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Chile Oil and Gas Report Q4 2008

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Report Summary

The latest Chile Oil & Gas Report from BMI forecasts that the country will account for 4.82% of Latin American regional oil demand by 2012, while making no meaningful contribution to supply. Latin America regional oil use of 6.66mn barrels per day (b/d) in 2001 reached 7.47mn b/d in 2007. It should average 7.59mn b/d in 2008 and then rise to around 8.23mn b/d by 2012. In terms of natural gas, the region in 2007 consumed 183 billion cubic metres (bcm), with demand of 254bcm targeted for 2012, representing 39% growth. Production of 196bcm in 2007 should reach 279bcm in 2012, and implies 25bcm of net exports the end of the period. Chile’s share of gas consumption in 2007 was 2.40%, while it has no significant share of production. By 2012, its share of gas consumption is forecast to be 3.09%.

In Q208, we estimate that the OPEC basket price averaged just under US$115 per barrel (bbl) – up around 24% from the Q108 level. The OPEC basket price had exceeded US$127/bbl on the 22nd of May, slipping back towards US$121/bbl later in the month. In June, we assumed an average of around US$120/bbl, to deliver our quarterly estimate of US$114.98/bbl. The estimated Q208 average prices for the main marker blends are now US$118.63/bbl for Brent, US$119.61/bbl for WTI and US$115.89/bbl for Russian Urals (Mediterranean delivery). Our projections for 2008 as a whole have been revised upwards from the last quarterly report. We are now assuming an OPEC basket price average of US$106 per barrel for 2008, compared with the US$81 estimate provided by our last quarterly report. Based on recent price differentials, this implies Brent at US$109.71/bbl, WTI averaging US$110.64/bbl, and Urals at US$106.88/bbl.

Chilean real GDP growth is forecast by BMI at 4.0% for 2008, down from 5.1% in 2007. We are assuming 4.6% growth in 2009, 4.8% in 2010, followed by 4.5% in 2011 and 4.2% 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 396,000b/d by the end of the forecast period. The import requirement would therefore be approximately 391,000b/d by 2012. Gas production is forecast to increase from 1.5bcm in 2007 to 1.7bcm by 2011, falling back to 1.6bcm in 2012, with net imports of 6.3bcm 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 140% to almost 11bcm, this provides an import requirement rising from 2.9bcm to 9.4bcm 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 country-specific projections.

Chile’s outright last place 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 may be able to catch Mexico during the next few quarters. The country fares rather better in BMI’s updated Downstream Business Environment rating, with equal fifth place (alongside Peru) reflecting its oil demand growth outlook, regulatory environment and attractive country risk rating. It is positioned above Mexico in the league table, with the potential to move higher.

Chile’s outright last place 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 may be able to catch Mexico during the next few quarters. The country fares rather better in BMI’s updated Downstream Business Environment rating, with equal fifth place (alongside Peru) reflecting its oil demand growth outlook, regulatory environment and attractive country risk rating. It is positioned above Mexico in the league table, with the potential to move higher.

Table of Contents

Executive Summary .........7
SWOT Analysis.................9
Chile Political SWOT............................................................. 9
Chile Economic SWOT ........................................................ 10
Chile Business Environment SWOT..................................... 11
Chile Energy Market Overview.........................................................12
Global Oil Market Overview ..................................................14
Table: Global Oil Consumption (000b/d) ............................ 16
Table: Global Oil Production (000b/d)................................ 17
Oil Price Outlook ............18
OPEC Intransigence ................................................................. 18
Table: Crude Price Assumptions 2007/08............................ 20
Revised Forecasts ..................................................................... 20
Table: Oil Price Forecasts................................................... 21
Regional Energy Market Overview ..............................................22
Oil Supply And Demand............................................................ 22
Table: Latin America Oil Consumption (000b/d)................. 23
Table: Latin America Oil Production (000b/d).................... 24
Oil: Downstream ...................................................................... 25
Table: Latin America Oil Refining Capacity (000b/d) ......... 25
Gas Supply And Demand .......................................................... 26
Table: Latin America Gas Consumption (bcm).................... 26
Table: Latin America Gas Production (bcm)....................... 26
Liquefied Natural Gas............................................................... 27
Table: Latin America LNG Exports/(Imports) (bcm) ........... 27
Business Environment Ranking ..................................................................28
Latin America Region ............................................................... 28
Composite Scores................................................................. 28
Regional Upstream Business Environment Rating............... 29
Upstream Scores.................................................................. 29
Regional Downstream Business Environment Rating .......... 30
Downstream Scores ............................................................. 30
Chile Upstream Rating – Overview ..................................... 31
Chile Upstream Rating – Potential Returns......................... 31
Chile Upstream Rating – Risks to Potential Returns............ 31
Chile Downstream Rating – Overview................................. 31
Chile Downstream Rating – Potential Returns .................... 32
Chile Downstream Rating – Risks to Potential Returns ....... 32
Business Environment ..................................................33
Legal Framework...................................................................... 33
Infrastructure....................................................................... 35
Labour Force............................................................................ 35
Foreign Investment Policy ........................................................ 36
Tax Regime............................................................................... 37
Industry Forecast Scenario ..................................................38
Oil And Gas Reserves ............................................................... 38
Oil Supply And Demand............................................................ 38
Gas Supply And Demand .......................................................... 39
Liquefied Natural Gas............................................................... 39
Refining and Oil Products Trade .............................................. 40
Revenues/Import Costs.............................................................. 41
Table: Chile Oil & Gas – Historic Data & Forecasts.......... 42
Other Energy ............................................................................ 43
Table: Chile Other Energy – Historic Data & Forecasts..... 44
Key Risks to BMI’s Forecast Scenario...................................... 45
Long-term Oil & Gas Outlook .................................................. 45
Macroeconomic Outlook ..............................................................46
Table: Chile – Economic Activity ........................................ 47
Regional Case Study......48
Competitive Landscape.54
Executive Summary................................................................... 54
Table: Key Players .............................................................. 55
Overview/State Role.................................................................. 56
Table: Key Upstream Players .............................................. 56
Table: Key Downstream Players ......................................... 56
Company Monitor...........57
ENAP – Empresa Nacional del Petróleo................................... 57
Copec – Compañía de Petróleos de Chile................................. 60
Shell Chile................................................................................. 62
ExxonMobil Cono Sur............................................................... 64
Petróleos Transandinos Repsol YPF......................................... 66
Total – Summary.................................................................. 68
Pan American Energy – Summary ....................................... 68
Others – Summary ............................................................... 68
Glossary of Terms..........69
Oil & Gas Ratings: Revised Methodology ...........................................................70
Introduction .............................................................................. 70
Ratings Overview...................................................................... 70
Table: BMI Oil & Gas Business Environment Ratings: Structure ....................................................................................................................... 71
Indicators.................................................................................. 72
Table: BMI Oil & Gas Business Environment Upstream Ratings: Methodology................................................................................................. 72
Table: BMI Oil & Gas Business Environment Downstream Ratings: Methodology ............................................................................................ 74
Oil & Gas Outlook: Long-term forecasts ...................................................76
Global Oil Demand................................................................... 76
Table: Global Oil Demand (000b/d).................................... 76
Table: Global Oil Production (000b/d)................................ 77
Global Oil Supply ..................................................................... 77
Global Gas Demand ................................................................. 78
Table: Global Gas Demand (bcm) ....................................... 78
Global Gas Supply.................................................................... 78
Table: Global Gas Production (bcm)................................... 79
Regional Oil Demand ............................................................... 80
Table: Latin America Oil Consumption (000b/d)................. 80
Regional Oil Supply.................................................................. 81
Table: Latin America Oil Production (000b/d).................... 81
Oil: Downstream ...................................................................... 82
Table: Latin America Oil Refining Capacity (000b/d) ......... 82
Regional Refining Capacity ...................................................... 82
Regional Gas Demand .............................................................. 83
Gas Supply And Demand .......................................................... 83
Table: Latin America Gas Consumption (bcm).................... 83
Regional Gas Supply................................................................. 84
Table: Latin America Gas Production (bcm)....................... 84
Chile Country Overview ........................................................... 84
Table: Chile Oil & Gas – Long-Term Forecasts.................. 85
Table: Chile Other Energy – Long-term Forecasts.............. 86
Methodology & Risks To Forecasts .......................................... 86
BMI Forecast Modelling ...................................................87
How We Generate Our Industry Forecasts ............................... 87
Energy Industry ........................................................................ 87
Cross checks ............................................................................. 88
Sources ..................................................................................... 88