Peru Oil and Gas Report

The latest Peru Oil & Gas Report from BMI forecasts that the country will account for 2.19% of Latin America regional oil demand by 2013, while providing 1.23% 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 7.73mn b/d in 2009 and then rise to around 8.48mn 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. Peru is not yet a significant regional gas producer or consumer but by 2013 its share of regional demand should be 1.81%, while it will account for 4.99% 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.

Peruvian real GDP growth is now forecast by BMI at 3.2% for 2009, down from 9.8% in 2008. We are assuming 3.8% growth in 2010, 4.5% in 2011, 3.4% in 2012 followed by 4.2% in 2013. We are assuming oil and gas liquids production of 130,000b/d by 2012/2013, with the country expected to pump 119,000b/d in 2009. Consumption, beyond expected 2009 weakness, is forecast to increase by 2-3% per annum to 2013, implying demand of 185,000b/d by the end of the forecast period. The import requirement would therefore be approximately 55,000b/d by 2013. Gas production is forecast to increase from an estimated 3.4bcm in 2008 to 14.0bcm over the period, with net exports of up to 9.6bcm by 2013.

Between 2008 and 2018, we are forecasting a decrease in Peruvian oil production of 16.2%, with crude and gas liquids volumes peaking at 130,000b/d in 2012/13, before falling steadily 101,000b/d at the end of the 10-year forecast period. Oil consumption between 2008 and 2018 is set to increase by 19.0%, with growth slowing to an assumed 2.0% per annum towards the end of the period and the country using 205,000b/d by 2018. Gas production is expected to rise steadily, from around 3.4bcm in 2008 to 20.0bcm in 2018. With demand growth of 108.4%, this implies export potential rising from 0.7bcm in 2009 to 12.9bcm in 2018. Details of BMI's 10-year forecasts can be found in the appendix to this report.

Peru now ranks third in BMI's updated Upstream Business Environment rating, in spite of its modest hydrocarbons resource base. It has this quarter been overtaken by the better-endowed Venezuela. While Peru's absolute resource base may be small, the output growth outlook is excellent, reserves-toproduction ratios (RPR) are above the regional average, and licensing terms are particularly attractive.

The country has a lower position in BMI's Downstream Business Environment rating, ranked fifth just ahead of Mexico as a result of state ownership and regulation, modest oil demand growth prospects, a lack of refining capacity expansion and the limitations of population and nominal GDP. Peru is four points behind Trinidad, so has limited potential to move higher in the regional ranking.