Argentina Oil and Gas Report Q2 2008

The latest Argentina Oil & Gas Report from BMI forecasts that the country will account for 6.33% of Latin America regional oil demand by 2012, while providing 6.07% of supply. Latin America regional oil demand rose to an estimated 7.27mn barrels per day (b/d) in 2007. It should average 7.40mn b/d in 2008 and then rise to around 8.10mn b/d by 2012. Regional oil production was in 2007 an estimated 10.29mn b/d. It is set to rise to 11.53mn b/d by 2012. In terms of natural gas, the region in 2007 consumed an estimated 195bn cubic metres (bcm), with demand of 263bcm targeted for 2012, representing 47% growth. Production of an estimated 198bcm in 2007 should reach 280bcm in 2012, and implies just 17bcm of net exports the end of the period. Argentina's share of gas consumption in 2007 was an estimated 21.94%, while its share of production was 24.05%. By 2012, its share of gas consumption is forecast to be 18.42%, with the country accounting for 18.23% of supply.

Global oil demand growth is now expected to have been 1.7% for 2007, rising to a little less than 2.0% in 2008. Asia and the CEE continue to dominate. The overall demand outlook for the period to 2012 remains healthy (average growth 1.8%), but subject to review if the macroeconomic outlook deteriorates. We are still assuming some easing of energy prices during the period, but from a much higher level than envisaged earlier. Supply growth is capable of matching demand expansion - but only if OPEC cooperates as non-OPEC forecasts are fragile. Between 2006 and 2012, we see supply rising by an average 1.7% per annum - subject to OPEC strategy. Our revised central view is that the OPEC basket price will rise from around US$69/bbl in 2007 to US$74 in 2008, before settling at around US$71/bbl in 2009 and falling further to US$70/bbl in 2010-12.

Real GDP growth is forecast by BMI at 6.0% for 2008, down from an estimated 7.6% in 2007. We are assuming 3.3% growth in 2009, 3.6% in 2010, followed by 3.9% in 2011 and 3.7% in 2012. A new state entity partners international oil companies (IOCs) in supporting output growth efforts, operating alongside regional heavyweight RepsolYPF and others. We are assuming oil production of no more than 700,000b/d by 2012, with the country expected to pump 723,000b/d in 2008. Consumption is forecast to increase by around 2.5% per annum to 2012, implying demand of 513,000b/d by the end of the forecast period. The crude oil export capability would therefore be approximately 187,000b/d by 2012. Gas production is forecast to increase from 46.1bcm in 2006 to 51bcm over the period.

Argentina shares sixth place in BMI's newly revised Upstream Business Environment rating with Ecuador. Its gas resources, largely privatised oil sector, licensing regime and competitive landscape work in the country's favour, but are undermined by an absence of growth potential, asset maturity and unappealing risk environment. The country is well up the league table in BMI's newly-revised Downstream Business Environment rating, reflecting its privatised refining and marketing segment, substantial capacity and competitive environment, offset by only moderate growth potential and a relatively high level of retail site intensity.