Report Summary

The latest Saudi Arabia Oil & Gas Report from BMI forecasts that the country will account for 20.03% of Middle Eastern (ME) regional oil demand by 2012, while providing a dominant 40.71% of supply. ME regional oil use of 8.24mn b/d in 2001 rose to an estimated 10.61mn b/d in 2007. It should average 10.86mn b/d in 2008 and then rise to around 11.84mn b/d by 2012. Regional oil production was 22.87mn b/d in 2001, and in 2007 averaged an estimated 25.56mn b/d. It is set to rise to 28.94mn b/d by 2012. In terms of natural gas, the region in 2007 consumed an estimated 371bcm, with demand of 542bcm targeted for 2012, representing 46% growth. Production of an estimated 368bcm in 2007 should reach 576bcm in 2012 (+56%), which implies net exports rising to 34bcm by the end of the period. Saudi Arabia in 2007 consumed an estimated 20.75% of the region’s gas, with its market share forecast at 17.97% by 2012. It contributed an estimated 20.90% to 2007 regional gas production and, by 2012, will account for 16.91% of supply. 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. Saudi real GDP growth is now forecast by BMI at 4.3% for 2008, following an estimated 2.9% in 2007. We are assuming 4.5% growth in 2009, 4.1% in 2010, 4.4% in 2011, followed by 4.2% in 2012. We expect oil demand to rise from an estimated 2.07mn b/d in 2007 to 2.37mn b/d in 2012, representing 3.0% annual growth that lags our underlying economic assumptions. State-owned Saudi Aramco is wholly responsible for oil and liquids production, forecast to rise from an estimated 10.75mn b/d in 2007 to 11.78mn b/d by 2012. There is no foreign involvement in the upstream oil segment, although international oil companies (IOCs) could have a role in future gas field development and are major players in refining and petrochemicals. Gas production should reach 97.4bcm by 2012, up from an estimated 77bcm in 2007. Consumption will match the trend, leaving Saudi with no import requirement or export potential during the period. Between 2007 and 2018, we are forecasting an increase in Saudi oil production of 25.6%, with volumes rising steadily to 13.5mn b/d by the end of the 10-year forecast period. Oil consumption between 2007 and 2018 is set to increase by 37%, with growth slowing to an assumed 3.0% per annum towards the end of the period and the country using 2.83mn b/d by 2018. Gas production is expected to rise from 77bcm to 119bcm by the end of the period. With 2007-2018 demand growth of 54%, this provides a balanced market throughout the 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. Saudi Arabia is ranked a surprising last place behind even Bahrain in BMI’s updated Upstream Business Environment rating. It clearly has an unrivalled oil resource and production position, but this is not sufficient to keep Saudi away from the foot of the regional league table. It is two points behind Bahrain, and shows few signs of having the ability to challenge its less well-equipped neighbour. The country is just in the lower half of the league table in BMI’s newly-revised Downstream Business Environment rating, with a few high scores and longer-term progress up the rankings a possibility. It is ranked sixth, just behind Iran, thanks largely to high scores for refining capacity, oil and gas demand, and nominal GDP. Generally healthy country risk factors help bolster the overall score, but Kuwait below could ultimately challenge for Saudi’s current position.