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Israel Oil and Gas Report Q3 2011
Business Monitor International, July 2011, Pages: 68
The Israel 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 Israel's oil and gas industry.
We forecast that Israel will account for 3.1% of Middle East regional oil demand by 2015, while not contributing in any meaningful way to supply. Middle East regional oil use rose to an estimated 7.6mn b/d in 2010. It should average 7.9mn barrels per day (b/d) in 2011 and then climb to around 8.9mn b/d by 2015. Regional oil production was 22.83mn b/d in 2001 and averaged an estimated 24.5mn b/d in 2010. After an estimated 25.7mn b/d in 2011, it is set to rise to 30.5mn b/d by 2015. Oil exports are growing steadily, because demand growth is lagging the pace of supply expansion. In 2001, the region was exporting an average of 17.85mn b/d. This total will have eased to an estimated 16.88mn b/d in 2010 and is forecast to reach 21.54mn b/d by 2015. Iraq has the greatest export growth potential, followed by Qatar. In terms of natural gas, the region consumed an estimated 391bn cubic metres (bcm) in 2010, with demand of 487bcm targeted for 2015, representing 25% growth. Production of an estimated 455bcm in 2010 should reach 642bcm in 2015 (+41%), which implies net exports rising to 154bcm by the end of the period. Israel's estimated share of gas consumption in 2010 will have been 0.7%, while its share of production is put at 0.2%. By 2015, its share of gas consumption is forecast to be 1.4%, with the country accounting for 1.1% of supply.
The 2010 full-year outturn was US$77.45/bbl for OPEC crude, which delivered an average for North Sea Brent of US$80.34/bbl and for West Texas Intermediate (WTI) of US$79.61/bbl. The BMI price target of US$77 was reached thanks to the early onset of particularly cold weather, which drove up demand for and the price of heating oil during the closing weeks of the year.
We initially set our 2011 supply, demand and price forecasts in early January, targeting global oil demand growth of 1.53% and supply growth of 1.91%. With OECD inventories at the top of their five-year average range, we set a price forecast of US$80/bbl average for the OPEC basket in 2011. The unprecedented wave of popular uprisings in the Middle East and North Africa (MENA) that followed the removal of Tunisian President Ben Ali on January 14 has obviously fundamentally altered our outlook, particularly since the unrest spread to Libya in mid-February.
Taking into account the risk premium that has been added to crude prices in response to actual and perceived threats to supply, we have now raised our benchmark OPEC basket price forecast from US$80 to US$101.90/bbl for 2011 and from US$85 to US$95/bbl for 2012. Based on our expectations for differentials, this gives a forecast for Brent at US$106/bbl in 2011 and US$97.60/bbl in 2012. We have kept our long-term price assumption of US$90/bbl (OPEC basket) in place for the time being while we wait to see what path events in the MENA region take.
Israel’s real GDP rose by 4.7% in 2010, with forecast average annual growth of 4.5% in 2011-2015. We expect oil demand to rise from an estimated 254,000b/d in 2010 to 273,000b/d in 2015, although the state would like to minimise dependency on imports and exploit fully the country’s growing gas resources. A lack of serious upstream oil prospects and limited international oil company (IOC) participation mean Israel is likely to continue importing virtually all the oil needed to supply its domestic refineries. Israeli gas production is set to rise dramatically, providing self-sufficiency and the longer-term potential for exports, thanks to the Tamar and Leviathan finds. Gas imports could be as high as 2.5bcm per annum by 2011/12, before easing as domestic production volumes rise. We see Israel becoming self-sufficient in 2013.
Between 2010 and 2020, we are forecasting an increase in Israeli oil consumption of 16.1%, with demand rising steadily from an estimated 254,000b/d to 294,000b/d by the end of the 10-year forecast period. Refining capacity between 2010 and 2020 is set to increase by 59.1%, reaching 350,000b/d by 2020. Gas production is expected to climb from an estimated 1bcm to a potential 12bcm. With 2010-2020 demand growth of 270%, this provides an import requirement peaking at 2.5bcm in 2011/12, before being replaced by rising domestic supply. Details of the BMI 10-year forecasts can be found in the appendix to this report.
Israel now shares second place with Qatar in BMI’s composite Business Environment (BE) ratings, which combine upstream and downstream scores. The country holds fourth place in BMI’s updated upstream Business Environment ratings, in spite of the state’s limited upstream potential. Bahrain below has the medium-term potential to challenge for fourth place. Israel’s score benefits from the lack of state involvement in the upstream segment, the licensing terms and privatisation progress, plus a healthy country risk outlook. The overall score is dragged down by limited oil resources and growth prospects. Israel currently tops the league table in BMI’s updated downstream Business Environment rating, with a few high scores but limited potential to retain regional leadership over the longer term. It is five points ahead of Iran, thanks largely to excellent country risk factors that outweigh a modest showing in terms of oil/gas demand, oil demand growth and likely refining capacity expansion.
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