Bulgaria Oil and Gas Report Q2 2009

Abstract

The latest Bulgaria Oil & Gas Report from BMI forecasts that the country will account for 2.17% of
Central and Eastern European (CEE) regional oil demand by 2013, while making no meaningful
contribution to supply. CEE regional oil use of 4.65mn barrels per day (b/d) in 2001 rose to an estimated
5.36mn b/d in 2008. It should average 5.42mn b/d in 2008 and then rise to around 5.99mn b/d by 2013.
Regional oil production was 8.83mn b/d in 2001, and in 2008 averaged an estimated 13.00mn b/d. It is set
to rise to 14.44mn 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 4.18mn b/d. This total had risen
to an estimated 7.64mn b/d in 2008 and is forecast to reach 8.45mn b/d by 2013.
In terms of natural gas, the region in 2008 consumed an estimated 637bn cubic metres (bcm), with
demand of 749bcm targeted for 2013, representing 17.5% growth. Production of an estimated 783bcm in
2008 should reach 913bcm in 2013, which implies net exports rising from around 145bcm in 2008 to
164bcm by the end of the period. Bulgaria’s share of consumption in 2008 was an estimated 0.52%, while
it has no significant share of production. By 2013, its share of demand is forecast to be 0.71%.
In terms of the OPEC basket of crudes, the average price in Q408 was an estimated US$52.53 per barrel
(bbl), down sharply from the US$113.49 recorded during the previous three months. The full-year 2008
average is put by BMI at US$94.08/bbl, representing a 36% year-on-year (y-o-y) increase. North Sea
Brent, WTI and Russian Urals are believed to have averaged US$97.06, US$99.33 and US$94.56/bbl
respectively during 2008. For 2009, we are now assuming an average OPEC basket price of US$52/bbl (-
45% y-o-y), with Q109 expected to deliver US$40.00. The new full year forecast implies Brent crude at
US$55.65, WTI averaging US$56.63/bbl and Urals at US$52.48 for 2009. For 2010, we expect to see a
recovery to US$58.00/bbl for the OPEC price, gaining further ground to US$65.00 in 2011 and
US$70.00/bbl in 2012. We are now using a long-term price assumption of US$70.00 for 2013-2018,
down from our previous assumption of US$90.00/bbl.
In 2009, we see monthly average global wholesale gasoline prices ranging from US$38.90 in January to a
high of US$64.90 reached in August and in December, providing a full year average of US$56.20 – just
over 55% of the 2008 outturn. The 2009 BMI gasoil forecast is for an average price of US$67/bbl,
assuming a monthly low of US$46.40 in January and a high of US$77.30/bbl in December. The full-year
outturn represents a 45% downturn from the 2008 level. For 2009, the monthly average jet fuel price is
forecast to range from US$47.90 in January to US$79.80/bbl in August, proving an annual level of
US$69.20/bbl.
Bulgarian real GDP is forecast by BMI to fall by 1.4% in 2009, following estimated 2008 growth of
5.8%. We are assuming 1.6% growth in 2010, 3.5% in 2011, followed by 4.0% in 2012, and 4.5% in
2013. Oil demand is rising by up to 2.0% per annum, which suggests that consumption could reach
130,000b/d by 2013. Imports can be expected to grow in line, as exploration efforts in the largely
privatised hydrocarbons sector by small international oil companies (IOCs) do not appear likely to deliver
increased domestic crude volumes. Gas consumption is rising well ahead of domestic supply. While gas
output could reach 1.1bcm by the end of 2014, demand is heading for 5.30bcm, requiring imports of
4.20bcm
Between 2007 and 2018, we are forecasting an increase in Bulgarian oil consumption of 20.2%, with
import volumes rising steadily from an estimated 121,000b/d in 2008 to 143,000b/d by the end of the 10-
year forecast period. Gas production is expected to fall over the short term from the estimated 2008 level
of 0.3bcm to just 0.1bcm in 2009, before recovering to a peak of 1.5bcm by 2014. Import dependency
therefore increases from the estimated 2008 level of 3.0bcm to 5.6bcm at the end of the period. Details of
BMI’s 10-year forecasts can be found in the appendix to this report, which provides global, regional and
country-specific projections.
Bulgaria shares ninth place with the Czech Republic in BMI’s updated Upstream Business Environment
rating. Its minimal oil and gas reserves, poor production outlook, and limited competitive landscape work
against the country, but are offset somewhat by reasonable country risk factors. Long-term scope exists
for Bulgaria to challenge Romania above it. The country is well in the lower half of the league table in
BMI’s Downstream Business Environment rating, with few particularly high scores and no reason to
expect near-term progress further up the rankings. Refining capacity is among the region’s lowest, while
gas consumption is particularly modest. The relatively high level of retail site intensity represents a weak
suit, although gas demand growth prospects are the best in the CEE region. Bulgaria this quarter takes
12th place, and has no great re-rating potential over the longer term.