Argentina Oil & Gas Report Q1 2008

The latest Argentina Oil & Gas Report from BMI forecasts that the country will account for 6.14% of Latin America regional oil demand by 2011, while providing 6.26% of supply. Latin America regional oil demand rose to 7.15mn barrels per day (b/d) in 2006. It should average 7.33mn b/d in 2007 and then rise to around 8.15mn b/d by 2011. Regional oil production was in 2006 10.58mn b/d. It is set to rise to 11.51mn b/d by 2011. In terms of natural gas, the region in 2006 consumed 179bn cubic metres (bcm), with demand of 268bcm targeted for 2011, representing 50% growth. Production of 175bcm in 2006 should reach 274bcm in 2011, and implies just 6bcm of net exports the end of the period. Argentina's share of gas consumption in 2006 was 23.40%, while its share of production was 26.319%. By 2011, its share of gas consumption is forecast to be 17.65%, with the country accounting for 18.96% of supply.

Global oil demand growth is now expected to be 1.9% in 2007, down from our June forecast, but with Asia Pacific and the CEE regions dominating. While oil demand growth assumptions remain robust, there are early signs that future revisions will be on the downside as factors such as the credit crunch kick in.

The overall demand outlook for the period to 2011 remains healthy, but subject to review if the macroeconomic outlook deteriorates. Our projections for 2007 as a whole are revised upwards from the last quarterly report. We are now assuming an OPEC basket price average of US$64 per barrel, compared with the US$59 estimate provided by our last quarterly report. Based on recent price differentials, this implies Brent at US$67.81, WTI averaging US$66.18/bbl, and Urals at US$64.43/bbl.

Argentinean real GDP growth is now forecast by BMI at 7.6% for 2007, down from 8.5% in 2006. We are assuming 5.1% growth in 2008, 3.3% in 2009, followed by 3.6% in 2010 and 3.5% in 2011. A new state entity is now partnering international oil companies (IOCs) in supporting output growth efforts, operating alongside regional heavyweight RepsolYPF and established foreign producers. We are assuming oil production of no more than 720,000b/d by 2011, with the country expected to pump 725,000b/d in 2007. Consumption is forecast to increase by around 2.5% per annum to 2011, implying demand of 500,000b/d by the end of the forecast period. The crude oil export capability would therefore be approximately 220,000b/d by 2011. Gas production is forecast to increase from 46.1bcm in 2006 to 52bcm over the period.

In the BMI Business Environment Ranking matrix, Argentina receives a slightly lower composite score of 26, which still ranks the country seventh out of nine states included in the Latin America region. The overall business environment can be considered unattractive in a regional context, thanks largely to below-average hydrocarbons growth potential and reserves-to-production ratio (RPR) offsetting respectable scores for political risk and licensing framework. Argentina is no longer a high priority for IOC investment, thanks to limited potential and recent government intervention in energy pricing.