Slovakia Oil and Gas Report Q2 2008

The latest Slovakia Oil & Gas Report from BMI forecasts that the country will account for 1.76% of Central and Eastern European (CEE) regional oil demand by 2012, while providing no significant contribution to 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. Slovakia's estimated share of gas consumption in 2007 was 1.00%, while its share of production was negligible. By 2012, its share of demand is forecast to be 1.10%.

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.

Slovak real GDP growth is forecast by BMI at 7.0% for 2008, down from an estimated 8.5% in 2007. We are assuming 6.1% growth in 2009, 5.0% in 2010, followed by 4.8% in 2011 and 4.5% in 2012. Oil consumption is forecast to rise rapidly, averaging 5% per annum and almost keeping pace with underlying GDP growth. There is scope for oil consumption to reach 110,000b/d by 2012. This volume will be imported, largely from Russia. Natural gas demand may also rise at a more rapid rate if the power industry builds new gas-fired plants, although the residential gas market is close to saturation. Our forecast is for Slovakia to be consuming 8.2bcm of gas by 2012, virtually all of which will be imported.

Slovakia occupies equal sixth place with Hungary in BMI's newly revised Upstream Business Environment rating. Licensing, privatisation and country risk factors account for its mid-table score, rather than hydrocarbons wealth. Over the medium term, Hungary could break clear of Slovakia, while it is under threat from Ukraine below. The country is in the lower half of the league table in BMI's newlyrevised Downstream Business Environment rating. Only in oil demand growth potential does the country score particularly well and progress further up the rankings from equal eighth place with Hungary seems unlikely over the medium term. Country risk factors are generally favourable and there is an established competitive landscape. Bulgaria is just one point below it in the regional rankings, but there is little immediate chance of it challenging for Slovakia's share of eighth place.