Egypt Oil and Gas Report Q3 2009

The latest Egypt Oil & Gas Report from BMI forecasts that the country will account for 18.90% of African regional oil demand by 2013, while providing 6.03% of supply. African regional oil use of 2.98mn barrels per day (b/d) in 2001 rose to an estimated 3.65mn b/d in 2008. It should average 3.69mn b/d in 2009 and then rise to around 4.08mn b/d by 2013. Regional oil production was 7.84mn b/d in 2001, and in 2008 averaged an estimated 10.20mn b/d. It is set to rise to 11.78mn b/d by 2013. Oil exports are growing steadily, because demand growth is lagging the pace of supply expansion. In 2001, the region was exporting an average 4.86mn b/d. This total had risen to an estimated 6.54mn b/d in 2008 and is forecast to reach 7.70mn b/d by 2013. Angola has the greatest production growth potential, with Nigerian exports set to soar if it can resolve recent quasi-political issues.

As regards natural gas, the region in 2008 consumed an estimated 107bn cubic metres (bcm), with demand of 177bcm targeted for 2013. Production of an estimated 211bcm in 2008 should reach 356bcm in 2013, which implies net exports rising from an estimated 104bcm in 2008 to 179bcm by the end of the period. Egypt in 2008 consumed an estimated 30.28% of the region's gas, with its market share set to be 23.46% by 2013. It contributed an estimated 26.03% to 2008 regional gas production and, by 2013, will account for 23.87% of supply.

In terms of the OPEC basket of crudes, the average price in Q1 2009 was an estimated US$45.78/bbl, down 13% from the US$52.51/bbl recorded during the previous three months. During the second quarter, there has been little change to our view of oil market developments. BMI is forecasting an average OPEC basket price of US$51.30/bbl, with the March gains being retained in April, before further recovery to a possible US$57.00/bbl is seen by June. For 2009, we are still assuming an average OPEC basket price of US$52.00/bbl (-45% year-on-year). The BMI full year forecast implies Brent crude at US$53.73/bbl, WTI averaging US$54.90/bbl and Urals at US$52.66/bbl for 2009.

For the whole of 2009, the BMI assumption for gasoline is an average US$56.89/bbl, with the price peaking at a forecast monthly average of US$64.75/bbl in December 2009. The overall y-o-y fall in 2009 gasoline prices is put at 44.1%. For gasoil in 2009, the BMI forecast is for an average price of US$69.35/bbl, assuming a monthly high of US$94.48/bbl in December. The full-year outturn represents a 42.8% fall from the 2008 level. The monthly average jet fuel price is forecast to range from US$53.75/bbl in February to US$96.76/bbl in December, proving an annual level of US$71.78/bbl. This compares with US$124.95/bbl in 2008.

Egyptian real GDP growth is forecast by BMI at 3.7% for 2009, down from an estimated 7.2% in 2008.

We are assuming 1.8% growth in 2010, 3.3% in 2011 and 4.8% in 2012, followed by 5.6% in 2013. We expect oil demand to rise from an estimated 671,000b/d in 2008 to 771,000b/d in 2013, subject to national efforts to conserve oil and increase the use of gas. State oil company Egyptian General Petroleum Corporation (EGPC) operates in partnership with various international oil companies (IOCs), and alone accounts for just 20% of the country's oil output. In spite of higher recent IOC investment, combined oil and gas liquids output is forecast to decrease from an estimated 730,000b/d in 2008 to 710,000b/d in 2013. Gas production should reach 85bcm by 2013, up from an estimated 55bcm in 2008. Consumption is expected to rise from 33bcm to 42bcm by the end of the forecast period, providing exports of 43bcm.

Between 2008 and 2018, we are forecasting a decrease in Egyptian oil and gas liquids production of 14.3%, with volumes slipping steadily to 626,000b/d by the end of the 10-year forecast period. Oil consumption between 2008 and 2018 is set to increase by 33.3%, with growth slowing to an assumed 3.0% per annum towards the end of the period and the country using 894,000b/d by 2018. Gas production is expected to rise to 106bcm by the end of the period. With demand rising by 55.7% between 2008 and 2018, there should be export potential increasing to 55.4bcm, in the form of liquefied natural gas (LNG).

Details of BMI's 10-year forecasts can be found in the appendix to this report.

Egypt occupies seventh place in BMI's updated Upstream Business Environment rating, just two points behind Algeria. The county's score benefits from healthy proven gas reserves, an established competitive landscape, a reasonable gas reserves-to-production ratio (RPR) and attractive licensing terms. The country's risk environment is sound, but this alone may not be enough to push Egypt past Algeria during the next couple of quarters. However, South Africa is a comfortable distance behind and lacks the upstream credentials to challenge for Egypt's seventh place. The country is in the upper half of the league table in BMI's Downstream Business Environment rating, with some high scores but progress further up the rankings unlikely. It is ranked second, thanks to high scores for refining capacity, oil and gas demand, retail site intensity, population and GDP per capita growth. The growth outlook for oil/gas consumption and refining capacity represent relatively weak suits. Algeria is behind it in the regional rankings, and there is some long-term risk of it challenging for Egypt's second place.