Argentina Oil and Gas Report Q4 2009

The latest Argentina Oil & Gas Report from BMI forecasts that the country will account for 6.12% of Latin America regional oil demand by 2013, while providing 6.85% of supply. Latin America regional oil use of 6.93mn barrels per day (b/d) in 2001 reached 7.95mn b/d in 2008. It should average 7.71mn b/d in 2009 and then rise to around 8.46mn b/d by 2013. Regional oil production was 10.30mn b/d in 2001, and in 2008 averaged 9.85mn b/d. It is set to rise to 10.58mn b/d by 2013. Oil exports are slipping, because demand growth is exceeding the pace of supply expansion. In 2001, the region was exporting an average 3.37mn b/d. This total had fallen to 1.90mn b/d in 2008 and is forecast to be 2.13mn b/d in 2013. The principal exporters will be Mexico, Venezuela, Ecuador and Brazil.

In terms of natural gas, the region in 2008 consumed 205.6bn cubic metres (bcm), with demand of 243.6bcm targeted for 2013, representing 18.2% growth. Production of 212.3bcm in 2008 should reach 280.4bcm in 2013, and implies 36.8bcm of net exports the end of the period. Argentina's share of gas consumption in 2008 was 21.64%, while its share of production was 20.78%. By 2013, its share of gas consumption is forecast to be 20.94%, with the country accounting for 17.12% of supply.

For 2009 as a whole, we are now assuming an average OPEC basket price of US$55.00 per barrel (bbl), a 41.5% decline year-on-year (y-o-y). This represents an upgrade from the US$52 forecast we have stuck with during the past three quarters. Our OPEC basket assumption delivers likely Brent, WTI, Urals and Dubai prices of US$56.30, US$57.50, US$55.60 and US$55.60/bbl respectively. For 2010, we expect to see a recovery to US$60.00/bbl for the OPEC price (up from our previous forecast of US$58), gaining further ground to US$65.00 in 2011 and to US$70.00/bbl in 2012. Our post-2010 forecasts are unchanged and we are continuing to use a long-term price assumption of US$70.00 for 2013-2018.

In 2009, BMI is now assuming a global average gasoline price of US$62.12/bbl, with the fuel having peaked in June. The overall y-o-y fall in 2009 gasoline prices is put at 40.0%. The BMI gasoil forecast is for an average price of US$68.62/bbl, assuming a monthly high of US$92.49/bbl in December. The fullyear outturn represents a 43.4% fall from the 2008 level. The annual jet price level for 2009 is forecast to be US$65.17/bbl. This compares with US$124.95/bbl in 2008. The 2009 average naphtha price is put by BMI at US$49.06/bbl, down 43.9% from the previous year's level.

Argentina's real GDP is now forecast by BMI to contract by 1.0% in 2009, compared with 7.0% growth in 2008. We are assuming a further decline of 0.9% in 2010, followed by growth of 1.2% in 2011, 1.8% in 2012, and 2.0% in 2013. State entity Enarsa acts as partner to international oil companies (IOCs) in supporting output growth efforts, operating alongside regional heavyweight Repsol YPF and others. We are assuming oil production of no more than 725,000b/d by 2013, with the country expected to pump 685,000b/d in 2009. Beyond the predicted 2009/2010 dip, consumption is forecast to increase by around 1.5% per annum to 2013, implying demand of 517,000b/d by the end of the forecast period. The crude oil export capability would therefore be approximately 208,000b/d by 2013. Gas production is forecast to increase from 44bcm in 2008 to 48bcm over the period, resulting in the need for 3bcm of net imports by 2013.

Between 2008 and 2018, we are forecasting a decrease in Argentine oil production of 3.91%, with crude volumes peaking in 2013 at 725,000b/d, before falling steadily to 655,000b/d by the end of the 10-year forecast period. Oil consumption between 2008 and 2018 is set to increase by 8.08%, with growth slowing to an assumed 1% per annum towards the end of the period and the country using 549,000 b/d by 2018. Gas production is expected to rise gradually, from 44bcm in 2008 to a peak of 48bcm in 2012/2013, before slipping back to 37bcm by 2018. With demand growth of 26.54%, this provides a need for net imports rising to 19bcm by 2018. Details of BMI's 10-year forecasts can be found at the end of this report.

Argentina still occupies sixth place in BMI's updated Upstream Business Environment rating, just behind Trinidad & Tobago. Its gas resources, largely privatised oil sector, licensing regime and competitive landscape work in the country's favour, but are undermined by an absence of growth potential, asset maturity and unappealing risk environment. Limited scope exists for Argentina to mount a fresh attack on Trinidad, but it should be safe from Ecuador and Bolivia below. The country is well up the league table in BMI's Downstream Business Environment rating, reflecting its privatised refining and marketing segment, substantial capacity and competitive environment, offset by only moderate growth potential and a relatively high level of retail site intensity. Argentina now holds third place in the regional rankings, having this quarter retaken Trinidad and established a one-point lead. The Caribbean country below continues to pose a threat.