Brazil Oil and Gas Report Q2 2008

The latest Brazil Oil & Gas Report from BMI forecasts that the country will account for 30.60% of Latin American regional oil demand by 2012, while providing 26.45% 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. Brazil's share of gas consumption in 2007 was an estimated 11.45%, while its share of production was 6.58%. By 2012, its share of gas consumption is forecast to be 101.37%, with the country accounting for 10.01% 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 around US$71/bbl in 2009 and falling further to US$70/bbl in 2010-12.

Brazilian real GDP growth is forecast by BMI at 4.7% for 2008, following an estimated 5.0% in 2007.

We are assuming 4.6% growth in 2009, 4.3% in 2010/11, followed by 4.5% in 2012. 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 3.05mn b/d by 2012, with the country expected to pump 2.20mn b/d in 2008.

Consumption is forecast to increase by up to 3.5% per annum to 2012, implying demand of 2.48mn b/d by the end of the forecast period. The export capability would therefore be approximately 911,000b/d by 2012. Gas production is forecast to increase from 11.5bcm in 2006 to 28.0bcm over the period, with consumption climbing from 21.1bcm to 29.9bcm.

Brazil claims first place in BMI's newly revised Upstream Business Environment rating, with a comfortable lead over nearest rival Venezuela thanks to the size of the oil resource base, output growth prospects, attractive licensing regime and competitive environment. The country also tops the league table in BMI's newly-revised Downstream Business Environment rating, reflecting its region-topping oil demand, substantial refining capacity and competitive environment. Colombia ranks second, but is some way behind the regional leader and we see no obvious threat to Brazil over the medium term.