THE THREE WHALES OF ENERGY SECURITY

According to forecasts of the Asian Development Bank (ADB), by 2035 primary energy demand in Azerbaijan will increase by 76.27 % and reach 20.8m tonnes in oil equivalent. For comparison, according to bank estimates, in 2010 the figure was 11.8m tonnes.

Given the pace of economic growth in Azerbaijan, these forecasts can be considered justified. The most important thing is that according to the ADB report "Asian Energy Oultook", Azerbaijan will continue to be self-sufficient in energy, relying on vast reserves of oil and gas. According to experts of the bank, with the growth of production at the Azari-Ciraq-Gunashli (ACG) block [Azeri-Chirag-Guneshli], the total oil production in Azerbaijan by 2015 will increase to 1.4m barrels per day. "However, from 2020 oil production from ACG will decline, so in 2035, Azerbaijan's total oil production will amount to 1.26m barrels per day," the document says.

Useful growth

The ADB predicts that the final demand for energy in Azerbaijan under the standard scenario will increase by 3% per year. "The fastest growth rate - 4 % per year - is expected in the transport sector as the number of motor vehicles will increase to 161.4 per 1,000 people in 2035. Energy demand in the industry will grow annually by 2.4 %, in other sectors (utilities, agriculture, etc.) - by 2.3% and in the non-energy sector - by 2.2 %," said the statement. According to experts of the bank, the growth rate of demand will vary depending on the source of energy. According to their estimates, the demand for electricity will grow by 3.5 % per year.

However, there is an alternative scenario in which by 2035 energy demand in the country will rise to 18.9 million tonnes in oil equivalent. The alternate ADB forecast is calculated from the assumption that in other equal conditions, the market participants, including end users, use high technologies, and the country's government plans to use new and renewable sources of energy, as well as nuclear power plants.

But in any case, ADB experts believe that the development of policies, measures and programmes in the field of energy efficiency, on both demand and supply, will eventually benefit the socioeconomic development of Azerbaijan. "The country can greatly benefit from the potential of energy efficiency for the further development of energy security," they say.

Electricity and gas without restrictions

The above forecasts, in principle, logically combine with the annual rate of growth in the economy of Azerbaijan. The increase in the number of enterprises in the manufacturing sector, the improvement of municipal conditions and the increasing well-being of the population are all the most striking factors influencing the formation of the growth trend in energy consumption.

According to the concept of development "Azerbaijan 2020: A Look into the Future", by the end of this decade, GDP per capita will more than double and reach 13m dollars, and the country will rightfully join the "countries with high average income" according to World Bank classification and will occupy the top level in the group of "countries with high human development" according to the classification of the UN Development Programme. It is also planned to turn the country into the region's trade centre and increase the volume of exports in the non-oil sector to 1,000 dollars per capita. And this, accordingly, is impossible without the creation of new production facilities and the development of individual sectors of the economy that are not related to oil and gas directly.

First of all, this is reflected in the volume of energy consumption - today the country's demand for electricity is 4,200-4,400 MW, but this figure varies annually upwards. In this regard, the country is working on the construction of new generating facilities, which will greatly increase the capacity of the power grid and raise it to 7,000 or more megawatts by 2015. For the time being, the "extra" megawatts are not used in full, however, they will most likely also be involved in the economy in the next few years.

The growth in electricity consumption entails an increase in demand for natural gas. There is also a second important component forming the expansion of the domestic market of "blue fuel" - Azerbaijan has almost reached a 90 % level of gasification in the country. According to SOCAR Vice-President Vitaliy Baylarbayov, by 2020 the volume of domestic consumption in the country will reach 15 billion cubic metres of gas per year. Of course, given the words of SOCAR President Rovnaq Abdullayev that by 2015, the volume of production will make up 20bn cubic metres, excluding the gas injected into the reservoirs, and 40bn cubic metres by 2025, Azerbaijan will not only be able to fulfill the existing export commitments, but also undertake new ones. Of course, there is no doubt at all about the potential of internal gas supplies.

Unpredictable oil

The only thing which can cause some concern is oil production. Again, the industrial growth, the transformation of Azerbaijan into a convenient transit country for road transport and the growing number of cars on the country's roads will definitely require more oil. As a confirmation of what has been said, we will cite one indicator - in the last 10 years alone the number of cars in Azerbaijan increased by 2.4 times - from 511,000 in 2003 to 1.1m in 2012. The number of cars per 100 households increased by 2.6 times - from 22 in 2003 to 46 in 2012.

According to SOCAR, the annual consumption of petrol in 10 years has increased by more than 10 %, while the increase in the consumption of diesel fuel is 13 %. As you know, oil products in Azerbaijan are made at two Baku refineries with a total refining capacity of 16m tonnes of oil a year. Both plants are part of the State Oil Company of Azerbaijan and annually refine approximately 7m tonnes of oil produced by SOCAR. In recent years, it is increasingly difficult to sell oil from Baku refineries abroad - the needs of the domestic market are growing so fast that the plants barely keep pace with them. Thus, according to the State Statistics Committee, in 2012, 4.8m tonnes of petroleum products were placed on the domestic market of Azerbaijan, which is 8.8 % more than in 2011. In particular, the supply of petrol, diesel fuel, petroleum bitumen, lubricants and other petroleum products increased last year.

Will Azerbaijan be able to meet its domestic needs or will it turn from an exporter of oil and oil products into an importer? According to Azerbaijan's Ministry of Industry and Energy, until 2015 the level of oil production in the country will grow to nearly 51m tonnes. Thus, oil production will amount to 41.06m tonnes in 2013, 49.5m in 2014, and 50.86m tonnes in 2015. At the same time, SOCAR will keep oil production at no lower than 8m tonnes in the medium-term.

What will happen next? In the future, according to ADB forecasts, oil production will fall. In principle, no one expects Azerbaijan's depths to be bottomless, i.e. the gradual decline in the level of "black gold" production is inevitable. True, it is unlikely to happen under the scenario proposed by the Asian Development Bank - local experts say that thanks to new discoveries and deeper development of the existing fields, we can hold out longer than previously thought. After the settlement of the problem with BP regarding the decline in oil production at ACG, President Ilham Aliyev noted that the oil industry will enter a phase of stabilization from 2013. "In the future, reliable oil production will be secured for many years," President Ilham Aliyev said earlier.

In short, Azerbaijan will not become an oil importer at least in the next 20 years. Incidentally, we note that today Azerbaijan's proven oil reserves amount to 2bn tonnes.

Moreover, the country is known to expand its capacity for processing crude oil, is building a new facility worth 17bn dollars, including a petrochemical plant with a capacity of 1.7m tonnes of finished products, an oil refinery for primary oil processing with a capacity of 10m tonnes per year, and a gas processing plant with a capacity of 10bn cubic metres a year. After its launch, the country will not only become self-sufficient in energy in terms of quantity, but also bring the quality of products in line with international standards.