Hungary Oil and Gas Report Q4 2008

The latest Hungary Oil & Gas Report from BMI forecasts that the country will account for 3.00% of Central and Eastern European (CEE) regional oil demand by 2012, while providing less than 0.2% of supply. CEE regional oil use of 4.65mn barrels per day (b/d) in 2001 rose to 5.32mn b/d in 2007. It should average 5.42mn b/d in 2008 and then rise to around 5.99mn b/d by 2012. Regional production of 12.92mn b/d in 2007 is forecast to reach 15.03mn b/d by 2012. In terms of natural gas, the region in 2007 consumed 619bn cubic metres (bcm), with demand of 735bcm targeted for 2012, representing 18.8% growth. Production of 756bcm in 2007 should reach 888bcm in 2012, which implies net exports rising from 137bcm in 2007 to 153bcm by the end of the period. Hungary’s share of consumption in 2007 was 1.91%, which is likely to have risen to 2.04% by 2012. Its contribution to gas production is not significant, with no improvement expected over the forecast period.

In Q208, we estimate that the OPEC basket price averaged just under US$115 per barrel (bbl) – up around 24% from the Q108 level. The OPEC basket price had exceeded US$127/bbl on the 22nd of May, slipping back towards US$121/bbl later in the month. In June, we assumed an average of around US$120/bbl, to deliver our quarterly estimate of US$114.98/bbl. The estimated Q208 average prices for the main marker blends are now US$118.63/bbl for Brent, US$119.61/bbl for WTI and US$115.89/bbl for Russian Urals (Mediterranean delivery). Our projections for 2008 as a whole have been revised upwards from the last quarterly report. We are now assuming an OPEC basket price average of US$106/bbl for 2008, compared with the US$81/bbl estimate provided by our last quarterly report. Based on recent price differentials, this implies Brent at US$109.71/bbl, WTI averaging US$110.64/bbl, and Urals at US$106.88/bbl.

Hungarian real GDP growth is now estimated by BMI at 1.7% for 2008, up from 1.3% in 2007. We are assuming 2.2% growth in 2009, 4.2% in 2010, 5.0% in 2011 and 5.1% in 2012. Hungarian oil consumption has fallen from 198,000b/d in 1990 to 168,000b/d in 2007. We are now expecting a gradual recovery, as demand rises by 1.5% per annum, with consumption reaching 180,000b/d by 2012. Domestic production, largely in the hands of former state company MOL, is not expected to recover from the recent decline, with steady slippage leading to higher import volumes (reaching 1582,000b/d by 2012). Gas demand is forecast to increase from 11.8bcm in 2007 to around 15.0bcm (in 2012) – implying net gas imports reaching 12.9bcm by the end of the forecast period.

Between 2007 and 2018, we are forecasting an increase in Hungarian oil consumption of 17.2%, with import volumes rising steadily from 136,000b/d to 181,000b/d by the end of the 10-year forecast period.

Gas consumption is expected to increase from 11.8bcm to 17.9bcm by 2018, met largely by imports.

Details of the new BMI 10-year forecasts can be found in the appendix to this report, which provides global, regional and country-specific projections.

Hungary now occupies last place in BMI’s updated Upstream Business Environment rating. 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. There is some slight chance of Hungary challenging Croatia just one point above it, but Turkmenistan is capable of pulling away. The country is in the lower half of the league table in BMI’s Downstream Business Environment rating, with a few high scores but no reason to expect near-term progress further up the rankings. It shares eighth place with Slovakia. Refining capacity is among the region’s lowest, with low scores for likely capacity expansion and for oil and gas demand growth. Population and GDP per capita also work against the country. The Czech Republic may be within reach above it, but there is unlikely to be any change over the near term.

Source: Companiesandmarkets.com
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