Bahrain Oil and Gas Report Q2 2008

The latest Bahrain Oil & Gas Report from BMI forecasts that the country will account for 0.36% of MEA regional oil demand by 2012, while providing an insignificant contribution to supply. MEA regional oil use of 8.70mn barrels per day (b/d) in 2001 rose to an estimated 11.21mn b/d in 2007. It should average 11.54mn b/d in 2008 and then rise to around 12.90mn b/d by 2012. Regional oil production was 30.39mn b/d in 2001, and in 2007 averaged an estimated 35.53mn b/d. It is set to rise to 40.94mn b/d by 2012. In terms of natural gas, the region in 2007 consumed an estimated 413bcm, with demand of 650bcm targeted for 2012, representing 57.4% growth. Production of an estimated 570bcm in 2007 should reach 941bcm in 2012 (+65%), which implies net exports rising from an estimated 157bcm in 2007 to 291bcm by the end of the period. Bahrain in 2007 consumed an estimated 2.18% of the region's gas, with its market share set to rise to 2.49% by 2012. It contributed an estimated 2.02% to 2007 regional gas production but, by 2012, will account for just 0.74% 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 Central and Eastern Europe (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 around US$71/bbl in 2009 and falling further to US$70/bbl in 2010-12.

Bahrain's real GDP growth is forecast by BMI at 5.4% for 2008, following an estimated 6.8% in 2007.

We are assuming 4.5% growth in 2008 and 4.6% in 2009, followed by 4.5% in 2011 and 4.6% in 2012.

Consumption of oil is set to rise with the growth of the economy, increasing by at least 3% per annum over the forecast period and reaching an estimated 46,000b/d by 2012. The state accounts for all domestic oil and gas production, as well as the refining and distribution segment. International oil company (IOC) involvement is very limited. Thanks to a lack of resources potential and the absence of large-scale IOC upstream ventures, crude output is now averaging just 35,000b/d, although no further significant nearterm decline is expected. We are assuming liquids volumes will remain near this level until the end of the decade, with some risk of slippage due to asset maturity and a lack of investment options. Gas output is set to fall from 11.5bcm to 7.0bcm over the period, implying imports of around 9.2bcm by 2012.

Bahrain occupies equal 14th place in BMI's newly revised Upstream Business Environment rating, alongside Saudi Arabia. It stands second from last because of the very modest oil and gas reserves, poor production growth outlook, low reserves-to-production ratios (RPR) and modest non-state involvement in the upstream segment. The country's risk environment is very sound, but this will prove insufficient to help Bahrain tackle Turkey above it in the league table. It should, however, be able to keep Kuwait at bay and avoid slipping to last place. The state is also in the lower half of the league table in BMI's newlyrevised Downstream Business Environment rating, with few high scores and progress further up the rankings unlikely. It is ranked 13th, thanks to low scores for refining capacity, oil and gas demand, population and the privatisation trend. The growth outlook for oil/gas consumption and refining capacity also represent weak suits, along with the pedestrian increase in GDP per capita. Qatar is immediately behind it in the regional rankings, and there is some risk of it challenging for Bahrain's 13th place.