Chile Oil and Gas Report Q4 2009

The latest Chile Oil & Gas Report from BMI forecasts that the country will account for 4.68% of Latin American regional oil demand by 2013, while making no meaningful contribution to 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. Chile's share of gas consumption in 2008 was 1.26%, while it had a 0.75% share of production. By 2013, its share of gas consumption is forecast to be 1.36%, with Chile making a contribution of just 0.57% to production.

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.

Chilean real GDP growth is now forecast by BMI at 0.1% for 2009, down from 3.2% in 2008. We are assuming 1.2% growth in 2010, 3.1% in 2011, 3.4% in 2012 and 3.5% in 2013. State oil and gas company Empresa Nacional del Petr??leo (ENAP) is responsible for all domestic oil and gas production, with volumes in decline. We are assuming oil and gas liquids production of no more than 4,000b/d by 2013, with the country expected to pump an average 8,000b/d in 2009. Consumption beyond 2009 is forecast to increase by up to 3% per annum to 2013, implying demand of 396,000b/d by the end of the forecast period. The import requirement would therefore be around 392,000b/d by 2013. Gas production is forecast to increase from 1.6bcm in 2008 to a peak of 1.8bcm in 2009/2010, falling back to 1.6bcm in 2013, with net imports of 1.7bcm required by 2013.

Between 2008 and 2018, we are forecasting an increase in Chilean oil consumption of 22.0%, with demand rising steadily from 358,000b/d to 437,000b/d. The annual growth rate is expected to slow to 2.0% towards the end of the period. Gas production is expected to peak at around 1.8bcm in 2009/2010, before declining steadily to 1.2bcm by 2018. With demand growth of 62.8% to 4.2bcm, this provides an import requirement rising from 1bcm to 3bcm during the 10-year period. Details of BMI's 10-year forecasts can be found in the appendix to this report.

Chile's outright last place in BMI's updated Upstream Business Environment rating is achieved in spite of high reserves-to-production ratios (RPR) and an investor-friendly country risk profile. There is little likelihood of a move much further up the rankings, but Chile may be able to catch Mexico during the next few quarters. Chile fares rather better in BMI's updated Downstream Business Environment rating, taking seventh place (behind Mexico), reflecting its oil demand growth outlook, regulatory environment and attractive country risk rating. It is positioned ahead of Venezuela in the league table, with the potential to move higher.