Hong Kong Oil and Gas Report Q3 2009

The latest Hong Kong Oil & Gas Report from BMI forecasts that the country will account for just 1.28% of Asia Pacific regional oil demand by 2013, while making no contribution to supply. Asia Pacific regional oil use of 21.40mn barrels per day (b/d) in 2001 reached an estimated 25.87mn b/d in 2008. It should average 25.79mn b/d in 2009, then rise to around 29.12mn b/d by 2013. Regional oil production was just under 8.41mn b/d in 2001, and averaged an estimated 8.41mn b/d in 2008. It is set to increase to 8.74mn b/d by 2013.

In terms of natural gas, in 2008 the region consumed an estimated 440bn cubic metres (bcm) and demand of 551bcm is targeted for 2013. Production of an estimated 364bcm in 2008 should reach 484bcm in 2013, but implies net imports easing from an estimated 76bcm per annum in 2008 to 67bcm in 2013. This is in spite of many Asian gas producers being major exporters. Hong Kong's share of consumption in 2008 was an estimated 0.71%, while it has no production. By 2013, its share of demand is forecast to be 0.74%.

In terms of the OPEC basket of crudes, the average price in Q109 was an estimated US$45.78 per barrel (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 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.

Hong Kong's real GDP growth is forecast by BMI to contract 3.6% in 2009, compared with growth of 2.5% in 2008. We are assuming 2.2% growth in 2010, followed by 4.3% in 2011, and 4.9% in 2012/2013.

There is no upstream or refining segment, but international oil companies (IOCs) and Chinese companies are investing in import and distribution facilities. Oil consumption is forecast to increase by around 2.5% per annum to 2013, implying demand of 373,000b/d by the end of the forecast period. Gas demand is set to reach 4.1bcm by 2013, with all of the fuel imported.

Between 2008 and 2018, we are forecasting an increase in Hong Kong oil consumption of 26.82%, with demand reaching 412,000b/d by the end of the forecast period. Oil consumption growth slows to an assumed 2.0% per annum towards the end of the period. Gas demand growth of 70.81% provides an import requirement rising to 5.4bcm by 2018. Details of BMI's 10-year forecasts can be found in the appendix to this report, which provides global, regional and country-specific projections.

Hong Kong ranks equal 11th in BMI's updated Upstream Business Environment rating, alongside Singapore. The poor showing reflects the absence of domestic hydrocarbons. The risk environment is much more attractive than for many Asian peers, but there are no opportunities for IOCs in the upstream segment. Hong Kong is also ranked equal 11th in BMI's Downstream Business Environment rating, alongside Thailand, reflecting its status as a very small energy market with few investment opportunities available. It beats only Malaysia and Taiwan, due to the low risk profile.