Romania Oil and Gas Report Q2 2008

The latest Romania Oil & Gas Report from BMI forecasts that the country will account for 4.46% of Central and Eastern European (CEE) regional oil demand by 2012, while providing just 0.56% 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. Romania's estimated share of 2007 regional gas consumption was 2.87%, while its share of production was 1.64%. By 2012, its share of demand is forecast to be 3.36%, with the country accounting for 1.14% 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.

Romanian real GDP growth is estimated by BMI at 6.2% for 2008, up from an estimated 5.8% in 2007.

We are assuming 4.9% growth in 2009, 5.2% in 2010, followed by 4.6% in 2011 and 4.5% in 2012.

BMI's GDP growth outlook suggests that oil demand could potentially grow at up to 4.0% per annum, rising to at least 278,000b/d by 2012. In spite of greater efforts by the OMV-backed national oil company Petrom, we see domestic oil production slipping from an estimated 99,000b/d in 2007 to 85,000b/d by 2012. This implies rising import levels, with volumes up to 193,000b/d by 2012. Natural gas consumption of an estimated 17.6bcm in 2007 can be expected to reach at least 25.0bcm. Romania's gas production is forecast to slip to no more than 9.0bcm by 2011/12, providing an import requirement of at least 16bcm.

Romania occupies a lowly 10th place in BMI's newly revised Upstream Business Environment rating, just behind the Czech Republic. Its gas production growth outlook, asset maturity and under-developed competitive landscape work against the country, and are exacerbated by poor country risk factors. Longterm scope exists for Romania to challenge the Czech Republic, as long as the government doesn't begin to re-nationalise OMV-managed Petrom. The country is well in the upper half of the league table in BMI's newly-revised Downstream Business Environment rating, although there are few particularly high scores and progress further up the rankings from third place seems unlikely. There are decent scores for refining capacity, oil and gas demand and retail site intensity. Kazakhstan is just one point below it in the regional rankings, and there is reasonable chance of it challenging for Romania's third place over the medium term.