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Spain Oil and Gas Report Q4 2008

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Report Summary

The latest Spain Oil & Gas Report from BMI forecasts that the country will account for 11.98% of developed European regional oil demand by 2012, while making no appreciable contribution to supply. In Developed Europe, overall oil consumption reached 13.88mn barrels per day (b/d) in 2007. It is set to rise to around 14.09mn b/d by 2012. In terms of natural gas, the Developed Europe region in 2007 consumed 434bcm, with demand of 492bcm targeted for 2012, representing 13% growth. Production of 264bcm in 2007 should rise to 283bcm in 2012, which implies net imports rising from the 2007 level of 170bcm to some 209bcm by the end of the period. Spain's share of gas consumption in 2007 was 8.09%, while it has no meaningful share of production. By 2012, its share of gas consumption is forecast to be 9.92%.

In Q208, we estimate that the OPEC basket price averaged just under US$115 per barrel – up around 24% from the Q108 level. The OPEC basket price had exceeded US$127 on May 22, slipping back towards US$121/bbl later in the month. In June, we assumed an average of around US$120, 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 for Brent, US$119.61 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, WTI averaging US$110.64/bbl, and Urals at US$106.88/bbl.

Spanish real GDP growth is estimated by BMI at 3.0% for 2008, down from 3.6% in 2007. We are assuming an average 2.6% growth in 2008-12. In terms of oil demand, the Spanish market continues to grow more rapidly than the EU norm, with 0.5%-1.0% annual consumption growth forecast over the medium term. Oil consumption has risen from just over 1mn b/d in 1990 to 1.62mn b/d in 2007. Our target for 2012 is demand at an average 1.69mn b/d. No meaningful local oil supply is available, with crude imports reaching 1.69mn b/d by 2012. Our gas demand forecast is for an average annual growth rate of 6-8%, taking the 2012 total consumption to 49bcm.

Between 2007 and 2018, we are forecasting an increase in Spanish oil and gas liquids consumption of 14.4%, with volumes rising steadily from 1.62mn b/d in 2007 to 1.85mn b/d by the end of the 10-year forecast period. Gas demand should rise from the 2007 level of 35bcm to 66bcm by 2018, based on LNG and pipeline imports. Details of the new BMI 10-year forecasts can be found in the appendix to this report, which provides global, regional and country-specific projections.

The long-term political score is 80.2, below the Developed Markets average of 86.4. Spain ranks fourthhighest of the BMI universe of European Developed Markets. The long-term economic rating is 73.8, which compares with a Developed Markets average of 72.2, putting Spain behind only Germany and Norway in the developed Europe universe. The business environment rating is 64.5, in line with France.

The Developed Markets average is 70.6. Spain has a privatised energy sector operating under EU guidelines. There is a very small upstream oil and gas segment, dominated by domestic companies.

Downstream oil is controlled largely by former state company Repsol YPF.

Table of Contents

Executive Summary ........................................................................................................................................6
SWOT Analysis................................................................................................................................................8
Spain Political SWOT ........................................................................................................................................................................................... 8
Spain Economic SWOT......................................................................................................................................................................................... 8
Spain Energy Market Overview.......................................................................................................................9
Global Oil Market Overview..........................................................................................................................11
Oil Bites Back ..................................................................................................................................................................................................... 11
Table: Global Oil Consumption (000b/d) ........................................................................................................................................................... 13
Table: Global Oil Production (000b/d)............................................................................................................................................................... 14
Oil Price Outlook ...........................................................................................................................................15
OPEC Intransigence........................................................................................................................................................................................... 15
Table: Crude Price Assumptions 2007/2008....................................................................................................................................................... 17
Revised Forecasts .................................................................................................................................................................................................... 17
Table: Oil Price Forecasts.................................................................................................................................................................................. 18
Regional Energy Market Overview ...............................................................................................................19
Oil Supply And Demand...................................................................................................................................................................................... 19
Table: Developed Markets Oil Consumption (000b/d)........................................................................................................................................ 20
Table: Developed Markets Oil Production (000b/d)........................................................................................................................................... 21
Oil: Downstream ................................................................................................................................................................................................ 22
Table: Developed Markets Oil Refining Capacity (000b/d) ................................................................................................................................ 22
Gas Supply And Demand ......................................................................................................................................................................................... 23
Table: Developed Markets Gas Consumption (bcm)........................................................................................................................................... 23
Table: Developed Markets Gas Production (bcm) .............................................................................................................................................. 24
Liquefied Natural Gas.............................................................................................................................................................................................. 25
Table: Developed Markets LNG Imports/(Exports) (bcm) .................................................................................................................................. 25
Industry Forecast Scenario..........................................................................................................................26
Oil and Gas Reserves.......................................................................................................................................................................................... 26
Oil Supply and Demand...................................................................................................................................................................................... 26
Gas Supply and Demand..................................................................................................................................................................................... 26
LNG.................................................................................................................................................................................................................... 26
Refining and Oil Products Trade ........................................................................................................................................................................ 27
Revenues/Import Costs ....................................................................................................................................................................................... 27
Table: Spain Oil & Gas – Historical data & Forecasts ...................................................................................................................................... 28
Other Energy ...................................................................................................................................................................................................... 29
Table: Spain Other Energy – Historical data & Forecasts ................................................................................................................................. 30
Key Risks to BMI’s Forecast Scenario................................................................................................................................................................ 30
Long-Term Oil & Gas Outlook ........................................................................................................................................................................... 30
Macroeconomic Outlook ...............................................................................................................................31
Table: Spain - Economic Activity........................................................................................................................................................................ 33
Competitive Landscape................................................................................................................................34
Executive Summary.................................................................................................................................................................................................. 34
Table: Key Players – Spanish Oil & Gas Sector................................................................................................................................................. 35
Overview/State Role................................................................................................................................................................................................. 35
Table: Key Downstream Players ........................................................................................................................................................................ 36
Company Monitor..........................................................................................................................................37
Repsol YPF .............................................................................................................................................................................................................. 37
Market Position .................................................................................................................................................................................................. 38
Strategy............................................................................................................................................................................................................... 38
Latest Developments ........................................................................................................................................................................................... 39
Gas Natural ............................................................................................................................................................................................................. 42
Market Position .................................................................................................................................................................................................. 43
Strategy............................................................................................................................................................................................................... 43
Latest Developments ........................................................................................................................................................................................... 44
Beach Petroleum/Serica Energy – Summary....................................................................................................................................................... 46
Glossary of Terms.........................................................................................................................................47
Oil & Gas Ratings: Revised Methodology ...................................................................................................48
Introduction ........................................................................................................................................................................................................ 48
Ratings Overview................................................................................................................................................................................................ 48
Table: BMI Oil & Gas Business Environment Ratings: Structure ....................................................................................................................... 49
Indicators............................................................................................................................................................................................................ 49
Table: BMI Oil & Gas Business Environment Upstream Ratings: Methodology................................................................................................. 50
Table: BMI Oil & Gas Business Environment Downstream Ratings: Methodology ............................................................................................ 51
Oil & Gas Outlook: Long-Term Forecasts ...................................................................................................53
Global Oil Demand............................................................................................................................................................................................. 53
Global Oil Demand (000b/d) .............................................................................................................................................................................. 53
Global Oil Production (000b/d).......................................................................................................................................................................... 54
Global Oil Supply ............................................................................................................................................................................................... 54
Global Gas Demand ................................................................................................................................................................................................ 55
Global Gas Demand (bcm) ................................................................................................................................................................................. 55
Global Gas Supply.............................................................................................................................................................................................. 55
Global Gas Production (bcm)............................................................................................................................................................................. 56
Regional Oil Demand .............................................................................................................................................................................................. 57
Developed Europe Oil Consumption (000b/d) .................................................................................................................................................... 57
Regional Oil Supply............................................................................................................................................................................................ 57
Developed Europe Oil Production (000b/d) ....................................................................................................................................................... 58
Regional Refining Capacity ................................................................................................................................................................................ 58
Developed Europe Oil Refining Capacity (000b/d)............................................................................................................................................. 59
Regional Gas Demand ........................................................................................................................................................................................ 59
Developed Europe Gas Consumption (bcm) ....................................................................................................................................................... 60
Regional Gas Supply........................................................................................................................................................................................... 60
Developed Europe Gas Production (bcm) .......................................................................................................................................................... 61
Spain Country Overview.......................................................................................................................................................................................... 61
Spain Oil & Gas – Long-term Forecasts............................................................................................................................................................. 62
Spain Other Energy – Long-Term Forecasts ...................................................................................................................................................... 63
Methodology & Risks To Forecasts .................................................................................................................................................................... 63
BMI Forecast Modelling ................................................................................................................................65
How we generate our industry forecasts ............................................................................................................................................................. 65
Energy Industry .................................................................................................................................................................................................. 66
Cross checks ....................................................................................................................................................................................................... 66
Sources ............................................................................................................................................................................................................... 66