Japan Oil and Gas Report Q3 2009

The latest Japan Oil & Gas Report from BMI forecasts that the country will account for 14.85% of Asia Pacific regional oil demand by 2013, while not contributing significantly to regional 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 486bcm in 2013, but implies net imports easing from an estimated 76bcm per annum in 2008 to 65bcm in 2013. This is in spite of many Asian gas producers being major exporters. Japan's share of gas consumption in 2008 was an estimated 20.70%, while it provides no meaningful share of production. By 2013, it is expected to be consuming 18.01% of the region's gas.

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, WTI averaging US$54.90/bbl and Urals at US$52.66 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 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 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.

Japanese real GDP is forecast by BMI to decline by 4.9% in 2009, against estimated contraction of 0.6% in 2008. We foresee 0.6% growth in 2010, followed by 1.3% in 2011 and 2.1% in 2012/13. There is little domestic upstream activity, with local state and private firms concentrating on international exploration efforts. The outlook for domestic oil and gas production therefore remains poor. Oil consumption is forecast to fall between 2008 and 2013, implying demand of 4.33mn b/d by the end of the forecast period.

The country should also be consuming 99bcm of gas by the end of the period, all of which will be imported in the form of liquefied natural gas (LNG).

Between 2008 and 2018, we are forecasting a reduction in Japanese oil consumption of 11.58%, with demand slipping steadily to the end of the period and the country using 4.20mn b/d by 2018. Gas consumption is expected to rise from around 91bcm in 2008 to a possible 105bcm by 2018. All of Japan's gas will continue to be imported in the form of LNG. Details of BMI's 10-year forecasts can be found in the appendix to this report, which provides global, regional and country-specific projections.

Japan still ranks 10th in BMI's updated Upstream Business Environment rating, thanks to a virtual absence of hydrocarbon resources. The score reflects the limited involvement of the government in upstream oil activities and an exceptionally healthy country risk profile, which counter the lack of reserves and output growth potential. The country ranks fourth in BMI's updated Downstream Business Environment rating, reflecting its high levels of oil and gas consumption, increasing gas demand and the established modern refining capability. However, it is held back by a high level of retail site intensity and a poor oil demand growth outlook. It is just one point behind Singapore, but two points clear of South Korea and Australia.