Thursday, March 3, 2011

Italy Oil and Gas Report Q1 2011


Italy Oil and Gas Report Q1 2011

BMI forecasts that Italy will account for 12.31% of Developed European regional oil demand by 2015, while contributing 4.28% to supply. In Developed Europe, overall oil consumption was an estimated 13.02mn barrels per day (b/d) in 2010. It is set to recover to around 13.24mn b/d by 2015. Developed Europe regional oil production was 6.96mn b/d in 2001, and in 2010 averaged an estimated 4.44mn b/d. It is set to fall to just 3.50mn b/d by 2015. Oil imports are growing steadily because supply is contracting and demand is rising, albeit slowly. In 2010, net crude imports were an estimated 8.58mn b/d. By 2015, they are expected to have reached 9.73mn b/d. Norway will remain the only major net exporter, with the UK a net importer.
As regards natural gas, the Developed Europe region in 2010 consumed an estimated 419.5bn cubic metres (bcm), with demand of 470.7bcm targeted for 2015, representing 12.2% growth. Production of an estimated 259.3bcm in 2010 is set to fall to 253.0bcm in 2015, which implies net imports rising from the estimated 2010 level of 160.2bcm to some 217.7bcm by the end of the period. Italy’s share of gas consumption in 2010 was an estimated 17.64%, while it contributed around 2.89% to production. By 2015, its share of gas consumption is forecast to be 17.61%, with a 2.77% contribution to regional supply.
For 2010 as a whole, we assume an average OPEC basket price of US$77.00 per barrel (bbl), +26.5% year-on-year (y-o-y). The 2010 US WTI price is now put at US$79.16/bbl. BMI is assuming an OPEC basket price of US$80.00/bbl in 2011, with WTI averaging US$82.25, Brent at US$82.46/bbl, Urals delivering around US$81.21 and the Dubai average being US$80.74/bbl. Our central assumption for 2012 is an OPEC price averaging US$85.00/bbl, delivering WTI at approximately US$87.40 and Brent at US$87.60/bbl. From 2013 onwards, we are using an average OPEC price of US$90.00/bbl.
For the whole of 2010, the BMI assumption for the global gasoline price is an average US$87.49/bbl, representing a y-o-y rise of 24.7%. The global gasoil estimate is for an average price of US$88.00/bbl, probably peaking in December 2010 at more than US$95/bbl. The full-year outturn represents a 27.6% increase from the 2009 level. For 2010, the annual jet price level is estimated to be US$89.50/bbl. This compares with US$70.66/bbl in 2009. The 2010 average naphtha price is put by BMI at US$77.65/bbl, up almost 31% from the previous year’s level.
Italian real GDP is assumed by BMI to have risen by 1.1% in 2010. We are forecasting 1.6% average annual growth in 2010-2015. By 2015, we expect to see the country consuming 1.63mn b/d of oil. A rise in near-term domestic oil production is also expected. We are assuming oil production of 150,000b/d in 2015, but imports are set to reach 1.48mn b/d. Use of gas in power generation is the key to demand growth and consumption looks set to reach 82.9bcm by 2015. Imports are likely to be 75.9bcm at this stage.
Between 2010 and 2020, we are forecasting a decrease in Italian oil production of 21.7%, with output peaking at 165,000b/d in 2013 before slipping to 90,000b/d at the end of the 10-year forecast period. Given that oil consumption is forecast to increase by just 1.57%, imports can also be expected to rise from an estimated 1.48mn b/d in 2010 to 1.53mn b/d by the end of the forecast period. Gas demand should rise from the estimated 2010 level of 74.0bcm to 91.5bcm by 2020. Production of an estimated 7.5bcm in 2010 is expected to fall to 5.0bcm by 2020, requiring imports up from 66.5bcm to 86.5bcm, in the form of pipeline gas and LNG. Details of BMI’s 10-year forecasts can be found in the appendix to this report.
According to BMI’s country risk team, Italy’s long-term political risk score is 80.3, compared with the Developed Markets average of 86.8 and the global average of 63.0. Our long-term economic rating for the country is 61.6, below the Developed Markets average of 66.6 and above the global average of 52.8. Italy has a privatised energy sector operating under EU guidelines. There is a significant upstream oil and gas segment featuring domestic and foreign operators. Downstream oil is highly competitive and involves a mixture of international oil companies (IOCs) and domestic companies. Both the gas and power markets are privatised and open to competition.
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