Author: Nigar ABBASOVA
The year of 2020 promises to become historic for Azerbaijan as soon as the deliveries of natural gas from the Shah Deniz field to Europe start. Azerbaijan will become an important player in the global gas market and one of the most important gas partners of Europe.
Many years of work, which was carried out in order to achieve this goal together with investment companies, ended in 2019 with the full launch of the Trans-Anatolian Gas Pipeline (TANAP).
The trust and desire of traditional partners to cooperate with Azerbaijan is based on the success of previous projects in the oil sector. In general, the last year will go down in history thanks to a number of discoveries, launches and contracts in the fuel and energy sector.
TANAP is ready
Undoubtedly, the main event of last year was the commissioning of the second stage of the Trans-Anatolian Gas Pipeline (TANAP), which connects the city of Eskisehir, Turkey with the Turkish-Greek border. The opening ceremony of TANAP took place on November 30 in Edirne with the participation of the leaders of Azerbaijan and Turkey, Ilham Aliyev and Recep Tayyip Erdogan. The 1,850 km long pipeline is the third of the four components of the Southern Gas Corridor project and one of its main links, as it transits the natural gas from Shah Deniz Stage 2 all the way to Europe.
The first phase of the TANAP gas pipeline (from Georgian-Turkish border to Eskisehir) was launched on June 12, 2018, and commercial deliveries of Azerbaijani gas via TANAP began on June 30 of the same year. Since July 1, 2019, TANAP is completely ready for deliveries to Europe.
The throughput capacity of the TANAP pipeline will be at least 16 bcm, of which 10 billion will be supplied to Europe, and 6 billion are intended for the western regions of Turkey. In the future, this number will be increased to 24 and later to 31 bcm annually.
Over 15 years of operation, TANAP will bring to shareholders (SOCAR - 51%, SOCAR Turkiye Enerji - 7%, BOTAS - 30%, BP -12%) $1.45 billion in annual revenues, of which 58% will go to Azerbaijan. According to SOCAR forecasts, TANAP will cover 12% of Turkey’s gas demand. As of December 1, 2019, TANAP delivered 3.5 bcm of Azerbaijani gas to Turkey.
Serious increase in gas potential
The first significant event in 2019 was the production of the 100 billion cubic meter of natural gas from the Shah Deniz field, which was announced in January by BP. The first gas production at the field began on December 15, 2006. Shah Deniz reserves are estimated at more than 1 trillion cubic meters of gas and 2 billion barrels of condensate. Currently, gas and condensate production at Shah Deniz is carried out from Alfa (as part of Stage 1) and Bravo platforms (Stage 2). In addition to Azerbaijan, the gas produced at Shah Deniz is exported to Georgia and Turkey.
According to SOCAR, as of December 1, 2019, the total volume of gas production from Shah Deniz has already exceeded 115 bcm and 27 million tons of condensate.
BP expects that during the peak period of 2022–2023, production from Shah Deniz will reach 26 bcm of gas annually and 120 thousand barrels of condensate daily.
Last year, serious progress was made in the implementation of projects that will affect Azerbaijan’s plans to increase gas production, including the development of Absheron field in the Azerbaijani sector of the Caspian. In 2019, French Total and SOCAR completed the drilling of the first appraisal and production well ABD-001, which has been conducted since May 2018 from the Heydar Aliyev semisubmersible drilling rig. According to Total, the Absheron field was the largest discovery of the company in ten years. ABD-001 well (7,411 m) is now the deepest well in the Caspian Sea. Its expected daily flow rate is 2,000 tons of condensate and 4.3 million cubic meters of gas.
Drilling of ABD-001 is the first stage of the Absheron field development. Currently, the production may reach 1.5 bcm annually, while at the peak, the project can produce about 5 bcm per year. All gas produced at this stage will be supplied to the domestic market of Azerbaijan. Also, the field will produce about 10 thousand barrels of condensate daily.
Historic 500 million tons from ACG
As expected, Azeri-Chirag-Guneshli (ACG) project became the champion among other fields developed in 2019. In April, ACG shareholders in Baku signed the Final Investment Decision (FID) on the Central-Eastern Azeri (CEA) project, which officially initiated the new stage of the development of the ACG block. As part of the $6-billion-worth project, it is planned to build a production platform and facilities to ensure daily oil production of 100 thousand barrels. In general, during the platform's operation, it will be possible to produce 300 million barrels of oil. The start of production of the first oil is planned in 2023.
Construction works at the Central-Eastern Azeri have already started and will continue until mid-2022. It is planned to attract eight thousand people at the peak of construction works.
CEA project is the next stage in the development of the ACG block. The objective is to achieve daily production at the peak of up to 100,000 barrels of oil and 10,000 cubic meters of gas by drilling additional wells and installing additional offshore facilities.
On September 20, project shareholders solemnly celebrated the 25th anniversary of the Contract of the Century, which laid the foundation for the economic development of independent Azerbaijan.
Meanwhile, the composition of shareholders of the ACG project also changed last year. Hungarian company MOL Plc. (MOL) replaced the American Chevron purchasing 9.57% of the ACG project and 8.9% of the Baku-Tbilisi-Ceyhan (BTC) pipeline. The transaction value of the agreement was $1.57 billion.
According to MOL, the transaction is subject to approval by the Azerbaijani government and regulatory authorities and is expected to be closed in the second quarter of 2020. After the completion of the transaction, MOL will become the third largest shareholder of ACG. Today, ACG production is conducted from six platforms.
Recently, the ACG block marked another anniversary - the total oil production over the entire period since the start of development reached a historic mark of 500 million tons. At the same time, the profitable oil of Azerbaijan accounts for about 60% of the total production from this block. The remaining reserves of the block of Azeri-Chirag-Guneshli fields are estimated at least 500 million tons of oil. This means that only half the way has been covered and Azeri Light will delight its consumers for many years to come.
New page in the history of chemical industry
Last year, the chemical industry of Azerbaijan made significant achievements too. For the first time in Azerbaijan and in the region, a plant for the production of nitrogen fertilisers was launched. On January 16, 2019, President of Azerbaijan Ilham Aliyev took part at the opening ceremony of SOCAR Carbamide Plant in Sumgayit, which includes three production sites for the production of ammonia, urea and urea granules. The plant runs on natural gas and is designed to produce 1,200 tons of ammonia and 2,000 tons of urea daily. Currently, the plant provides 500 permanent jobs.
The project was implemented by SOCAR with partial funding from the state budget and credit institutions. Total construction cost reached 780 million euros, of which 197 million were provided from the state budget, 500 million euros borrowed from credit institutions, 80-85 million euros were tax and other deductions to the budget during construction, which SOCAR paid from its own funds.
Thanks to the plant’s production capacity of 650-660 thousand tons of urea, up to 500 thousand tons of finished products will be exported. The main sales markets are Turkey, the countries of the Black Sea region and the Mediterranean. In June, the plant began exporting its products. The company expects to get $160 million annually from the export.
According to the estimates of SOCAR Carbamide, the plant will reach its full capacity in 2020, when Azerbaijan will be able to fully cover the domestic needs for nitrogen fertilisers (100-150,000 tons annually) that have been imported so far ($90 million savings annually).
Another success of local chemical industry was the launch on February 18 in Sumgait of the SOCAR Polymer high-density polyethylene (HDPE) plant. The capacity of the enterprise is 120 thousand tons of finished products annually.
According to SOCAR estimates, the plant will ensure the country's domestic demand in HDPE. At the same time, 75% of the products will be exported to Turkey and Europe.
In July 2018, SOCAR Polymer commissioned a polypropylene plant with a capacity of 184 thousand tons per year. The company attracted a loan of Gazprombank ($489 million) for a period of ten years to implement the construction of these plants. Agreement on financing the construction of SOCAR Polymer plants between SOCAR and Gazprombank was signed on June 19, 2015.
According to SOCAR estimates, SOCAR Polymer revenues for the entire period of operation of these two plants are projected at $6.6 billion, of which 30% is net profit. Another $600 million will be tax deductions to the state budget of Azerbaijan.
Plans for 2020
The oil industry of Azerbaijan has already entered 2020 with new grandiose projects. For example, in the first quarter of 2020, it is planned to begin construction of a new gas processing and polymer complex SOCAR GPC ($4.2 billion) in Garadagh district of Baku. In Turkey, SOCAR and BP plan to build a new petrochemical complex Mercury in Izmir ($1.8 billion).
In addition, a large exploration program will be launched in the Azerbaijani sector of the Caspian, which will cover the structures of Shafag-Asiman, Babek, Garabagh, and the shallow part of the Absheron archipelago.
In 2020, it is even possible to sign new contracts for the development of hydrocarbon deposits in Azerbaijan. LUKOil, in particular, plans to complete negotiations with the Azerbaijani side in the first quarter of 2020 on the implementation of two new projects, the names of which have not been disclosed yet.
However, the main event of 2020 should be the full-scale launch of the Southern Gas Corridor, which will open the way for the first Azerbaijani gas to Europe.
In a word, a good start, taken in 2019 thanks to successfully implemented projects, inspires confidence that 2020 will bring no less success in improving the energy security of Azerbaijan and the region.