Azerbaijan Oil and Gas Report Q3 2009

Abstract

The latest Azerbaijan Oil & Gas Report from BMI forecasts that the country will account for 2.29% of
the Central and Eastern European (CEE) regional oil demand by 2013, while providing 9.73% of supply.
CEE regional oil use of 4.65mn barrels per day (b/d) in 2001 rose to an estimated 5.39mn b/d in 2008. It
should average 5.33mn b/d in 2009 and then rise to around 5.85mn b/d by 2013. Regional oil production
was 8.83mn b/d in 2001, and in 2008 averaged an estimated 12.93mn b/d. It is set to rise to 14.39mn 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
7.54mn b/d in 2008 and is forecast to reach 8.54mn b/d by 2013.
As regards natural gas, the region in 2008 consumed an estimated 636.7bn cubic metres (bcm), with
demand of 737.8bcm targeted for 2013, representing 13.0% growth. Production of an estimated 778.7bcm
in 2008 should reach 906.1cm in 2013, which implies net exports rising from 141.9bcm in 2008 to
168.3bcm by the end of the period. Azerbaijan’s share of gas consumption in 2008 was an estimated
1.68%, while its share of production is put at 1.98%. By 2013, its share of gas consumption is forecast to
be 1.99%, with the country accounting for 2.43% of supply.
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 is seen 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.
Azeri real GDP is forecast by BMI to decline by 0.9% in 2009, following growth of 10.8% in 2008. We
are assuming 9.0% growth in 2010, 6.9% in 2011, followed by 7.6% in 2012, and 7.2% in 2013.
Domestic oil consumption, having tumbled since the 1990s, should now have resumed a growth tack,
estimated at an average 7% per annum beyond the likely weakness in 2009. By 2013, the country could
be using 134,000b/d of oil. The main government vehicle, Socar, currently accounts for almost half of
domestic oil production but, in partnership with international oil companies (IOCs), should raise national
output from an estimated 925,000b/d in 2008 to 1.40mn b/d by 2012-2013. Gas output should increase
from an estimated 15bcm in 2008 to 22.0bcm during the forecast period.
Between 2008 and 2018, we are forecasting an increase in Azeri oil and gas liquids production of 26.3%,
with volumes reaching a plateau of 1.4mn b/d in 2012-2014, before falling to 1.2mn b/d by the end of the
10-year forecast period. Oil consumption between 2008 and 2018 is set to increase by 83.9%, with growth
averaging an assumed 7.0% per annum towards the end of the period and the country using 188,000b/d by
2018. Gas production should rise from the estimated 2008 level of 15bcm to 30bcm by 2018, providing
export potential increasing to at least 11bcm. Details of BMI’s 10-year forecasts can be found in the
appendix to this report.
Azerbaijan continues to occupy second place in BMI’s updated Upstream Business Environment rating,
behind neighbour Kazakhstan. Its oil and gas production growth outlook, asset immaturity, high reservesto-
production ratios (RPR) and competitive landscape work in the country’s favour, but are undermined
by a relatively unappealing risk environment. The country is just above the mid-point of the league table
in BMI’s Downstream Business Environment rating, ranked sixth with some high scores but progress
further up the rankings unlikely. The low level of retail site intensity represents a strong suit, along with
region-leading oil demand growth prospects. Kazakhstan now just one point ahead it in the regional
rankings, but there is limited near-term scope for Azerbaijan to retake its former fifth place.