Brazil Oil & Gas Report Q1 2008

The latest Brazil Oil & Gas Report from BMI forecasts that the country will account for 32.21% of Latin American regional oil demand by 2011, while providing 23.90% 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. Brazil's share of gas consumption in 2006 was 11.81%, while its share of production was 6.56%. By 2011, its share of gas consumption is forecast to be 10.54%, with the country accounting for 8.75% 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.

Brazilian real GDP growth is forecast by BMI at 4.7% for 2007, following 3.7% in 2006. We are assuming 4.5% growth in 2008, 4.6% in 2009, followed by 4.3% in 2010/2011. Partly-privatised deepwater specialist Petrobras will continue to partner international oil companies (IOCs) in supporting output growth efforts, while dominating domestic production. We are assuming oil and gas liquids production of at least 2.75mn b/d by 2011, with the country expected to pump 1.85mn b/d in 2007.

Consumption is forecast to increase by up to 5% per annum to 2011, implying demand of 2.63mn b/d by the end of the forecast period. The export capability would therefore be approximately 465,000b/d by 2011. Gas production is forecast to increase from 11.5bcm in 2006 to 24.0bcm over the period, with consumption climbing from 21.1bcm to 28.2bcm.

In the BMI Business Environment Ranking matrix, Brazil receives an unchanged composite score of 36, which leaves the country in fourth place out of the nine states included in the Latin America region. The overall business environment can be considered attractive in a regional context, thanks largely to a relatively low level of perceived economic risk, plus the country's strong oil output growth potential and a generally effective licensing regime. While the country's reserves to production ratio (RPR) is only just above the regional average, there is no doubt significant scope for upwards revision to reserves estimates.

Meanwhile, strong volume growth from the development of offshore fields with IOC involvement puts Brazil among the most attractive countries in the region from an energy perspective.