South Africa Oil and Gas Report Q3 2009

BMI forecasts that South Africa will account for 13.98% of African regional oil demand by 2013, with negligible domestic crude production but a growing synthetic oil capability. African regional oil use of 2.98mn barrels per day (b/d) in 2001 rose to an estimated 3.65mn b/d in 2008. It should average 3.69mn b/d in 2009 and then rise to around 4.08mn b/d by 2013. Regional oil production was 7.84mn b/d in 2001, and in 2008 averaged an estimated 10.20mn b/d. It is set to rise to 11.78mn b/d by 2013. Oil exports are growing steadily, because demand growth is lagging the pace of supply expansion. In 2001, the region was exporting an average 4.86mn b/d. This total had risen to an estimated 6.54mn b/d in 2008 and is forecast to reach 7.70mn b/d by 2013. Angola has the greatest production growth potential, with Nigerian exports set to soar if it can resolve recent quasi-political issues.

As regards natural gas, the region in 2008 consumed an estimated 107bn cubic metres (bcm), with demand of 177bcm targeted for 2013. Production of an estimated 211bcm in 2008 should reach 356bcm in 2013, which implies net exports rising from an estimated 104bcm in 2008 to 179bcm by the end of the period. In 2008, South Africa's estimated share of regional gas supply was 1.89%, easing to 1.87% by 2013. The country's share of demand in 2008 was an estimated 4.38%, with 5.75% predicted by 2013.

In terms of the OPEC basket of crudes, the average price in Q109 was an estimated US$45.78 per barrel (bbl), down 13% from the US$52.51/bbl recorded during the previous three months. During the second quarter, there has been little change to our view of oil market developments. BMI is forecasting an average OPEC basket price of US$51.30/bbl, with the March gains being retained in April, before further recovery to a possible US$57.00 by June. For 2009, we are still assuming an average OPEC basket price of US$52.00/bbl (-45% year-on-year). The BMI full year forecast implies Brent crude at US$53.73, WTI averaging US$54.90/bbl and Urals at US$52.66 for 2009.

For the whole of 2009, the BMI assumption for gasoline is an average US$56.89/bbl, with the price peaking at a forecast monthly average of US$64.75 in December 2009. The overall y-o-y fall in 2009 gasoline prices is put at 44.1%. For gasoil in 2009, the BMI forecast is for an average price of US$69.35/bbl, assuming a monthly high of US$94.48/bbl in December. The full-year outturn represents a 42.8% fall from the 2008 level. The monthly average jet fuel price is forecast to range from US$53.75 in February to US$96.76/bbl in December, proving an annual level of US$71.78/bbl. This compares with US$124.95/bbl in 2008.

South African real GDP is now forecast by BMI to fall by 0.3% for 2009, compared with growth of 3.1% in 2008. We are assuming 2.9% growth in 2010, 3.0% in 2011, 4.4% in 2012, followed by 3.8% in 2013.

We expect oil demand to rise from an estimated 551,000b/d in 2008 to 570,000b/d in 2013, representing less than 1.5% annual growth that lags our underlying economic assumptions. There is very little domestic crude production, although national companies contribute some 200,000b/d of synthetic oil output. International oil companies (IOCs) are restricted largely to roles in oil refining and fuels distribution. Gas production could reach 7.0bcm by 2012/2013, up from an estimated 4.0bcm in 2008.

Consumption is expected to rise from 4.7bcm to 10.2bcm by the end of the forecast period, requiring imports of 3.2bcm.

Between 2008 and 2018, we are forecasting an increase in South African oil and gas liquids consumption of 11.5%, with demand rising steadily to 614,000b/d by the end of the 10-year forecast period. Synthetic oil production is set to rise from 205,000b/d to 350,000b/d, with crude imports peaking at 309,000b/d in 2011. Gas consumption is expected to rise to 11.3bcm by the end of the period, requiring imports up from an estimated 0.7bcm in 2008 to 5.3bcm by 2018. Details of BMI's 10-year forecasts can be found in the appendix to this report.

South Africa is still ranked eighth in BMI's updated Upstream Business Environment rating, reflecting its virtually non-existent oil and gas resource base. It stands nine points clear of Equatorial Guinea, so should be safe over the medium term. South Africa's score reflects the low level of state asset ownership and the advanced stage of privatisation, plus an established licensing framework and largely encouraging country risk factors. The absence of hydrocarbon resources offsets these positive factors. The country is well up the league table in BMI's Downstream Business Environment rating, with several high scores. It is ranked first, ahead of Egypt, thanks largely to high scores for oil demand, gas consumption growth, nonstate competition, deregulation, and nominal GDP. Egypt is five points below, and represents no immediate threat to South Africa's ranking.