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Energy & Environment

New Market Research Report: Czech Republic Oil & Gas Report Q2 2014

Fast Market Research recommends "Czech Republic Oil & Gas Report Q2 2014" from Business Monitor International, now available 2014-03-28 12:29:54
With a moratorium on shale gas exploration, the Czech Republic will remain highly dependent on imported fuel, as conventional hydrocarbons potential is limited. Demand trends are not strong, but refinery disruptions and the closure of the Pardubice refinery show that the domestic fuels market is in a precarious state of balance. This, in turn, has prompted the government to investigate ownership options for the national refining segment, with Shell having sold its 16.33% stake in Ceska Rafinerska to Unipetrol in January 2014.

The main trends and developments we highlight for the Czech Republic's oil and gas sector are:

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* Plans to freeze shale gas exploration for two years to allow the government to draft and implement new legislation have found plenty of support, meaning that drilling activity is unlikely until post-2014. In May 2013, Czech Prime Minister Petr Necas reiterated that shale mining was not on the agenda and that the moratorium on shale gas exploration would be maintained, stressing that the adoption of relevant legislation would be a precondition of shale gas prospecting and mining. Before the shale gas moratorium was put in place, several domestic and foreign companies had applied for shale gas exploration permits, including Cuadrilla Resources and Basgas Energia Czech, according to the Czech Ministry of Environment.
* Natural gas production is negligible, standing at a mere estimated 0.2bcm production level in 2013. We do not expect to see domestic gas production rise above 0.2bcm over the medium term. We rather expect a decline in production to an estimated 0.14bcm in 2023.
* Consumption of natural gas fell during 2012, dampened by a decline in manufacturing and warm weather. With increasing use of gas in the residential/commercial sector, and with a possible replacement of declining nuclear power generation by gas-fired power plants over the long term. We therefore expect a slow ramp up in gas consumption, which will accelerate towards the end of our forecast period. We expect overall gas consumption will rise from an estimated 8.1bcm in 2013 to around 9.5bcm by 2023.
* Domestic crude oil, NGPL and other liquids production was just an estimated 6,200 barrels per day (b/d) in 2012 and 7,000b/d for the first three quarters of 2013. The Czech Republic's small oil production is expected to decline over our forecast period, from an estimated crude oil, NGL and other liquids output of 7,000b/d in 2013 to 5,470b/d in 2023.
* Given that the country's electricity generation is overwhelmingly coal and nuclear based, and given that our power team forecasts an increase in coal-based power generation over our forecast period, an increase in oil-based power generation in the Czech Republic is unlikely. In addition, given our current GDP growth it is unlikely that medium-term oil demand will increase dramatically. Assuming an average rise in consumption of no more than 1% per annum, below the Central and Eastern European (CEE) norm, we estimate that oil consumption will largely stagnate, with levels of 203,430b/d by 2018, and 207,530b/d by 2023.
* Unipetrol insisted on January 23 2013 that it has no intention of selling control of the Czech Republic's major refiner Ceska Rafinerska. The statement came a day after Czech Industry Minister Martin Kuba said the government is preparing a plan to take over the company, confirming long-standing market speculation. The move is prompted by the government's desire to bolster energy security, Kuba told Reuters in an interview. To that end, an expert group has been formed to study the plan, which aims to combine the refiner with state-held crude and oil products pipeline operators Mero and Cepro.In November 2013, Royal Dutch Shell announced that it has signed an agreement to sell its 16.3% stake in Ceska Rafinerska to Unipetrol. Unipetrol completed the buyout of Shell's minority stake in January 2014, raising its stake in Ceska Rafinerska to 67.6% after paying US$27.2mn for Shell's 16.4% holding.
* Unipetrol has now permanently stopped crude oil refining at its 20,000b/d Pardubice refinery. The decision was made due to the weak refining margins post 2008, the low conversion capacity and low complexity of the refinery which impacted its profitability, and a weak demand for diesel and refining overcapacity in Europe. As a result, national crude distillation capacity is now reduced to 163,000b/ d.German utility RWE has wrapped up another asset sale, with the disposal of Czech gas transmission operator Net4Gas for EUR1.2bn. The asset was purchased by a partnership comprising Allianz Capital Partners and Borealis. In addition to the EUR1.2bn purchase price, the partners are assuming debt of EUR400mn. Net4Gas holds the exclusive rights to operate around 3,600km of natural gas pipeline in Czech Republic. The company is responsible for the national transmission of natural gas, as well as international natural gas transit.
* The estimated cost of crude oil and fuel imports in 2013 for the Czech Republic is approximately US $7.40bn, using an OPEC basket oil price of USS105.09/bbl. By 2018, total net oil imports will cost an estimated US$6.94bn. The combined crude oil and natural gas import bill for the Czech Republic in 2018 will be around US$10.83bn, at a forecasted OPEC basket oil price of US$96.00/bbl.

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