Turkey Oil and Gas Report Q3 2008

The latest Turkey Oil & Gas Report from BMI forecasts that the country will account for 6.53% of Middle Eastern (ME) regional oil demand by 2012, while providing an insignificant contribution to supply. ME regional oil use of 8.24mn b/d in 2001 rose to an estimated 10.61mn b/d in 2007. It should average 10.86mn b/d in 2008 and then rise to around 11.84mn b/d by 2012. Regional oil production was 22.87mn b/d in 2001, and in 2007 averaged an estimated 25.56mn b/d. It is set to rise to 28.94mn b/d by 2012. In terms of natural gas, the region in 2007 consumed an estimated 371bcm, with demand of 542bcm targeted for 2012, representing 46% growth. Production of an estimated 368bcm in 2007 should reach 576bcm in 2012 (+56%), which implies net exports rising to 34bcm by the end of the period.

Turkey's share of gas consumption in 2007 was an estimated 8.89%, while it makes no meaningful contribution to production. By 2012, its share of demand is forecast to be 10.33%.

In Q108, we estimate that the OPEC basket price averaged US$92.64 per barrel - up around 9% from the Q407 level. The OPEC basket price had exceeded US$102 by the middle of March, slipping back towards US$96/bbl later in the month. The estimated Q108 average prices for the main marker blends are now US$96.54 for Brent, US$97.31 for WTI and US$93.44/bbl for Russian Urals (Mediterranean delivery).

Our projections for 2008 as a whole are revised upwards from BMI's last quarterly report. We are now assuming an OPEC basket price average of US$81 per barrel for 2008, compared with the US$74 estimate provided by our last quarterly report. Based on recent price differentials, this implies Brent at US$84.71, WTI averaging US$85.63/bbl, and Urals at US$81.88/bbl.

Turkish real GDP growth is now forecast by BMI at 4.8% for 2008, following an estimated 4.5% in 2007.

We are assuming 6.2% growth in 2009, 7.7% in 2010, followed by 7.3% in 2011 and 6.3% in 2012. We expect oil demand to rise from an estimated 635,000b/d in 2007 to 773,000b/d in 2012, representing up to 4.0% annual growth that lags our underlying economic assumptions. State upstream company TPAO and some minor international oil companies (IOCs) are attempting to raise domestic oil output, but our estimates assume 40,000b/d of 2007 oil and liquids production sinking to just 20,000b/d by the end of the forecast period. Gas production will remain insignificant, but consumption is expected to rise from an estimated 33bcm to 56bcm by the end of the forecast period, requiring imports of 55bcm.

Between 2007 and 2018, we are forecasting an increase in Turkish oil consumption of 45.3%, with demand rising steadily from 635,000b/d to 922,000b/d by the end of the 10-year forecast period. Refining capacity between 2007 and 2018 is set to increase by 122%, reaching 1.36mn b/d by 2018. Gas consumption is expected to climb from 33bcm to 70bcm, depending largely on imports. LNG imports are expected to double from 6bcm to 2bcm during the forecast period. Details of the new BMI 10-year forecasts can be found in the Appendix of this report, which provides global, regional and countryspecific projections.

Turkey is ranked seventh in BMI's updated Upstream Business Environment rating, thanks to the virtually non-existent oil and gas resource base. It stands six points clear of Kuwait, so appears safe from attack over the medium term. It stands little chance of catching Oman just one point above it. Turkey's score reflects the lower level of state asset ownership and the more advanced stage of privatisation than is the norm for the region, plus an established licensing framework and largely encouraging country risk factors. The country leads the league table in BMI's updated Downstream Business Environment rating, with several high scores but some threat from the UAE to its position over the medium- to long-term. It is ranked just one point ahead of the Emirates, thanks largely to high scores for oil demand, retail site intensity, non-state competition, deregulation, and nominal GDP.