Czech Republic Oil and Gas Report Q4 2010

The latest Oil & Gas Czech Republic 's Report forecasts that the nation will account for 3.42% of Central and Eastern European (CEE) regional oil demand by 2014, while making no material contribution to supply. CEE regional oil use of 5.42mn barrels per day (b/d) in 2001 will rise to an estimated 6.02mn b/d in 2010.

It should increase to around 6.68mn b/d by 2014. Regional oil production was 8.89mn b/d in 2001, and in 2010 will average an estimated 13.67mn b/d. It is set to rise to 14.44mn 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 3.47mn b/d. This total rose to an estimated 7.65mn b/d in 2010 and is forecast to reach 7.76mn 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 2010 consumed an estimated 638.6bn cubic metres (bcm), with demand of 728.8bcm targeted for 2014, representing 14.1% growth. Production of an estimated 788.4bcm in 2010 should reach 936.4bcm in 2014, which implies net exports rising from an estimated 149.8bcm in 2010 to 207.5bcm by the end of the period. The Czech Republic's share of gas consumption in 2010 is an estimated 1.49%, with no meaningful contribution to regional supply.

Its share of demand is forecast to be 2.06% by the end of the forecast period. For 2010 as a whole, an average OPEC basket price of US$83.00/bbl, +36.4% year-on-year (y-o-y). Risk is now clearly on the downside, thanks to the slow progress made during June. However, a full year outturn in excess of US$80 remains a strong possibility and we see no need to review our assumptions at this point. The 2010 US WTI price is now put at US$87.63/bbl. Assuming an OPEC basket price of US$85.00/bbl in 2011, with WTI averaging US$89.74.

Our central assumption for 2012 and beyond is an OPEC price averaging US$90.00/bbl, delivering WTI at just over US$95.00. For 2010, the assumption for premium unleaded gasoline is an average global price of US$95.45/bbl. The overall y-o-y rise in 2010 gasoline prices is put at 36%. Gasoil in 2010 is expected to average US$93.23/bbl. The full-year outturn represents a 35% increase from the 2009 level. For 2010, the annual jet price level is forecast to be US$95.90/bbl. This compares with US$70.66/bbl in 2009. The 2010 average naphtha price is put by BMI at US$83.53/bbl, up 41% from the previous year's level. Czech real GDP is assumed to have risen by 2.2% in 2010. We are assuming average annual growth of 3.3% in 2010-2014.

Assuming an average post-2009 rise in consumption of 1.5% per annum, below the CEE norm, oil demand will reach 228,000b/d in 2014 – implying imports of at least 218,000b/d. In spite of a privatised oil industry, there is very limited international oil company (IOC) involvement in the upstream segment to boost domestic supply of oil or gas. BMI is assuming that gas demand will rise by an annual 4% from an estimated 9.5bcm in 2010 to around 15.0bcm by 2014. Between 2010 and 2019, we are forecasting an increase in Czech oil consumption of 18.6%, with import volumes rising steadily from an estimated 196,000b/d to 237,000b/d by the end of the 10-year forecast period.

Gas consumption is expected to rise 88.4% from an estimated 9.5bcm to 17.9bcm by 2019, met by imports. Its minimal oil and gas reserves and poor production outlook work against the country but are offset somewhat by privatisation progress, the competitive/regulatory environment and reasonable country risk factors. Refining capacity is among the region's lowest, with low scores for likely capacity expansion and for oil demand growth. Population and GDP per capita also work against the country, but gas demand growth is relatively high. Kazakhstan below is likely to challenge the Czech Republic over the medium term.