Iran Oil and Gas Report Q2 2009

Abstract

BMI forecasts that Iran will account for 15.39% of Middle East (ME) regional oil demand by 2013, while
providing 15.63% of supply. Regional oil use of 8.24mn barrels per day (b/d) in 2001 rose to an estimated
10.86mn b/d in 2008. It should average 11.09mn b/d in 2009 and then rise to around 12.08mn b/d by
2013. Regional oil production was 22.87mn b/d in 2001, and in 2008 averaged an estimated 25.94mn b/d.
It is set to rise to 28.99mn 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 14.63mn b/d. This
total had risen to an estimated 15.08mn b/d in 2008 and is forecast to reach 16.91mn b/d by 2013.
In terms of natural gas, the region in 2008 consumed an estimated 395bn cubic metres (bcm), with
demand of 573bcm targeted for 2013, representing 45.0% growth. Production of an estimated 410bcm in
2008 should reach 617bcm in 2013 (+50.5%), which implies net exports rising to 45bcm by the end of the
period. Iran in 2008 consumed an estimated 30.12% of the region’s gas, with its market share forecast at
29.20% by 2013. It contributed an estimated 31.71% to 2008 regional gas production and, by 2013, will
account for 34.84% of supply.
In terms of the OPEC basket of crudes, the average price in Q4 2008 was an estimated US$52.53/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% y-o-y increase over the previous year. 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.
Iranian real GDP growth is now estimated by BMI at 2.4% for 2009, following an estimated 4.7% in
2008. We are assuming 3.8% growth in 2010, 4.8% in 2011, followed by 3.8% in 2012 and 3.4% in 2013.
We expect oil demand to rise from an estimated 1.68mn b/d in 2007 to 1.86mn b/d in 2013, failing to
match the underlying rate of economic expansion. State-owned National Iranian Oil Company (NIOC)
is responsible for all upstream oil and gas activities, although there is some small-scale participation by
international oil companies (IOCs) on a sub-contractor basis. The lack of large-scale IOC investment
contributes to modest output growth, with crude production forecast to increase from an estimated
4.20mn b/d in 2008 to 4.53mn b/d in 2013, subject to OPEC quotas and the possible impact of any
sanctions resulting from the nuclear energy debate. Gas production should reach 215bcm by 2013, up
from an estimated 130bcm in 2008. Consumption is expected to rise from 119bcm to 167bcm by the end
of the forecast period, providing exports of 48bcm.
Between 2007 and 2018, we are forecasting an increase in Iranian oil production of 7.9%, with crude
volumes rising towards 4.75mn b/d by the end of the 10-year forecast period, although there could be an
OPEC-induced dip in 2009. Oil consumption between 2007 and 2018 is set to increase by 32.9%, with
growth slowing to an assumed 3.0% per annum towards the end of the period and the country using
2.15mn b/d by 2018. Gas production is expected to climb to 280bcm by the end of the period. With 2007-
2018 demand growth of 86.0%, this provides export potential rising to almost 72bcm by 2018. Details of
BMI’s 10-year forecasts can be found in the appendix to this report, which provides global, regional and
country-specific projections.
Iran now shares fourth place with Turkey in BMI’s updated Upstream Business Environment rating. It is
now eight points behind Iraq and is unlikely to make any further progress over the near term. The
country’s score benefits from the region’s biggest gas reserves base and a very healthy oil reserves
position. Reserves-to-production ratios (RPRs) are high, but strict government control of the upstream
industry prevents Iran’s achieving a better overall score. The country is in the middle of the league table
for BMI’s updated Downstream Business Environment rating, with some high scores but progress further
up the rankings unlikely. It is ranked fifth behind Oman and the UAE, thanks to high scores for refining
capacity, oil demand, gas consumption, retail site intensity and population. The growth outlooks for
oil/gas consumption and refining capacity represent relatively weak suits. Saudi Arabia is immediately
behind it in the regional rankings, but there is little immediate risk of it challenging for Iran’s fifth place.