Taiwan Oil & Gas Report Q1 2008

The latest Taiwan Oil & Gas Report from BMI forecasts that the country will account for 4.27% of Asia Pacific regional oil demand by 2011, while making no meaningful contribution to supply. Asia Pacific regional oil use of 21.4mn barrels per day (b/d) in 2001 reached 24.87mn b/d in 2006. It should average 25.52mn b/d in 2007 and then rise to around 28.99mn b/d by 2011. In terms of natural gas, the region in 2006 consumed 409bcm, with demand of 618bcm targeted for 2011, representing growth of 50.9% between 2006 and 2011. Production of 329bcm in 2006 should reach 479bcm in 2011 (+45.4%), but implies net imports rising from 80bcm per annum to 139bcm. Taiwan's share of gas consumption in 2006 was 2.91%, while its share of production was minimal. By 2011, its share of gas consumption is forecast to be 2.34%.

Global oil demand growth is now expected to be 1.9% in 2007, down from our June forecast, but with Asia Pacific and the CEE regions dominating. While oil demand growth assumptions remain robust, there are early signs that future revisions will be on the downside as factors such as the credit crunch kick in.

The overall demand outlook for the period to 2011 remains healthy, but subject to review if the macroeconomic outlook deteriorates. Our 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$64 per barrel, compared with the US$59 estimate provided by our last quarterly report. Based on recent price differentials, this implies Brent at US$67.81, WTI averaging US$66.18/bbl, and Urals at US$64.43/bbl.

Taiwanese real gross domestic product (GDP) growth is now forecast by BMI at 4.5% for 2007, down from 4.7% in 2006. We are assuming 4.7% growth in 2008, 4.5% in 2009, followed by 4.3% in 2010/11.

State-owned Chinese Petroleum Corporation (CPC) is tasked with securing oil and gas supply, but has no significant domestic volumes to contribute. Oil consumption is forecast to increase by 2% per annum to 2011, implying demand of 1.24mn b/d by the end of the forecast period. Gas usage is expected to rise from the 2006 figure of 11.9bcm to 14.5bcm by 2011, supplied largely by LNG imports.

In the BMI Business Environment Ranking matrix, Taiwan receives a slightly lower composite score of 19, which continues to rank the country last out of 14 states included in the Asia Pacific region. The overall business environment can be considered highly unattractive in a regional context, in spite of relatively low levels of perceived economic and political risk. There are no hydrocarbon resources to benefit the country or attract foreign investors. The refining and oil distribution system is in either state or local company hands, with little evidence of de-regulation. Privatisation is planned, but not yet under way. This may eventually result in a more compelling competitive landscape and provide some interest for international oil companies (IOCs).