Research and Markets: Latest Iraq Oil and Gas Report - Q1 2011 Edition

The Iraq Oil and Gas Report provides industry professionals and strategists, corporate analysts, oil and gas associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Iraq's oil and gas industry.

BMI forecasts that Iraq will account for 10.27% of Middle East (ME) regional oil demand by 2015, while providing 11.56% of supply. Middle East regional oil use of 4.98mn b/d in 2001 will rise to an estimated 7.40mn barrels per day (b/d) in 2010. It should average 7.70mn b/d in 2011 and then rise to around 8.70mn b/d by 2015. Regional oil production was 22.83mn b/d in 2001 and will average an estimated 24.96mn b/d in 2010. After an estimated 25.22mn b/d in 2011, it is set to rise to 27.24mn b/d by 2015. Oil exports are growing steadily, because demand growth is lagging the pace of supply expansion. In 2001,the region was exporting an average of 17.85mn b/d. This total will ease to an estimated 17.55mn b/d in 2010 and is forecast to reach 18.54mn b/d by 2015. Iraq has the greatest export growth potential, followed by Qatar.

In terms of natural gas, the region will consume an estimated 391bn cubic metres (bcm) in 2010, with demand of 483bcm targeted for 2015, representing 23.7% growth. Production of an estimated 467bcm in2010 should reach 614bcm in 2015 (+31.4%), which implies net exports rising to 130bcm by the end of the period. In 2010, Iraq will consume an estimated 1.28% of the regions gas, with its market share forecast at 2.38% by 2015. It will contribute 1.07% to estimated 2010 regional gas production and by 2015 could account for 2.93% of supply.

For 2010 as a whole, we assume an average OPEC basket price of US$77.00/bbl (+26.5% 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 of US$87.49/bbl, representing a y-o-y rise of 24.7%. The global gas/oil forecast 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 forecast to be US$89.500/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 years level.

BMI is assuming that Iraqi real GDP will rise 3.4% in 2010, and we are forecasting average annual growth of 5.7% in 2010-2015. We expect estimated oil demand of 700,000b/d in 2010 to rise to 893,000b/d in 2015, depending on investment in infrastructure and the development of domestic production. International oil companies (IOCs) have signed 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 2.51mn b/d in 2010. September 2010 production was 2.52mn b/d, with 2.02mn b/d of exports. Further field reactivation work and the initial IOC efforts point to output of an estimated 3.15mn b/d in 2015. 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 2020, we are forecasting an increase in Iraqi oil production of 65.7%, with crude volumes rising steadily to 4.15mn b/d by the end of the 10-year forecast period. Oil consumption between 2010 and 2020 is set to increase by 62.9%, with growth slowing to an assumed 5.0% per annum towards the end of the period and the country using 1.14mn b/d by 2020. Gas production is expected to climb to 42bcm by the end of the period. With 2010-2020 demand growth of 281%, export potential should rise to 23bcm by 2020. Details of the BMI 10-year forecasts can be found in the appendix to this report.

Iraq ranks fourth, just ahead of Iran and Bahrain, in BMIs composite Business Environment ratings (BERs) table, which combines upstream and downstream scores. It now occupies a respectable third place in BMIs updated upstream Business Environment ratings, but lags Qatar and the UAE by five points and three points respectively. The country's score benefits from exceptional oil and gas output growth potential, a substantial hydrocarbons reserves base and the regions highest reserves-to-production ratio (RPR). Current government control of the upstream industry and a high level of country-specific risk prevent Iraq from achieving a better overall score. Iraq is back at the bottom of the league table in BMIs downstream Business Environment ratings, with a few high scores but further near-term progress up the rankings unlikely. It is ranked just behind Kuwait and Oman, in spite of a reasonable showing in terms of oil demand, oil and gas demand growth and likely refining capacity expansion.