Australia Oil and Gas Report Q1 2007

The latest Australia Oil & Gas Report from BMI forecasts that the country will account for 3.4% of Asia/Pacific regional oil demand by 2010, while providing 6.3% of supply. Asia/Pacific regional oil demand rose to an estimated 24.74mn b/d last year and should average 25.36mn b/d in 2007, before reaching 27.64mn b/d by 2010. Asia/Pacific gas consumption in 2006 is estimated at 419bcm, with demand of 602bcm targeted for 2010. Production last year of 342bcm should reach 490bcm by the end of the decade. Australia's share of consumption in 2006 was an estimated 6.68%, while its share of production is put at 12.57%. By 2010, its share of demand is forecast to be 5.5%, with the country accounting for 11.2% of supply. For the whole of last year, our preliminary estimates of average prices are US$61.30 per barrel for the OPEC basket, US$65.03 for Brent, US$66.24/bbl for WTI and US$61.30 for Urals. For 2007, the revised BMI forecasts are for the OPEC basket to average US$55 per barrel. Based on last year's typical price differentials, this implies Brent at US$58.72, WTI averaging US$59.94/bbl, and Urals at US$55 per barrel. Our central view is that the OPEC basket price will slip from US$55/bbl this year to US$50 in 2008, before settling around US$45/bbl in 2009/2010. Australian real GDP growth is forecast by BMI at 3.5% for 2007, up from an estimated 2.9% in 2006. We are also assuming 3.5% growth in 2008-09, followed by 3.6% in 2010. There is no state oil industry, but a group of domestic and leading international companies is investing heavily in gas production and exports, but is having less success in staving off Australia's declining oil output. We are assuming oil and gas liquids production of no more than 480,000b/d by 2011, although the country is thought to have pumped 540,000b/d last year.

Consumption is forecast to increase by around 1.5% per annum to 2010, implying demand of 959,000b/d by the end of the forecast period. The import requirement would therefore be approximately 479,000b/d by 2011. In the BMI Business Environment Ranking matrix, Australia receives an unchanged composite score of 48 which continues to rank the country first out of 14 states included in the Asia/Pacific region. The overall business environment can be considered very attractive in a regional context, thanks largely to low levels of perceived political and economic risk, full oil industry deregulation, above-average licensing terms and a well-established competitive landscape involving several IOCs. There is a relatively poor outlook for domestic upstream oil output growth, but significant gas potential. Similarly, the country's gas reserves position is much better than for oil. It is predominantly the attractions of the gas sector that will secure a continuing high level of IOC involvement.