Paul Thomen

Friday, 7 June 2013

Oil and Gas Q3 Indsutry Report 2013: Argentina, Canada, Denmark, Kazakhstan

Argentina Oil and Gas Report Q3 2013

Argentina’s technically recoverable shale resources are the third largest in the world, behind only China and the US. Yet the Argentina’s business environment has turned increasingly negative in recent years, and this has only been further exacerbated by the expropriation of YPF from Repsol in early
2012. There appears, however, to be a small but growing cadre of international and national oil companies seeking to gain first-mover advantage by tapping potentially game-changing shale resources in the Vaca Muerta formation – despite Argentina’s risky business environment. If the country is able to make the necessary investments, its shale potential could provide the country with an opportunity to become a regional, and potentially global, gas powerhouse. Nevertheless, we continue to highlight the challenges to operating there, and expect a difficult progression to large-scale unconventional natural gas production. Indeed, we retain our view that rising gas production will fail to keep pace with rising consumption, leading to an increasingly costly import burden over our forecast period.

The main trends and developments we highlight in the Argentine oil and gas sector are:
- There appears to be an uptick in momentum with regards to investment in Argentina’s shale potential, with several companies calculating that the benefit of having first-mover advantage in Vaca Muerta will outweigh the risks associated with investment in the sector. Should YPF prove successful in unlocking some of its massive shale potential through participation with foreign partners, it could provide the country with an opportunity to stave off or possibly even reverse a decline in gas production – giving the country net importer status over the next decade.

Canada Oil and Gas Report Q3 2013

Increasingly challenging economics could slow the growth of oil-sands driven production, although we note that liquid-rich shales could be the new engine of crude output. Exploration in the country’s offshore acreage and unconventional resources could unearth more oil and gas reserves to support the country’s long-term growth prospects. The outlook for Canada’s oil and gas industry is still a rosy one, though its upstream potential needs more support from infrastructure development.

The main trends and developments we highlight for Canada’s oil and gas sector are:
- We see a threat to growing oil reserves from oil sands projects. Due to the boom in light, sweet crude
production in the US, demand for heavier Canadian crudes from oil sands has fallen. Complicated by
infrastructure bottlenecks that are limiting crude flows, this has widened the discount between the prices
of Canadian crudes and WTI, which has in turn hit the economics of oil sands projects.

Denmark Oil and Gas Report Q3 2013

Denmark is hoping to avoid becoming an oil and gas importer for another few years, despite declining production. The government is confident the country will sustain its position as a net exporter of oil and gas until the end of the decade, with some recovery in volumes likely over the medium term. Over the longer term, shale gas could play an important role in boosting supply, but environmental concerns may slow the rate of progress.

The main trends and developments in Denmark’s oil & gas sector are:
- Danish consumption of natural gas was 3.7bcm in 2012, compared with 4.0bcm in 2011, according to
state energy department figures. This corresponds to a drop of 6.7%. Consumption of natural gas by
large-scale combined heat and power (CHP) plants fell by 0.09bcm in 2012 because of a drop in
electricity production in 2012. For the same reason consumption of natural gas by small-scale CHP plants
also fell. In 2012, Danish natural gas production fell by 9.2% to 6.1bcm. Exports of natural gas fell by
4.6%, primarily due to a significant drop in exports to Germany and Sweden, while exports to the
Netherlands increased significantly.

Kazakhstan Oil and Gas Report Q3 2013

Our outlook for Kazakhstan remains broadly optimistic, although we underline growing risks related to resource nationalism and geological complications on major prospects that could deter foreign investors. ConocoPhillips’ recent divestment of its Kazakh assets further strengthens our expectation that IOCs could move away from the country’s hydrocarbons market. We expect strengthening ties between Kazakhstan and China, based on the increasing diversity of the latter’s energy supply.

The main trends and developments we highlight for Kazakhstan’s oil and gas sector are:
- Kazahstan has been strengthening its trading ties with China. Kairgeldy Kabyldin, head of KazTransOil, seems to have made a clear choice, as he declared in early March plans to increase oil exports to China by one-fifth in 2013. Developing ties with Chinese companies will most likely help Kazakhstan develop the necessary infrastructure to transport fuel eastward. However, this move may create further uncertainty on the potential interference of the government in the hydrocarbons sector.

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