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Azerbaijan Oil and Gas Report Q4 2010

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No. of Pages : 92
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Report Summary

The latest Azerbaijan Oil & Gas Report from BMI forecasts that the country will account for 1.47% of the Central and Eastern European (CEE) regional oil demand by 2014, while providing 9.58% of supply. CEE regional oil use of 5.42mn barrels per day (b/d) in 2001 rose to an estimated 5.81mn b/d in 2009. It should average 6.03mn b/d in 2010 and then rise to around 6.69mn b/d by 2014. Regional oil production was 8.88mn b/d in 2001, and in 2009 averaged an estimated 13.35mn b/d. It is set to rise to 14.57mn b/d by 2014. Oil exports are growing steadily, because demand growth is lagging the pace of supply expansion. In 2001, the region was exporting an average 3.46mn b/d. This total had risen to an estimated 7.54mn b/d in 2009 and is forecast to reach 7.88mn b/d by 2014. Azerbaijan and Kazakhstan have the greatest production growth potential, although Russia will remain the key exporter.

In terms of natural gas, the region in 2009 consumed an estimated 668.5bn cubic metres (bcm), with demand of 780.0bcm targeted for 2014, representing 13.7% growth. Production of an estimated 830.3bcm in 2009 should reach 1,025.7bcm in 2014, which implies net exports rising from an estimated 162bcm in 2009 to 246bcm by the end of the period. Azerbaijan’s share of gas consumption in 2009 was an estimated 1.65%, while its share of production is put at 1.93%. By 2014, its share of gas consumption is forecast to be 1.98%, with the country accounting for 3.02% of supply.

We are sticking with our forecast that the OPEC basket of crudes will average US$83.00/bbl in 2010. Wide variations in crude differentials so far in 2010 make forecasting tricky for Brent, West Texas Intermediate (WTI) and Urals, but we believe the three benchmarks will average around US$85.11, US$88.22 and US$83.62/bbl respectively, with Dubai coming in at US$83.14. By 2011, there should be further growth in oil consumption and more room for OPEC to regain market share and reduce surplus capacity through higher production quotas. We are assuming a further increase in the OPEC basket price to an average US$85.00/bbl. For 2012 and beyond, we continue to use a central case forecast of US$90.00/bbl for the OPEC basket.

For 2010, the BMI assumption for premium unleaded gasoline is an average global price of US$96.83/bbl. The y-o-y rise in 2010 gasoline prices is put at 38%. Gasoil in 2010 is expected to average US$92.45/bbl, with the full-year outturn representing a 37% increase from the 2009 level. For jet fuel in 2010, the annual level is forecast to be US$95.58/bbl. This compares with US$70.66/bbl in 2009. The 2010 average naphtha price is put by BMI at US$82.46/bbl, up 39% from the previous year’s level. Azeri real GDP is assumed by BMI to have risen by 9.3% in 2009, followed by forecast 11.0% growth in 2010. We are assuming average annual growth of 7.4% in 2010-2014. Domestic oil consumption, having tumbled since the 1990s, should now have resumed a growth tack, and is estimated at an average of 7% per annum. By 2014, the country is projected to be using 98,000b/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 1.04mn b/d in 2009 to 1.40mn b/d by 2014. Gas output should increase from an estimated 16bcm in 2009 to 31bcm during the forecast period.

Between 2010 and 2019, we are forecasting an increase in Azeri oil and gas liquids production of 20.5%, with volumes reaching a peak of 1.45mn b/d in 2016/17, before falling to 1.35mn b/d by the end of the 10-year forecast period. Oil consumption between 2010 and 2019 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 138,000b/d by 2019. Gas production should rise from the estimated 2009 level of 16bcm to 33bcm by 2019, providing export potential increasing to at least 13bcm.

Azerbaijan takes second place behind only Kazakhstan in BMI’s composite Business Environment (BE) Ratings table, which combines upstream and downstream scores. The country continues to occupy second place in BMI’s updated upstream Business Environment Ratings, now just three points behind neighbour Kazakhstan. Its oil and gas production growth outlook, asset immaturity, high reserves-to-production ratios (RPR) and competitive landscape work in the country’s favour, but are undermined by a relatively unappealing risk environment. Azerbaijan is around the mid-point of the league table in BMI’s downstream Business Environment Ratings, ranked eighth ahead of Hungary with some high scores, but progress further up the rankings is unlikely. The low level of retail site intensity represents a strong suit, along with region-leading oil demand growth prospects.

Table Of Contents

Executive Summary  7
Azerbaijan Energy Market Overview  9
Global Oil Market Outlook  10
Is The Price Right?  10
Oil Price Forecasts  11
Oil Supply, Demand And Price Outlook  12
Short-Term Demand Outlook  12

Table: Global Oil Consumption (000b/d)  13

Short-Term Supply Outlook  13

Table: Global Oil Production (000b/d) 14

Longer-Term Supply And Demand  15
Oil Price Assumptions  16

Table: Crude Price Assumptions 2010  16

Table: Oil Price Forecasts  16

Regional Energy Market Overview  17
Oil Supply And Demand  17

Table: Central/Eastern Europe Oil Consumption (000b/d)  18

Table: Central/Eastern Europe Oil Production (000b/d)  19

Oil: Downstream  20

Table: Central/Eastern Europe Oil Refining Capacity (000b/d)  20

Gas Supply And Demand  21

Table: Central/Eastern Europe Gas Consumption (bcm)  21

Table: Central/Eastern Europe Gas Production (bcm)  22

Liquefied Natural Gas 23

Table: Central/Eastern Europe LNG Exports/(Imports) (bcm)  23

Business Environment Ranking  24
Central/Eastern Europe Region  24
Composite Scores 25

Table: Regional Composite Business Environment Rating  25

Upstream Scores  26

Table: Regional Upstream Business Environment Rating 26

Azerbaijan Upstream Rating – Overview  27
Azerbaijan Upstream Rating – Potential Returns  27
Azerbaijan Upstream Rating – Risks To Potential Returns  27
Downstream Scores  28

Table: Regional Downstream Business Environment Rating  28

Azerbaijan Downstream Rating – Overview  29
Azerbaijan Downstream Rating – Potential Returns  29
Azerbaijan Downstream Rating – Risks To Potential Returns  29
Business Environment  30
Legal Framework  30
Infrastructure  31
Labour Force  32
Foreign Investment Policy  33
Tax Regime  34
Operational Risk  35
Industry Forecast Scenario  36
Oil And Gas Reserves  36
Oil Supply And Demand  36
Gas Supply And Demand  37
LNG  39
Refining And Oil Products Trade  39
Revenues/Import Costs 39

Table: Azerbaijan Oil And Gas – Historical Data And Forecasts  40

Other Energy  41

Table: Azerbaijan Other Energy – Historical Data And Forecasts 41

Key Risks To BMI’s Forecast Scenario  42
Long-Term Oil And Gas Outlook  42
Oil And Gas Infrastructure  43
Oil Refineries  43

Table: Refineries in Azerbaijan  43

Service Stations  45
Oil Storage Facilities  45
Oil Terminals/ Ports  45
Oil Pipelines  46
Gas Pipelines  47
LNG  49
Macroeconomic Outlook  51

Table: Azerbaijan - Economic Activity  52

Competitive Landscape  53

Table: Key Domestic And Foreign Companies  54

Overview/State Role  54
Licensing And Regulation  54
Government Policy  55
Licensing Rounds  55
International Energy Relations  55

Table: Key Upstream Players  59

Table: Key Downstream Players  59

Company Monitor  60
Socar  60
BP Azerbaijan  64
Statoil  69
Lukoil Azerbaijan  71
Azpetrol 73
ExxonMobil – Summary  75
Devon Energy – Summary  75
Eni – Summary  75
Inpex – Summary  75
Chevron – Summary 76
Itochu/Delta Hess – Summary  76
TPAO – Summary  76
Total – Summary  76
ONGC Videsh Ltd (OVL) – Summary  77
Korea National Oil Corporation (KNOC) – Summary  77
GDF Suez – Summary  77
RWE Dea – Summary  78
Others – Summary  78
Oil And Gas Outlook: Long-Term Forecasts  79
Regional Oil Demand  79

Table: CEE Oil Consumption (000b/d)  79

Regional Oil Supply  80

Table: CEE Oil Production (000b/d)  80

Regional Refining Capacity  81

Table: CEE Oil Refining Capacity (000b/d)  81

Regional Gas Demand  82

Table: CEE Gas Consumption (bcm)  82

Regional Gas Supply  83

Table: CEE Gas Production (bcm)  83

Azerbaijan Country Overview  84
Methodology And Risks To Forecasts  84
Glossary Of Terms  85
Oil And Gas Ratings: Revised Methodology  86
Introduction  86
Ratings Overview  86

Table: BMI Oil And Gas Business Environment Ratings: Structure  87

Indicators  88

Table: BMI Oil And Gas Business Environment Upstream Ratings: Methodology  88

Table: BMI Oil And Gas Business Environment Downstream Ratings: Methodology  89

BMI Methodology  91
How we generate our industry forecasts  91
Energy Industry  92
Cross Checks  92
Sources  92

List of Table

Table: Global Oil Consumption (000b/d) . 13
Table: Global Oil Production (000b/d). 14
Table: Crude Price Assumptions 2010 . 16
Table: Oil Price Forecasts . 16
Table: Central/Eastern Europe Oil Consumption (000b/d) . 18
Table: Central/Eastern Europe Oil Production (000b/d) . 19
Table: Central/Eastern Europe Oil Refining Capacity (000b/d) . 20
Table: Central/Eastern Europe Gas Consumption (bcm) . 21
Table: Central/Eastern Europe Gas Production (bcm) . 22
Table: Central/Eastern Europe LNG Exports/(Imports) (bcm) . 23
Table: Regional Composite Business Environment Rating . 25
Table: Regional Upstream Business Environment Rating. 26
Table: Regional Downstream Business Environment Rating . 28
Table: Azerbaijan Oil And Gas – Historical Data And Forecasts . 40
Table: Azerbaijan Other Energy – Historical Data And Forecasts. 41
Table: Refineries in Azerbaijan . 43
Table: Azerbaijan - Economic Activity . 52
Table: Key Domestic And Foreign Companies . 54
Table: Key Upstream Players . 59
Table: Key Downstream Players . 59
Table: CEE Oil Consumption (000b/d) . 79
Table: CEE Oil Production (000b/d) . 80
Table: CEE Oil Refining Capacity (000b/d) . 81
Table: CEE Gas Consumption (bcm) . 82
Table: CEE Gas Production (bcm) . 83
Table: BMI Oil And Gas Business Environment Ratings: Structure . 87
Table: BMI Oil And Gas Business Environment Upstream Ratings: Methodology . 88
Table: BMI Oil And Gas Business Environment Downstream Ratings: Methodology . 89

Azerbaijan Oil and Gas Report Q4 2010

Published By: Business Monitor International
 

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