The latest Ukraine Oil & Gas Report forecasts that the country will account for 6.18% of Central and Eastern European (CEE) regional oil demand by 2013, while providing just 0.49% of supply.

CEE regional oil use of 4.65mn barrels per day (b/d) in 2001 rose to 5.41mn b/d in 2008. It should average 5.15mn b/d in 2009 and then rise to around 5.63mn b/d by 2013. Regional oil production was 8.83mn b/d in 2001, and in 2008 averaged 12.91mn b/d. It is set to rise to 14.37mn 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 4.18mn b/d. This total had risen to 7.51mn b/d in 2008 and is forecast to reach 8.74mn b/d by 2013.

In terms of natural gas, the region in 2008 consumed 592.7bn cubic metres (bcm), with demand of 663.4bcm targeted for 2013, representing 12.3% growth. Production of 754.6bcm in 2008 should reach 906.1cm in 2013, which implies net exports rising from 161.9bcm in 2008 to 242.7bcm by the end of the period. Ukraine’s share of gas consumption in 2008 was 9.91%, while its share of production is put at 2.67%. By 2013, its share of demand is forecast to be 9.69%, with the country accounting for 2.32% of supply.

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, BMI 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 BMI 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 by BMI at US$49.06/bbl, down 43.9% from the previous year’s level.

Ukraine’s real GDP is now forecast to fall by 14.7% in 2009, compared with growth of 2.1% in 2008. We are assuming 1.3% growth in 2010, 3.0% in 2011, followed by 4.3% in 2012/13. Beyond the likely weakness of 2009/10, reasonable and consistent growth in oil consumption seems likely, averaging up to 3.0% per annum. This suggests that the country will be consuming around 348,000b/d of oil by 2013. With oil production likely to slip back to just 70,000b/d, Ukraine will require imports of at least 278,000b/d by 2013. The report forecasts that gas demand will rise from 60bcm in 2008 to 64bcm by 2013.

Domestic production, largely in the hands of state-owned Naftogaz Ukrainy but with some international oil company (IOC) involvement, should also increase, from 19bcm in 2008 to at least 22bcm in 2010- 2012.

Between 2008 and 2018, we are forecasting a decrease in Ukraine oil and gas liquids production of 30.6%, with volumes falling steadily from the 2008 level of 78,000b/d to 54,000b/d by the end of the 10- year forecast period. Oil consumption between 2008 and 2018 is set to increase by 28.1%, with growth slowing to an assumed 3.0% per annum towards the end of the period and the country using 403,000b/d by 2018. Gas production should peak at around 22bcm in 2009-2012 then fall to 18bcm by 2018. Gas imports are set to reach 55bcm by 2018. Details of the 10-year forecasts can be found in the appendix to this report.

Ukraine occupies equal sixth place with Slovakia in the updated Upstream Business Environment ratings, in spite of only modest hydrocarbons resources. Its gas reserves and favourable licensing regime account for much of the upstream score, but country risk factors and privatisation activity are less impressive. Ukraine does not have the potential to challenge Russia above it, and is at some risk from Romania and Bulgaria below. The country is in the upper half of the league table in the Downstream Business Environment ratings, this quarter claiming a share of second place with Russia. There are a few high scores, but progress further up the rankings is unlikely over the medium term. There are high scores for refining capacity, oil and gas demand, retail site intensity and population. Romania is just two points below it in the regional rankings, so Ukraine could come under threat during the coming quarters.