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Ukraine Oil and Gas Report Q4 2010
Business Monitor International, Oct 2010, Pages: 97
Ukraine Oil and Gas Report provides industry professionals and strategists, corporate analysts, oil and gas associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Ukraine's oil and gas industry.
The latest Ukraine Oil & Gas Report from BMI forecasts that the country will account for 5.29% of Central and Eastern European (CEE) regional oil demand by 2014, while providing just 0.59% of supply. CEE regional oil use of 5.42mn barrels per day (b/d) in 2001 will rise to an estimated 6.02mn b/d in 2010. It should increase to around 6.68mn b/d by 2014. Regional oil production was 8.89mn b/d in 2001, and in 2010 will average an estimated 13.67mn b/d. It is set to rise to 14.44mn b/d by 2014. Oil exports are growing steadily because demand growth is lagging the pace of supply expansion. In 2001, the region was exporting an average of 3.47mn b/d. This total will rise to an estimated 7.65mn b/d in 2010 and is forecast to reach 7.76mn b/d by 2014. Azerbaijan and Kazakhstan have the greatest production growth potential, although Russia will remain the key exporter.
In terms of natural gas, the region in 2010 consumed an estimated 638.6bn cubic metres (bcm), with demand of 728.8bcm targeted for 2014, representing 14.1% growth. Production of an estimated 788.4bcm in 2010 should reach 936.4bcm in 2014, which implies net exports rising from an estimated 149.8bcm in 2010 to 207.5bcm by the end of the period. Ukraine’s share of gas consumption in 2010 is an estimated 7.47%, while its share of production is put at 2.54%. By 2014, its share of demand is forecast to be 7.26%, with the country accounting for 2.24% of supply.
For 2010 as a whole, we continue to assume an average OPEC basket price of US$83.00/bbl, +36.4% yea-on-year (y-o-y). Risk is now clearly on the downside, thanks to the slow progress made during June. However, a full year outturn in excess of US$80 remains a strong possibility and we see no need to review our assumptions at this point. The 2010 US WTI price is now put at US$87.63/bbl. BMI is assuming an OPEC basket price of US$85.00/bbl in 2011, with WTI averaging US$89.74. Our central assumption for 2012 and beyond is an OPEC price averaging US$90.00/bbl, delivering WTI at just over US$95.00.
For 2010, the BMI assumption for premium unleaded gasoline is an average global price of US$95.45/bbl. The overall y-o-y rise in 2010 gasoline prices is put at 36%. Gasoil in 2010 is expected to average US$93.23/bbl. The full-year outturn represents a 35% increase from the 2009 level. For 2010, the annual jet price level is forecast to be US$95.90/bbl. This compares with US$70.66/bbl in 2009. The 2010 average naphtha price is put by BMI at US$83.53/bbl, up 41% from the previous year’s level. Ukraine’s real GDP is assumed by BMI to rise by 3.8% in 2010. We are assuming average annual growth of 4.1% in 2010-2014. Beyond the weakness of 2009/10, reasonable and consistent growth in oil consumption seems likely, averaging up to 3.0% per annum. This suggests that the country will be consuming around 353,000b/d of oil by 2014. With oil and liquids production likely to slip below 90,000b/d, Ukraine will require imports of at least 267,000b/d by 2014. BMI forecasts that gas demand will rise from an estimated 48bcm in 2010 to 53bcm by 2014. Domestic production, largely in the hands of state-owned Naftogaz Ukrainy but with some international oil company (IOC) involvement, should also increase, from an estimated 20bcm in 2010 to at least 22bcm in 2011-2012.
Between 2010 and 2019, we forecast a fall in Ukraine oil and gas liquids production of 30.4%, with volumes falling steadily from the estimated 2010 level of 95,000b/d to 51,000b/d by the end of the 10- year forecast period. Oil consumption between 2010 and 2019 is set to increase by 29.8%, with growth slowing to an assumed 3.0% per annum towards the end of the period and the country using 416,000b/d by 2019. Gas production should peak at around 22bcm in 2011-2012, then fall to 17bcm by 2019. Gas imports are set to reach 43bcm by 2019. Details of BMI’s 10-year forecasts can be found in the appendix to this report.
Ukraine now shares sixth place with Romania in BMI’s composite Business Environment (BE) ratings table, which combines upstream and downstream scores. The country now shares 11th place with Slovakia in BMI’s updated upstream Business Environment ratings, thanks to only modest hydrocarbons resources. Its gas reserves and favourable licensing regime account for much of the upstream score, but country risk factors and privatisation activity are less impressive. Ukraine arguably has the potential to break away from Slovakia, and is at little risk from Hungary below. Ukraine is in the upper half of the league table in BMI’s downstream Business Environment ratings, claiming fourth place below Poland. There are a few high scores but progress further up the rankings is unlikely. There are good scores for refining capacity, oil and gas demand, retail site intensity and population. Azerbaijan and Romania are three points below it in the regional rankings, so Ukraine should be at little immediate risk.
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