Brazil Oil and Gas Report Q4 2009

The latest Brazil Oil & Gas Report from BMI forecasts that the country will account for 31.76% of Latin American regional oil demand by 2013, while providing 27.41% 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. Brazil's share of gas consumption in 2008 was 12.26%, while its share of production was 6.55%. By 2013, its share of gas consumption is forecast to be 12.82%, with the country accounting for 8.92% 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.

Brazilian real GDP is now forecast by BMI to decline by 0.6% in 2009, following growth of 5.1% in 2008. We are assuming 2.0% growth in 2010, 2.9% in 2011, followed by 3.4% in 2012 and 3.7% in 2013.

Partly-privatised deepwater specialist Petrobras will continue to partner international oil companies (IOCs) in supporting output growth efforts, while dominating domestic production. We are assuming oil and gas liquids production of at least 2.90mn b/d by 2013, with the country expected to pump 2.10mn b/d in 2009. Beyond the expected weakness of 2009, consumption is forecast to increase by 3.0-3.5% per annum to 2013, implying demand of 2.69mn b/d by the end of the forecast period. The export capability would therefore be approximately 0.55mn b/d by 2013. Gas production is forecast to increase from 13.9bcm in 2008 to 25.0bcm over the period to 2013, with consumption climbing from 25.7bcm to 31.2bcm.

Between 2008 and 2018, we are forecasting an increase in Brazilian oil production of 126.4%, with crude volumes rising steadily to 4.3mn b/d by 2018. Oil consumption between 2008 and 2018 is set to increase by 26.8%, with growth slowing to an assumed 2% per annum towards the end of the period and the country using 3.04mn b/d by 2018. Gas production is expected to rise gradually, from 13.9bcm in 2008 to 35.0bcm by 2018. With demand growth of 50.8%, this provides a net import requirement falling from 11.3bcm to 3.0bcm during the 10-year period. Details of BMI's 10-year forecasts can be found in the appendix to this report.

Brazil this quarter retains outright first place in BMI's updated Upstream Business Environment rating, ahead of Venezuela and Peru, thanks to the size of the oil resource base, output growth prospects, attractive licensing regime and competitive environment. While some weak points exist in terms of the country's risk ratings and only mid-table reserves-to-production ratios (RPR), its position at the head of the regional league table continues to look unassailable. The country now shares the top slot of BMI's updated Downstream Business Environment rating with Colombia, reflecting its region-beating oil demand, substantial refining capacity and competitive environment. Colombia may now be alongside, but we see no obvious threat of it overtaking Brazil over the medium term.