40.8bcm by 2012, with the bulk of the fuel being imported in the form of liquefied natural gas (LNG).

Between 2007 and 2018, we are forecasting an increase in South Korea’s oil consumption from 2.33mn b/d to 2.57mn b/d (+10.4%), with the country’s refining capacity rising from 2.63mn b/d to 2.80mn b/d. Gas demand is expected to rise from around 35bcm in 2007 to a possible 46bcm by 2018 (+31%), met largely by LNG imports. Details of the new BMI 10-year forecasts can be found in the Appendix of this report, which provides global, regional and country-specific projections. South Korea ranks equal 11th (alongside Singapore and Hong Kong) in BMI’s updated Upstream Business Environment rating, thanks to a virtual absence of hydrocarbon resources. The score reflects an exceptionally healthy country risk profile, which partly offsets the lack of reserves and output growth potential. The country sits just ahead of Taiwan in the upstream league table. The country ranks equal fifth with Indonesia and Australia in BMI’s updated Downstream Business Environment rating, reflecting its relatively high levels of oil and gas consumption, established modern refining capability and relatively low level of state involvement.