Czech Republic Oil and Gas Report Q2 2008

The latest Czech Republic Oil & Gas Report from BMI forecasts that the country will account for 3.80% of Central and Eastern European (CEE) regional oil demand by 2012, while making no material contribution to supply. CEE regional oil demand rose to an estimated 5.45mn barrels per day (b/d) in 2007 and should average 5.59mn b/d in 2008, then rising to around 6.23mn b/d by 2012. Production of an estimated 12.74mn b/d in 2007 is forecast to reach 15.31mn b/d by 2012. CEE gas consumption in 2007 was an estimated 612bn cubic metres (bcm), with demand of 744bcm targeted for 2012. Production of an estimated 701bcm in 2007 should reach 792bcm in 2012, which implies net exports falling from an estimated 89bcm in 2007 to just 49bcm by the end of the period. The Czech Republic's estimated share of gas consumption in 2007 was 1.46%, with no meaningful contribution to regional supply. Its share of demand is forecast to be 1.53% by the end of the forecast period.

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.

Czech real GDP growth is forecast by BMI at 5.2% for 2008, down from an estimated 62% in 2007. We are assuming 4.7% growth in 2009, followed by 4.5% in 2010/11 and 4.4% in 2012. Assuming an average rise in consumption of 2-3% per annum, below the CEE norm, oil demand will reach 237,000b/d in 2012 - implying imports of at least 234,000b/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 an estimated 8.9bcm in 2007 to around 11.4bcm by 2012.

The Czech Republic occupies ninth place in BMI's newly revised Upstream Business Environment rating, just ahead of Romania. Its minimal oil and gas reserves and poor production outlook work against the country, but are offset somewhat by privatisation progress, the competitive/regulatory environment and reasonable country risk factors. Long-term scope exists for Czech Republic to challenge Ukraine above it. The country is in the middle of the league table in BMI's newly-revised Downstream Business Environment rating, with a few high scores but no reason to expect near-term progress further up the rankings. It shares sixth place with Azerbaijan. Refining capacity is among the region's lowest, with low scores for likely capacity expansion and for oil and gas demand growth. Population and GDP per capita also work against the country. Ukraine is out of reach above it, and there is some threat from Hungary below.