Colombia Oil and Gas Report Q4 2009

The latest Colombia Oil & Gas Report from BMI forecasts that the country will account for 3.15% of Latin America regional oil demand by 2013, while providing 6.38% 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. Colombia's share of gas consumption in 2008 was 3.99%, while its share of production was 4.29%. By 2013, its share of gas consumption is forecast to be 3.98%, with the country accounting for 3.92% 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.

Colombian real GDP is now forecast by BMI to decline by 1.4% in 2009, compared with growth of 2.5% in 2008. We are assuming 1.2% growth in 2010, 3.8% in 2011, followed by 3.3% in 2012 and 3.2% in 2013. The government is working hard to encourage international oil company (IOC) investment and boost near-term domestic oil production, aided by state-owned Ecopetrol. We are assuming oil and gas liquids production of no more than 675,000b/d by 2013, with the country expected to pump 615,000b/d in 2009. Consumption beyond 2009 is forecast to increase by 3-4% per annum to 2013, implying demand of 266,000b/d by the end of the forecast period. The country's export capability will therefore rise to around 409,000b/d by 2013. Gas consumption is forecast to increase from 8.2bcm in 2008 to 9.7bcm over the period, met by rising domestic production, which will also provide modest exports to Venezuela.

Between 2008 and 2018, we are forecasting a decrease in Colombian oil production of 14.2%, with crude volumes peaking at 675,000b/d in 2013 and then falling steadily to 530,000b/d by the end of the forecast period. Oil consumption between 2008 and 2018 is set to increase by 31.9%, with growth slowing to an assumed 3.0% per annum towards the end of the period and the country using 309,000 b/d by 2018. Gas production is expected to rise gradually, from 9.1bcm in 2008 to 15.0bcm in 2018. With demand growth of 52.4%, this implies export potential reaching 2.5bcm by 2018. Details of BMI's 10-year forecasts can be found in the appendix to this report.

Colombia ranks fourth behind Peru in BMI's updated Upstream Business Environment rating, well ahead of Trinidad. While the absolute resource base is modest, the competitive environment is attractive and licensing terms have improved to become some of the best in the region. Country risk is moderate and Colombia is well placed to retain its strong position in the league table. The country now ranks equal first alongside Brazil in BMI's updated Downstream Business Environment rating, reflecting its oil demand growth outlook, refining capacity expansion plans, moderate Country Risk and low retail site intensity. Argentina holds third place, but arguably lacks the potential to challenge Colombia.