Japan Oil and Gas Report

The latest Japan Oil & Gas Report from BMI forecasts that the country will account for 15.17% of Asia Pacific regional oil demand by 2013, while not contributing significantly to regional supply. Asia Pacific regional oil use of 21.40mn barrels per day (b/d) in 2001 reached 25.67mn b/d in 2008. It should average 24.83mn b/d in 2009, then rise to around 28.51mn b/d by 2013. Regional oil production was just under 8.41mn b/d in 2001, and averaged 8.45mn b/d in 2008. It is set to increase to 8.75mn b/d by 2013. In 2001 the region was importing an average 12.99mn b/d. This total had risen to an estimated 17.22mn b/d in 2008, and is forecast to reach 19.76mn b/d by 2013.

In terms of natural gas, in 2008 the region consumed 459bn cubic metres (bcm) and demand of 562bcm is targeted for 2013. Production of 356bcm in 2008 should reach 488bcm in 2013, but implies net imports easing from an estimated 102bcm per annum in 2008 to 74bcm in 2013. This is in spite of many Asian gas producers being major exporters. Japan's share of gas consumption in 2008 was 20.43%, while it provides no meaningful share of production. By 2013, it is expected to be consuming 17.73% of the region's gas.

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.

Japanese real GDP is now forecast by BMI to decline by 6.1% in 2009, against estimated contraction of 0.7% in 2008. We foresee 0.7% growth in 2010, followed by 1.9% in 2011, 2.3% in 2012 and 2.0% in 2013. There is little domestic upstream activity, with local state and private firms concentrating on international exploration efforts. The outlook for domestic oil and gas production therefore remains poor.

Oil consumption is forecast to fall between 2008 and 2013, implying demand of 4.33mn b/d by the end of the forecast period. The country should also be consuming 100bcm of gas by the end of the period, all of which will be imported in the form of liquefied natural gas (LNG).

Between 2008 and 2018, we are forecasting a reduction in Japanese oil consumption of 13.31%, with demand slipping steadily to the end of the period and the country using 4.20mn b/d by 2018. Gas consumption is expected to rise from 94bcm in 2008 to a possible 105bcm by 2018. All of Japan's gas will continue to be imported in the form of LNG. Details of BMI's 10-year forecasts can be found to the rear of this report, which provides regional and country-specific projections.

Japan still ranks 10th in BMI's updated Upstream Business Environment rating, thanks to a virtual absence of hydrocarbon resources. The score reflects the limited involvement of the government in upstream oil activities and an exceptionally healthy country risk profile, which counter the lack of reserves and output growth potential. The country ranks fourth in BMI's updated Downstream Business Environment rating, reflecting its high levels of oil and gas consumption, increasing gas demand and the established modern refining capability. However, it is held back by a high level of retail site intensity and a poor oil demand growth outlook. It is just one point behind Australia, and one point clear of Singapore.