Bulgaria Oil & Gas Report Q1 2008

The latest Bulgaria Oil & Gas Report from BMI forecasts that the country will account for 2.02% of Central and Eastern European (CEE) regional oil demand by 2011, while making no meaningful contribution to supply. CEE regional oil demand rose to 5.30mn barrels per day (b/d) in 2006 and should average 5.45mn b/d in 2007, before reaching 6.06mn b/d by 2011. Production of 12.41mn b/d in 2006 is forecast to reach 14.91mn b/d by 2011. CEE gas consumption in 2006 was 594bn cubic metres (bcm), with demand of 716bcm targeted for 2011. Production in 2006 of 685bcm should reach 754bcm by the end of the period. Bulgaria's share of consumption in 2006 was 0.51%, while it has no significant share of production. By 2011, its share of demand is forecast to be 0.70%.

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.

Bulgarian real GDP growth is now forecast by BMI at 6.1% for 2007, unchanged from 2006. We are assuming 5.8% growth in 2008, followed by 5.3% in 2009, 4.7% in 2010 and 5.2% in 2011. Oil demand is rising at 2-3% per annum, which suggests that consumption could reach 123,000b/d by 2011. Imports can be expected to grow in line, as exploration efforts in the largely privatised hydrocarbons sector by small international oil companies (IOCs) do not appear likely to deliver increased domestic crude volumes. Gas consumption is rising well ahead of domestic supply. While gas output could reach 1bcm by the end of 2008, demand is heading for 5bcm by 2011, requiring imports averaging 3.9bcm In the BMI Business Environment Ranking matrix, Bulgaria receives a higher composite score of 30, which still ranks the country eighth out of 12 states included in the CEE region. The country's overall business environment can be considered fairly unattractive in a regional context, in spite of only moderate long-term political and economic risk. The country has only average scores for licensing, competitive environment, hydrocarbons reserves and future oil/gas production growth. Russian influence is considerable, as other IOCs have found relatively little to attract them.