Business Monitor International (BMI) forecasts that Iraq will account for 9.00% of Middle East (ME) regional oil demand by 2014, while providing 11.08% of supply. Regional oil use of 7.47mn barrels per day (b/d) in 2001 rose to an estimated 10.64mn b/d in 2009. It should average 10.98mn b/d in 2010 and then rise to around 11.95mn b/d by 2014. Regional oil production was 22.83mn b/d in 2001 and averaged an estimated 24.66mn b/d in 2009. It is set to rise to 27.18mn 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 15.36mn b/d. This total had eased to an estimated 14.02mn b/d in 2009 and is forecast to reach 15.23mn b/d by 2014. Iraq has the greatest production growth potential, followed by Qatar.
In terms of natural gas, the region consumed an estimated 367.6bn cubic metres (bcm) in 2009, with demand of 492.5bcm targeted for 2014, representing 28.7% growth. Estimated production of 429.9bcm in 2009 should reach 657.8bcm in 2014 (+39.8%), which implies net exports rising to 165.0bcm by the end of the period. In 2009, Iraq consumed an estimated 1.36% of the region’s gas, with its market share forecast at 1.47% by 2014. It contributed 1.86% to estimated 2009 regional gas production and by 2014 could account for 3.04% 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.
The BMI assumption for premium unleaded gasoline in 2010 is an average global price of US$96.83/bbl. The year-on-year (y-o-y) rise in 2010 gasoline prices is put at 38%. Gasoil is expected to average US$92.45/bbl in 2010, 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. BMI puts the 2010 average naphtha price at US$82.46/bbl, up 39% from the previous year’s level. BMI is assuming a 3.9% rise in Iraq’s real GDP in 2009, which will be followed by forecast growth of 4.5% in 2010. We are assuming average annual growth of 6.0% in 2010-2014. We expect estimated oil demand of 780,000b/d in 2009 to rise to 1.08mn b/d in 2014, depending on investment in infrastructure and the development of domestic production. International oil companies (IOCs) are signing production sharing agreements (PSAs) with the state, which should help accelerate the growth in oil output. Based on the efforts of national oil industry bodies, we are forecasting average oil production of 2.49mn b/d in 2010. March 2010 production was 2.25mn b/d, with 1.79mn b/d of exports. Further field reactivation work and the initial IOC efforts point to output of an estimated 3.01mn b/d in 2014. The government has much more ambitious targets, aiming for 0.5mn b/d annual output expansion and a long-term goal of 6.0mn b/d. However, there are major risks involving attacks on oil installations, Iraq’s OPEC entitlement and the success of new energy policy in stimulating IOC investment.
Between 2010 and 2019, we are forecasting an increase in Iraqi oil production of 73.0%, with crude volumes rising steadily to 4.30mn b/d by the end of the 10-year forecast period. Oil consumption between 2010 and 2019 is set to increase by 61.4%, with growth slowing to an assumed 5.0% per annum towards the end of the period and the country using 1.37mn b/d by 2019. Gas production is expected to climb to 37bcm by the end of the period. With 2010-2019 demand growth of 133.9%, export potential should rise to 25bcm by 2019. Details of the BMI 10-year forecasts can be found in the appendix to this report.
Iraq ranks fourth, just ahead of Iran, in BMI’s composite Business Environment Ratings (BERs) table, which combines Upstream and Downstream scores. It still occupies a respectable third place in BMI’s updated Upstream Business Environment Ratings, but is now four points behind the UAE and lacks the immediate potential to move higher. The country’s score benefits from exceptional oil and gas output growth potential, a substantial hydrocarbons reserves base and the region’s highest reserves-to-productionratio (RPR). Government control of the upstream industry and a high level of country-specific riskprevent Iraq from achieving a better overall score. Iraq is still at the bottom of the league table in BMI’s
Downstream Business Environment Ratings, with few high scores and near-term progress up the rankings unlikely. It is ranked just below Kuwait, thanks largely to country risk factors that outweigh a reasonable showing in terms of oil demand, oil and gas demand growth and likely refining capacity expansion.
The full report runs to 88 pages, and is available at a price of £590 directly from Business Monitor International.