Slovakia Oil & Gas Report Q3 2007

The latest Slovakia Oil & Gas Report from BMI forecasts that the country will account for 1.73% of Central and Eastern European (CEE) regional oil demand by 2011, while providing no significant contribution to supply. CEE regional oil demand rose to 5.30mn barrels per day (b/d) last year and should average 5.45mn b/d in 2007, before reaching 6.06mn b/d by 2011. Production of 12.41mn b/d last year is forecast to reach 15.06mn b/d by 2011. CEE gas consumption in 2006 was 594bn cubic metres (bcm), with demand of 720bcm targeted for 2011. Production last year of 685bcm should reach 758bcm by the end of the period. Slovakia's share of gas consumption in 2006 was 0.93%, while its share of production was negligible. By 2011, its share of demand is forecast to be 1.11%.

Global oil demand growth is expected to be around 2.0% this year, with Asia Pacific and the CEE regions dominating. This is an encouraging rate of market expansion, given a relatively uncertain economic picture and high commodity prices. Our oil price projections for 2007 as a whole are revised upwards from the last quarterly report. We are now assuming an OPEC basket price average of US$59 per barrel, compared with the US$55 estimate provided by our last two quarterly reports. Based on recent price differentials, this implies Brent at US$62.83, WTI averaging US$61.25/bbl, and Urals at US$59.42/bbl.

Slovak real GDP growth is now forecast by BMI at 8.5% for 2007, up from 8.3% in 2006. We are assuming 5.8% growth in 2008, 5.0% in 2009, followed by 4.5% in 2010 and 2011. 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 105,000b/d by 2011. 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 gasfired plants, although the residential gas market is close to saturation. Our forecast is for Slovakia to be consuming 8bcm of gas by 2011, virtually all of which will be imported.

In the BMI Business Environment Ranking matrix, Slovakia receives a higher composite score of 33, which now ranks the country equal fifth out of 12 states included in the CEE region, alongside Poland.

The overall business environment can be considered neutral in a regional context, thanks largely to a relatively high level of perceived economic risk. There is little upside potential in the country's oil and gas market, even though the process of deregulation is advanced and a reasonable competitive landscape exists. Slovakia's reserves-to-production ratio (RPR) may be above the regional average, but absolute volumes are small and unlikely to attract international oil company (IOC) cash.