Croatia Energy Profile 2012

Croatia Oil and Gas Report Q3 2010

The latest Oil & Gas Report for  Croatia forecasts that the nwill ation account for 1.65% of Central and Eastern European (CEE) regional oil demand by 2014, while making no material contribution to regional supply. CEE regional oil use of 5.42mn barrels per day (b/d) in 2001 rose to an estimated 5.81mn b/d in 2009. It should average 6.03mn b/d in 2010 and then rise to around 6.69mn b/d by 2014. Regional oil production was 8.88mn b/d in 2001, and in 2009 averaged an estimated 13.35mn b/d. It is set to rise to 14.57mn 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 of 3.46mn b/d. This total had risen to an estimated 7.54mn b/d in 2009 and is forecast to reach 7.88mn b/d by 2014. Azerbaijan and Kazakhstan have the greatest production growth potential, although Russia will remain the key exporter. In terms of natural gas, the region in 2009 consumed an estimated 668.5bn cubic metres (bcm), with demand of 780.0bcm targeted for 2014, representing 13.7% growth. Production of an estimated 830.3bcm in 2009 should reach 1,025.7bcm in 2014, which implies net exports rising from an estimated 162bcm in 2009 to 246bcm by the end of the period. Croatia’s share of gas consumption in 2009 was an estimated 0.70%, while its share of production is put at 0.43%. By 2014, its share of demand is forecast to be 0.83%, with the country accounting for 0.29% 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.

For 2010, the BMI assumption for premium unleaded gasoline 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 in 2010 is expected to average US$92.45/bbl, 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. The 2010 average naphtha price is put by BMI at US$82.46/bbl, up 39% from the previous year’s level.

Croatian real GDP is assumed by BMI to have fallen by 5.8% in 2009, followed by forecast 0.5% growth in 2010. We are assuming average annual growth of 2.8% in 2010-2014. Consumption of oil is set to grow more slowly than the underlying economy, increasing by less than 1.5% per annum over the forecast period and reaching 110,000b/d by 2014. Imports are therefore set to rise from an estimated 86,000b/d in 2009 to no more than 100,000b/d by the end of the forecast period. Former state oil group INA is attempting to raise local supply in partnership with major shareholder MOL, but we expect to see a steady decline in crude production, from the estimated 2009 level of 14,000b/d to no more than 10,000b/d by 2014. We expect gas output to have peaked at 4bcm in 2008, before starting to decline. Consumption is forecast to rise from an estimated 4.7bcm in 2009 to 6.5bcm by 2014, requiring imports of 3.5bcm.

Between 2010 and 2019, we are forecasting an increase in Croatian oil consumption of 15.5%, with crude import volumes rising steadily from an estimated 86,000b/d to 112,000b/d by the end of the 10-year forecast period. Gas production is expected to fall from an estimated 3.6bcm in 2010 to 2.5bcm by 2019. Import dependency therefore increases to 5.4bcm during the period. Details of BMI’s 10-year forecasts can be found in the appendix to this report.

Croatia shares 11th place with Turkmenistan in BMI’s composite Business Environment (BE) Ratings table, which combines upstream and downstream scores. It now shares eighth place with Hungary, Uzbekistan, Turkmenistan and the Czech Republic in BMI’s updated upstream Business Environment Ratings. The minimal oil and gas reserves and poor production outlook work against the country, but are offset somewhat by privatisation progress and reasonable country risk factors. There is limited long-term scope for Croatia to pull away from its low-scoring rivals, given their greater hydrocarbons potential. Turkmenistan and Uzbekistan are much more likely to leave Croatia behind. Croatia is placed well down the league table in BMI’s downstream Business Environment Ratings, with few particularly high scores and no reason to expect near-term progress further up the rankings. Oil and gas demand are among the region’s lowest, as is the oil demand growth outlook. Population, nominal GDP and growth in GDP per capita are also low-scoring areas for the country. Croatia holds 12th place, ahead only of Slovakia, Bulgaria and Uzbekistan.