Czech Republic Oil & Gas Report Q1 2008

The latest Czech Republic Oil & Gas Report from BMI forecasts that the country will account for 3.79% of Central and Eastern European (CEE) regional oil demand by 2011, while making no material 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. The Czech Republic's share of gas consumption in 2006 was 1.43%, with no meaningful contribution to regional supply. Its share of demand is forecast to be 1.51% by the end of the forecast period.

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.

Czech real GDP growth is now forecast by BMI at 6.0% for 2007, down from 6.1% in 2006. We are assuming 5.2% growth in 2008, followed by 4.7% in 2009 and 4.5% in 2010/11. Assuming an average rise in consumption of 2% per annum, below the CEE norm, oil demand will reach 230,000b/d in 2011 - implying imports of at least 226,000b/d. In spite of a privatised oil industry, there is very limited international oil company (IOC) involvement in the upstream segment to boost domestic supply of oil or gas. BMI is assuming gas demand will rise by an annual 5% from 8.5bcm in 2006 to around 10.8bcm by 2011.

In the BMI Business Environment Ranking matrix, the Czech Republic receives an unchanged composite score of 35, which still ranks the country fourth out of 12 states included in the CEE region. The overall business environment can be considered fairly attractive in a regional context, thanks largely to low levels of perceived economic and political risk, plus a better-than-average regulatory regime. There is very little in the way of domestic upstream oil or gas resources, which limits the Czech Republic's appeal to IOCs.

However, the fuels market is growing relatively quickly, with EU membership stimulating both privatisation and liberalisation.