The latest UK Oil & Gas Report forecasts that the country will account for 12.65% of Developed European regional oil demand by 2014, while contributing 26.02% to supply. In Developed Europe, overall oil consumption averaged an estimated 13.28mn barrels per day (b/d) in 2009. It is set to recover to around 13.61mn b/d by 2014. Developed Europe regional oil production was 6.97mn b/d in 2001, and in 2009 averaged an estimated 4.66mn b/d. It is set to fall to just 3.71mn b/d by 2014. Oil imports are growing steadily, because supply is contracting and demand is rising, albeit slowly. In 2009, net crude imports were an estimated 8.62mn b/d. By 2014, they are expected to have reached 9.90mn 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 2009 consumed an estimated 426bn cubic metres (bcm), with demand of 473bcm targeted for 2014, representing 10.9% growth. Production of an estimated 270bcm in 2009 should rise to 273bcm in 2014, which implies net imports rising from the estimated 2009 level of 156bcm to some 200bcm by the end of the period. The UK’s share of gas consumption in 2009 was an estimated 21.58%, while it contributed 25.16% to production. By 2014, its share of gas consumption is forecast to be 20.28%, with production accounting for 20.92% of the regional market.

For 2009 as a whole, we have assumed an average OPEC basket price of US$59.00 per barrel (bbl), a 37.3% decline year-on-year (y-o-y). This represents an upgrade from the US$55.00/bbl forecast we were using in the previous quarter. For 2010, we expect to see a significant oil price recovery to US$83.00/bbl for the OPEC basket price, gaining further ground to US$85.00 in 2011 and to US$90.00/bbl in 2012 and beyond.

For 2009, we have assumed a global average gasoline price of US$69.53/bbl, with the fuel having peaked in August at almost US$82.30/bbl. The overall y-o-y fall in 2009 gasoline prices is put at 31.7%. The gasoil forecast is for an average price of US$69.69/bbl, assuming a monthly high above US$92/bbl in December 2009. The full-year outturn represents a 42.5% y-o-y fall. The annual jet price level for 2009 is estimated at US$69.99/bbl. This compares with US$124.95/bbl in 2008. The 2009 average naphtha price is put at US$58.02/bbl, down 33.6% from the previous year’s level. UK real GDP is forecast to have fallen by 4.7% in 2009, compared with growth of 0.7% in 2008.We are assuming 2.6% average annual growth in 2010-2014. We are currently forecasting 1.37mn b/d of oil output in 2010. By 2014, UK oil production is unlikely to be above 0.97mn b/d. Oil consumption is expected to have reached 1.72mn b/d by 2014, providing a net crude import requirement of at least 756,000b/d.

Between 2009 and 2019, we are forecasting a decrease in UK oil production of 44.8%, with output slipping steadily from an estimated 1.49mn b/d in 2009 to 0.82mn b/d at the end of the 10-year forecast period. Given oil consumption forecast to increase by just 0.2%, imports rise from an estimated 0.19mn b/d to 0.86mn b/d during the forecast period. Gas production should fall from the estimated 2009 level of 68bcm to 45bcm in 2019. Demand is forecast to rise from an estimated 92bcm to 100bcm, requiring imports reaching 55bcm, largely in the form of pipeline gas, with some LNG. Details of our 10-year forecasts can be found in the appendix to this report.

According to our Country Risk team, the UK’s long-term political risk score is 92.5, compared with the Developed Markets average of 85.8 and the global average of 63.2. Our long-term economic rating for the country is 68.5, below the Developed Markets average of 70.1 and above the global average of 53.5. 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 deregulated. International and domestic operators control gas distribution and supply, as well as electricity generation and distribution.