ACTIVE EXPLORATION

Despite the active development of alternative and renewable energy sources, traditional fuel will retain its dominant position in the market for years to come. According to BP Energy Outlook 2019, gas demand will grow in almost every country thanks to the availability of natural gas throughout the world, especially liquefied natural gas (LNG). In the evolutionary development scenario presented by BP, the growth in demand for natural gas will be 1.7% per year, mainly due to the development of industry and energy. By the way, natural gas is the only source of energy along with renewable sources, whose share among the primary energy sources is increasing.

Annual growth

According to BP, the main volume of gas production will be in the USA and the Middle East (Qatar and Iran), which will reach almost 50%. At the same time, a significant increase in gas production is also expected in Russia and China.

Gas Exporting Countries Forum (GECF), which is an analogue of OPEC for the natural gas market, expects production growth in the Caspian region by 54% by 2040. This statement was made at the Caspian Oil & Gas 2019 conference in Baku on May 30 by Yury Sentyurin, GECF Secretary General.

Sentyurin pointed out that the positive dynamics of demand for natural gas is a fundamental factor influencing the efforts of the Caspian countries to expand their production capacity and develop export infrastructure.

“Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan will be the main actors in impressive gas production growth, given the large number of projects that are already being implemented. The region has good prospects for increasing exports of pipeline gas by supplying new markets such as Afghanistan, India, Pakistan, Europe, and expanding existing infrastructures to China and Turkey,” Sentyurin said.

According to Sentyurin, the role of the Caspian region in providing natural gas to Europe will increase every year given the decline in gas production in the countries of the continent and a gradual reduction in the volumes of other types of fuel.

“Azerbaijan has more than 1.4 trillion cubic meters of proven reserves and possibly about 1 trillion cubic meters of unexplored gas resources. Azerbaijan is becoming an important gas supplier in the western Caspian region and is actively increasing its export potential. The country is expected to increase production in the new phases of the development of the giant Shah Deniz field and the Absheron field. GECF expects that the first stage of Absheron development will begin after 2023, and by 2025, production will reach 5 billion cubic meters,” Sentyurin said.

According to Sentyurin, given the prospects for new projects, the forecast of natural gas production in Azerbaijan as a whole looks very promising.

Shall we expect Stage 3 soon?

According to the forecasts of the Azerbaijani Ministry of Energy, in 2019 Azerbaijan will increase gas production by 6 billion cubic meters compared with 2018, when, according to the State Statistics Committee, 30.6 billion cubic meters were produced in the country. In 2020, the Ministry forecasts gas production in Azerbaijan of more than 40 billion cubic meters, and up to 45 billion cubic meters in 2021.

In 2019, the main growth will, of course, be secured by the Shah Deniz field, which last year entered the second stage of its development with annual production rate of 16 billion cubic meters. This year, the Azerbaijani government predicts production from the field at the level of 17.5 billion cubic meters of gas, which is 51.3% more than in 2018.

“Gas production from the Shah Deniz field is carried out in the framework of Stage 1 from the Alfa platform and in the framework of Stage 2 from the Bravo production platform. Currently, the capacity of the existing production system at the field is about 20 billion cubic meters of gas per year, or 56 million cubic meters of gas per day,” says the report of BP-Azerbaijan, technical operator of the Shah Deniz field.

However, this is not all. Taking into account sufficient gas reserves at the field, shareholders are already considering the possibility of moving to the next stage of its development, namely to Stage 3, which envisages the development of gas reserves in deep layers of the field. According to SOCAR, this means additional gas resources equal to 300-500 billion cubic meters.

According to the regional president of BP on Azerbaijan, Georgia and Turkey Gary Jones, in 2020 exploration drilling will be conducted at Shah Deniz “to study the potential of the deep layers of the contract area”.

At the same time, the head of SOCAR’s investment management, Vagif Aliyev, said that the concept of the Stage-3 project is not ready yet. “We reached an agreement between the shareholders of the project, which means that certain geological and geotechnical works are carried out to implement the project,” Aliyev added.

SOCAR believes that the investment decision on Stage-3 is unlikely to be made this year. “First of all, it is necessary to solve many technical and commercial issues, such as confirming stocks, determining the amount of future investments. In addition, the project will require the expansion of the existing infrastructure, so this project has not yet reached the implementation stage, but the likelihood that it will be implemented is very high,” Aliyev said.

Promising perspectives

Meanwhile, BP plans to begin exploration on the Shafag-Asiman contract area this year. “In case of successful exploration works, the reserves of Shafag-Asiman can be compared to those of Shah Deniz,” G. Jones said.

Already in 2019, a project to develop the Absheron offshore gas and condensate field, whose reserves are estimated at 350 billion cubic meters of gas and 45 million tons of condensate, is expected to contribute to the increase in domestic gas production. The parties to the PSA (Production Sharing Agreement) are SOCAR (50%) and the French Total (50% as operator).

“We continue drilling of an exploration well at the Absheron field using the Heydar Aliyev semi-submersible drilling rig. Exploration drilling stage to a depth of 7,411 m confirmed the high potential of the field in terms of hydrocarbon reserves. Currently, we started the stage of production drilling and installation of necessary infrastructure,” SOCAR President Rovnag Abdullayev said. The expected daily production rate of the well is 2,000 tons of condensate and 4.3 million cubic meters of gas.

The development of the field is expected in two stages. The first stage involves the annual production of 1.5 billion cubic meters of gas. Total plans to start production of the first gas at the Absheron field in 2021, although it was previously scheduled for 2020. Produced gas will be distributed on the domestic market of Azerbaijan. At the next stage, production will be increased to 5 billion cubic meters of gas per year.

Azerbaijan’s further plans to increase gas production and export are closely related to the exploration and development of the Caspian block Umid-Babek, whose reserves are estimated at 600 billion cubic meters of gas and 120 million tons of condensate. According to R. Abdullayev, many companies are showing interest in the exploration and development of this offshore block. “We study the proposals and mainly expect participation of Total in this project. Negotiations with Total are ongoing,” Abdullayev said.

At the same time, Abdullayev noted that the Russian LUKoil also shows interest in the Umid-Babek block. “We believe it to be a promising block. All investment conditions have been created, so the company decided to expand its presence in Azerbaijan,” Vagit Alekperov of LUKoil said.

In addition, SOCAR has high expectations for oil and gas with the development of the Garabagh field. Thus, SOCAR President Abdullayev said that in the near future, work on the implementation of this project will move to the basic design stage. Meanwhile, the project operator, Norwegian Equinor, has already made a decision on contractor to start drilling operations in the contract area. It is Caspian Drilling Company (CDC), which will drill two wells in the field.

In July 2019, Equinor will launch two-dimensional and three-dimensional seismic surveys on the Ashrafi-Dan Ulduzu-Aypara prospective structures in the Azerbaijani sector of the Caspian Sea. The studies will take a total of 40-50 days.

“One of our main goals is to increase gas production further along with maintaining oil production at a stable level, and we are moving in this direction. In 2018, a significant increase in gas production made it possible to stop gas imports completely. We expect volume growth both in 2019 and in the following years,” R. Abdullayev said.

This positive trend opens up broad prospects for the development of gas processing and chemical industries in Azerbaijan and boosts domestic production of imported products.