Singapore Oil and Gas Report Q3 2012.pdf

Q3 2012 www.businessmonitor.com oil 2) Markets have been driven by geopolitical volatility in recent months (notably the Iranian premium on Brent) and, consequently, there is a lag between the amelioration of production data and how fast (and to what extent) this is being registered by the market (see BMI's Prices To Slide On Iranian Talks And Easing Fundamentals, April 25 2012). OPEC Production Iranian sanctions have dominated the OPEC supply outlook, with reports now suggesting that heavy Western sanctions are going to take a toll not just on Iranian exports with Platts reporting a 300,000b/d fall in volumes in March but also on Iranian production, which could decline by 500,000b/d, as the crude produced will not be exported and storage is scarce. Platts further reported that the country may at the time of writing be storing up to 16mn barrels of unsold oil. Sanctions Begin To Bite Iranian Importers And Their Reaction To US And EU Sanctions * Total Volume of Crude Imported, Based on Period Jan - June 2011. Source: Global Trade Atlas, APEX, EIA, Reuters, Bloomberg, BMI We have already priced declining Iranian production into our forecasts. We forecast Iranian production to decline by 400,000 b/d to reach 3.2mn b/d in 2012 and 3mn b/d in 2013, down from 3.6mn b/d in 2011. Given that prior to sanctions the EU imported around 600,000b/d of Iranian crude, and taking into account planned cuts in the volumes of Iranian crude imported into Asia, this is a reasonable estimation in Singapore Oil with Libyan volumes also offsetting the fall in Iranian production. High Capex Strengthens Outlook OPEC Production Growth Forecast (% chg y-o-y) e=estimate, f=forecast. Source: EIA, BMI Furthermore, we have also downwardly revised our forecasts for Iraq's oil production for 2012 (to 3.4mn b/d from 4.2mn b/d previously) and beyond, based on the disappointing progress at major projects, delays to the establishment of new oil laws and Baghdad and Arbil's bickering over payments to foreign companies. Singapore Oil which we expect to rattle markets. The UK economy is back in recession, while there is nothing to suggest an ameliorating macroeconomic outlook in the eurozone. We expect another challenging year for the OECD markets, particularly in Western Europe, and another year of slow growth. Indeed, if the eurozone debt crisis continues to worsen there is a significant downside risk to our current 0.87% OECD-demand growth forecast. Very modest demand growth in North America is a small counterweight to negative European demand growth. As in recent years, it is in the non-OECD countries that we expect to see the strongest demand growth, and of these countries, China remains the most important consumer market. We forecast that, in spite of a slowdown in economic expansion, oil demand will remain resilient and grow at around 4.5% (lower than our previous forecast of 5.5%, on the back of softer growth readings). While a sharp slowdown in growth would obviously pose a downside risk to this figure, it is the prospect of price liberalisation that may be the most prominent downside risk to Chinese oil demand. Reports that the Chinese government is preparing to move towards a more market-based pricing system for fuels have become much more frequent, and it has become clear that the current system is unsustainable for the country's major refiners. Our global short-term consumption outlook is in line with data put forward by the IEA, which forecasts 89.9mn b/d, compared to our 90.2mn b/d. The US Energy Information Administration (EIA) downwardly revised its consumption forecasts in April 2012 to 88.8mn b/d. Singapore Oil the fact the country could potentially hold the world's largest shale gas resource base suggests successful commercialisation of the latter could render some of its future LNG capacity redundant. South East Asia This sub-region will continue to attract investment from independents and majors alike, at a time when companies like Thailand's PTTEP and Malaysia's Petronas are looking to boost capital expenditure (capex) in order to raise production volumes, or, at the very least, slow declines in output. Brownfield developments have proliferated, with investment in EOR and marginal field projects particularly prevalent. Petronas, along with Western majors (with experience in the North Sea and GoM), is spearheading this type of development in Malaysia. Singapore Oil especially charges for deepwater oil drills, work at mature fields and EOR specialist equipment. Singapore Oil Source: Historical, EIA; Forecast, BMI Table: Singapore Oil Source: Historical, EIA; Forecast, BMI Singapore Oil Source: Historical, Energy Information Administration; Estimates/Forecasts, BMI Singapore Oil Source: Historical, Energy Information Administration; Estimates/Forecasts, BMI Singapore Oil Sampang PSC, located offshore East Java, Indonesia; Mahakam Hilir PSC, located in the Kutai Basin in East Kalimantan, Indonesia; Block T/47P in Australia; Blocks 19, 20, 102, 106 and 101- 100/04 offshore Vietnam in the Gulf of Tonkin; Block B, located offshore Cambodia in the Gulf of Thailand; Block 26/18 in the Pearl River Mouth basin in China; and Blocks 04/36 and 05/36 in Bohai Bay in China. Strategy SPC is aiming to become a significant regional producer. It intends to develop its existing E na = not applicable. Source: Historical data: EIA/BMI. All forecasts: BMI. Singapore Oil na = not applicable. Source: Historical data: EIA/BMI. All forecasts: BMI. Singapore Oil Upstream Oil Downstream Oil Both the upstream and downstream are composed of Risks/Rewards sub-ratings, which themselves comprise industry-specific and broader country risk components; Rewards: Evaluates the sectors size and growth potential in each state, and also broader industry and state characteristics that may inhibit its development; Risks: Evaluates both industry-specific dangers and those emanating from the states political and economic profile that call into question the likelihood of expected returns being realised over the assessed time period. Singapore Oil ? Company-specific capacity data, output targets and capital expenditures, using national, regional and multinational company sources; Singapore Oil ? Government projections for oil, gas and electricity demand; ? Third-party agency projections for regional demand, such as IEA, EIA, OPEC; ? Extrapolation of capacity expansion forecasts based on company- or state-specific investment levels. Cross checks Whenever possible, we compare government and/or third party agency projections with the declared spending and capacity expansion plans of the companies operating in each individual country. Where there are discrepancies, we use company-specific data as physical spending patterns to ultimately determine capacity and supply capability. Similarly, we compare capacity expansion plans and demand projections to check the energy balance of each country. Where the data suggest imports or exports, we check that necessary capacity exists or that the required investment in infrastructure is taking place. Sources Sources include those international bodies mentioned above such as OPEC, IEA, and EIA, as well as local energy ministries, official company information, and international and national news, and international and national news agencies.