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Chile Oil and Gas Report Q3 2008

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Report Summary

The latest Chile Oil & Gas Report from BMI forecasts that the country will account for 3.63% of Latin American regional oil demand by 2012, while making no meaningful contribution to supply. Latin America regional oil use of 6.84mn barrels per day (b/d) in 2001 reached an estimated 7.28mn b/d in 2007. It should rise to around 8.16mn b/d by 2012. In terms of natural gas, the region in 2007 consumed an estimated 197bcm, with demand of 267bcm targeted for 2012, representing growth of 35.6% between 2007 and 2012. Production of an estimated 208bcm in 2007 should reach 282bcm in 2012, which implies end-period net exports of around 15bcm per annum. Chile's share of gas consumption in 2007 was an estimated 4.02%, while it has no significant share of production. By 2012, its share of gas consumption is forecast to be 4.35%. In Q108, we estimate that the OPEC basket price averaged US$92.64 per barrel – 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 per barrel 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, WTI averaging US$85.63/bbl, and Urals at US$81.88/bbl. Chilean real GDP growth is now forecast by BMI at 4.0% for 2008, down from an estimated 5.1% in 2007. We are assuming 4.6% growth in 2009, 4.8% in 2010, followed by 4.3% in 2011 and 4.0% in 2012. State oil and gas company ENAP is responsible for all domestic oil and gas production, with volumes in decline. We are assuming oil and gas liquids production of no more than 5,000b/d by 2012, with the country expected to pump an average 8,000b/d in 2008. Consumption is forecast to increase by around 3% per annum to 2012, implying demand of 296,000b/d by the end of the forecast period. The import requirement would therefore be approximately 291,000b/d by 2012. Gas production is forecast to increase from an estimated 1.5bcm in 2007 to 1.7bcm by 2011, falling back to 1.6bcm in 2012, with net imports of 10bcm required by 2012. Between 2007 and 2018, we are forecasting an increase in Chilean oil consumption of 30.6%, with demand rising steadily from 255,000b/d to 333,000b/d. The annual growth rate is expected to slow to 3.0% towards the end of the period. Gas production is expected to peak at around 1.8bcm in 2009/10, before declining steadily to 1.2bcm by 2018. With demand growth of 97%, this provides an import requirement rising from 6.4bcm to 14.4bcm during the 10-year period. Details of the new BMI 10-year forecasts can be found in the Appendix of this report, which provides global, regional and countryspecific projections. Chile’s joint last place with Mexico in BMI’s updated Upstream Business Environment rating is achieved in spite of high reserves-to-production ratios (RPR) and an investor-friendly country risk profile. There is little likelihood of a move much further up the rankings, but Chile should be able to break away from Mexico during the next few quarters. The country fares rather better in BMI’s updated Downstream Business Environment rating, with sixth place reflecting its oil demand growth outlook, regulatory environment and attractive country risk rating. It is sandwiched between Peru and Venezuela in the league table, with the potential to move higher.

Table of Contents

Executive Summary ......6

SWOT Analysis ......8

Chile Political SWOT 8

Chile Economic SWOT .... 9

Chile Business Environment SWOT . 10

Chile Energy Market Overview 11

Global Oil Market Overview ......13

Table: Global Oil Consumption (000b/d) . 14

Table: Global Oil Production (000b/d) ..... 15

Oil Price Outlook ......16

Waiting For A Correction ... 16

Table: Crude Price Assumptions 2007/08 . 17

Revised Forecasts ...... 17

Table: Oil Price Forecasts ...... 18

Regional Energy Market Overview ..19

Oil Supply And Demand ...... 19

Table: Latin America Oil Consumption (000b/d) . 20

Table: Latin America Oil Production (000b/d) .. 21

Oil: Downstream 22

Table: Latin America Oil Refining Capacity (000b/d) 22

Gas Supply And Demand .... 23

Table: Latin America Gas Consumption (bcm) .. 23

Table: Latin America Gas Production (bcm) ..... 23

Liquefied Natural Gas 24

Table: Latin America LNG Exports/(Imports) (bcm) .. 24

Business Environment Ranking ..25

Latin America Region 25

Composite Scores .. 25

Regional Upstream Business Environment Rating ...... 26

Regional Downstream Business Environment Rating . 27

Upstream Scores ... 27

Downstream Scores 27

Chile Upstream Rating – Overview . 28

Chile Upstream Rating – Potential Returns 28

Chile Upstream Rating – Risks to Potential Returns ... 28

Chile Downstream Rating – Overview ...... 28

Chile Downstream Rating – Potential Returns .. 29

Chile Downstream Rating – Risks to Potential Returns 29

Business Environment .30

Legal Framework 30

Infrastructure . 32

Labour Force.. 33

Foreign Investment Policy .. 33

Tax Regime . 34

Industry Forecast Scenario ...36

Oil And Gas Reserves 36

Oil Supply And Demand ...... 36
Gas Supply And Demand .... 36
Liquefied Natural Gas 37
Refining and Oil Products Trade . 38
Revenues/Import Costs . 38
Table: Chile Oil & Gas – Historic Data & Forecasts . 39
Other Energy .. 40
Table: Chile Other Energy – Historic Data & Forecasts..... 41
Key Risks to BMI’s Forecast Scenario .. 42
Long-term Oil & Gas Outlook ..... 42
Macroeconomic Outlook ....43
Table: Chile Economic Activity 44
Regional Case Study 45
Gazprom In the Americas ... 45
Competitive Landscape 50
Executive Summary 50
Table: Key Players . 51
Overview/State Role ... 52
Table: Key Upstream Players . 52
Table: Key Downstream Players ..... 52
Company Monitor ..53
ENAP – Empresa Nacional del Petróleo . 53
Copec – Compañía de Petróleos de Chile ...... 56
Shell Chile 58
ExxonMobil Cono Sur 60
Petróleos Transandinos RepsolYPF ...... 62
Total – Summary ... 64
Pan American Energy – Summary ... 64
Others – Summary 64
Glossary of Terms .65
Oil & Gas Ratings: Revised Methodology 66
Introduction 66
Ratings Overview 66
Table: BMI Oil & Gas Business Environment Ratings: Structure 67
Indicators . 68
Table: BMI Oil & Gas Business Environment Upstream Ratings: Methodology 68
Table: BMI Oil & Gas Business Environment Downstream Ratings: Methodology .. 69
Oil & Gas Outlook: Long-term forecasts ......71
Global Oil Demand 71
Global Oil Demand (000b/d) .. 71
Global Oil Production (000b/d) 72
Global Oil Supply ...... 72
Global Gas Demand .. 73
Global Gas Demand (bcm) ..... 73
Global Gas Supply ..... 73
Global Gas Production (bcm) . 74
Regional Oil Demand 75
Latin America Oil Consumption (000b/d) . 75
Regional Oil Supply ... 75
Latin America Oil Production (000b/d) .... 76
Regional Refining Capacity 76 Oil: Downstream 77 Latin America Oil Refining Capacity (000b/d) .. 77 Regional Gas Demand . 77 Gas Supply And Demand .... 78 Latin America Gas Consumption (bcm) .... 78 Regional Gas Supply .. 78 Latin America Gas Production (bcm) 79 Chile Country Overview ..... 79 Chile Energy Outlook 80 Chile Oil & Gas – Long-term Forecasts ... 80 Chile Other Energy – Long-term Forecasts 81 Methodology & Risks To Forecasts ...... 81 BMI Forecast Modelling 82 How We Generate Our Industry Forecasts .... 82 Energy Industry 82 Cross checks ... 83 Sources .... 83