Oman Oil and Gas Report Q2 2008

The latest Oman Oil & Gas Report from BMI forecasts that the country will account for just 0.61% of Middle Eastern and African (MEA) regional oil demand by 2012, while providing 1.80% of supply. MEA regional oil use of 8.70mn barrels per day (b/d) in 2001 rose to an estimated 11.21mn b/d in 2007. It should average 11.54mn b/d in 2008 and then rise to around 12.90mn b/d by 2012. Regional oil production was 30.39mn b/d in 2001, and in 2007 averaged an estimated 35.53mn b/d. It is set to rise to 40.94mn b/d by 2012. In terms of natural gas, the region in 2007 consumed an estimated 413 billion cubic metres (bcm), with demand of 650bcm targeted for 2012, representing 57.4% growth. Production of an estimated 570bcm in 2007 should reach 941bcm in 2012 (+65%), which implies net exports rising from an estimated 157bcm in 2007 to 291bcm by the end of the period. In 2007, Oman consumed an estimated 3.15% of the region's gas, with its market share forecast at 2.77% by 2012. It contributed an estimated 4.60% to 2007 regional gas production, and by 2012 will account for 2.98% of supply.

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.

Oman's real GDP growth is forecast by BMI at 4.3% for 2008, following an estimated 4.4% in 2007. We are assuming 4.1% growth in 2009 and 3.0% in 2010, followed by 2.9% in 2011 and 3.2% in 2012. We expect oil demand to rise from an estimated 62,000b/d in 2006 to 79,000b/d in 2012, representing 5.0% annual growth that exceeds our underlying economic assumptions. Partly state-owned Petroleum Development Oman (PDO) accounts for more than 90% of the oil and gas produced in the country but relies on international oil companies (IOCs) to maintain volumes. Our estimates assume 740,000b/d of 2007 oil and liquids production , followed by a short-lived rally back to the 780,000b/d level in 2009, before volumes again sink to 735,000b/d by the end of the forecast period. However, there is a high risk that production will stabilise at a level nearer 750,000b/d. Gas production should reach 28bcm by 2012, up from an estimated 26bcm in 2007. Consumption is expected to rise from 13bcm to 18bcm by the end of the forecast period, allowing exports of just 10bcm.

Oman occupies equal 10th place, alongside Israel, in BMI's newly revised Upstream Business Environment rating, although it should be able to overtake its nearest rival over the medium term. It is just one point ahead of Iran, but should be able to keep it at bay during the next few quarters. The county's score benefits from a sound country risk profile, good licensing terms and a healthier privatisation trend than that seen elsewhere in the region. The country is in the lower half of the league table in BMI's newly-revised Downstream Business Environment rating, with few high scores and nearterm progress up the rankings unlikely. It is ranked ninth, just ahead of Saudi Arabia, thanks largely to low scores for refining capacity, oil demand, retail site intensity and the gas demand growth outlook.

Healthy country risk factors and moves towards deregulation and privatisation help bolster the overall score, but Iran above may remain out of reach.