Hungary Oil and Gas Report Q2 2008

The latest Hungary Oil & Gas Report from BMI forecasts that the country will account for 2.81% of Central and Eastern European (CEE) regional oil demand by 2012, while providing less than 0.2% of 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. Hungary's estimated share of consumption in 2007 was 2.12%, which is likely to have risen to 2.15% by 2012. Its contribution to gas production is not significant, with no improvement expected over 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.

Hungarian real GDP growth is estimated by BMI at 2.9% for 2008, up from an estimated 1.5% in 2007.

We are assuming 4.5% growth in 2009/10, 4.4% in 2011 and 4.0% in 2012. Hungarian oil consumption has fallen from 198,000b/d in 1990 to 160,000b/d in 2006. We are now expecting a gradual recovery, as demand rises by 1.5% per annum, with consumption reaching 175,000b/d by 2012. Domestic production, largely in the hands of former state company MOL, is not expected to recover from the recent decline, with steady slippage leading to higher import volumes (reaching 153,000b/d by 2012). Gas demand is forecast to increase from an estimated 13bcm in 2007 to around 16bcm (in 2012) - implying net gas imports reaching 13.9bcm by the end of the forecast period.

Hungary occupies equal sixth place with Slovakia in BMI's newly revised Upstream Business Environment rating. 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. There is little chance of Hungary challenging Russia above it, but it should be able to fend of Ukraine below. The country is in the lower half 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 eighth place with Slovakia. 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. The Czech Republic may be within reach above it, but there is unlikely to be any change over the near term.