Egypt Oil And Gas Report Q2 2010 - New Market Report Published

The latest Egypt Oil & Gas Report from our forecasts that the country will account for 19.62% of African regional oil demand by 2014, while providing 5.74% of supply. African regional oil use of 2.93mn barrels per day (b/d) in 2001 rose to an estimated 3.57mn b/d in 2009. It should average 3.63mn b/d in 2010 and then rise to around 4.08mn b/d by 2014. Regional oil production was 7.77mn b/d in 2001, and in 2009 averaged an estimated 9.64mn b/d. It is set to rise to 11.83mn 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 4.83mn b/d. This total had risen to an estimated 6.07mn b/d in 2009 and is forecast to reach 7.75mn b/d by 2014.



In terms of natural gas, the region in 2009 consumed an estimated 123bn cubic metres (bcm), with demand of 194bcm targeted for 2014. Production of an estimated 248bcm in 2009 should reach 385bcm in 2014, which implies net exports rising from 125bcm in 2009 to 191bcm by the end of the period. Egypt consumed an estimated 34.59% of the region's gas in 2009, with its market share set to be 27.58% by 2014. It contributed an estimated 26.26% to 2009 regional gas production and, by 2014, will account for 23.90% of supply.

For 2009 as a whole, we have assumed an average OPEC basket price of US$60.70 per barrel (bbl), a 35.5% decline year-on-year (y-o-y). For 2010, we expect to see a significant oil price recovery to US$83.00/bbl for the OPEC basket price, gaining further ground to US$85.00 in 2011 and to US$90.00/bbl in 2012 and beyond.

In 2010, we are now forecasting premium unleaded gasoline prices at an average US$97.00, up from US$70.22/bbl in 2009. We are assuming an average global jet fuel price for 2010 of US$97.58/bbl, compared with US$70.63 in 2009. For gasoil, the 2010 price estimate is for an average of US$97.40/bbl, compared with US$70.50 in 2009. The FY10 naphtha price average, estimated at US$81.58/bbl compares with US$59.07 in FY09.

Egyptian real GDP is assumed to have risen by 4.7% in 2009, compared with 7.2% growth in 2008. We are assuming average annual growth of 4.9% in 2010-2014. We expect oil demand to rise from an estimated 700,000b/d in 2009 to 811,000b/d in 2014, subject to national efforts to conserve oil and increase the use of gas. State oil company Egyptian General Petroleum Corporation (EGPC) operates in partnership with various international oil companies (IOCs), and alone accounts for just 20% of the country's oil output. In spite of higher recent IOC investment, combined oil and gas liquids output is forecast to decrease from an estimated 695,000b/d in 2009 to 683,000b/d in 2014. Gas production should reach 92bcm by 2014, up from an estimated 65bcm in 2009. Consumption is expected to rise from an estimated 42.bcm to 53.5bcm by the end of the forecast period, providing exports of 38.5bcm. Between 2009 and 2019, we are forecasting a decrease in Egyptian oil and gas liquids production of 13.5%, with volumes slipping steadily to 601,000b/d by the end of the 10-year forecast period. Oil consumption between 2009 and 2019 is set to increase by 34.4%, with growth slowing to an assumed 3.0% per annum towards the end of the period and the country using 941,000b/d by 2019. Gas production is expected to rise to 110bcm by the end of the period. With demand rising by 54.5% between 2009 and 2019, there should be export potential increasing to 44.3bcm, largely in the form of LNG. Details of our 10-year forecasts can be found in the appendix to this report.

Egypt now shares sixth place with Republic of Congo (RoC) in our updated and enlarged Upstream Business Environment Ratings. The country's score benefits from healthy proven gas reserves, an established competitive landscape, a reasonable gas reserves-to-production ratio (RPR) and attractive licensing terms. The country's risk environment is sound, but this alone may not be enough to push Egypt past RoC during the next few quarters. However, South Africa is three points behind and lacks the upstream credentials to challenge for Egypt's seventh place. The country is comfortably in the upper half of the league table in our Downstream Business Environment rating, with some high scores but progress further up the rankings unlikely. It is ranked second, thanks to high scores for refining capacity, oil and gas demand, retail site intensity, population and GDP per capita growth. The growth outlook for oil/gas consumption and refining capacity represent relatively weak suits. Algeria is behind it in the regional rankings, and there is some long-term risk of it challenging for Egypt's second place.