BEFORE THE CHOICE

Only six years separate Azerbaijan from one of the main economic events for the country in the 21st century - the start of the transportation of gas through the Trans-Anatolian pipeline to Europe. Judging by what the president of SOCAR, Rovnaq Abdullayev, has said, there is every reason to believe that the real operation of the pipeline, which is destined to solve the problem of Europe's energy security, will commence in 2019. At the same time, all the preconditions are in place for the project to be a long-term one - it is during these years that extraction will begin at other major gas fields in Azerbaijan. All this was revealed last week at the "Oil and Gas of the Caspian" conference, which for 20 years has been a platform for serious discussion not only of the present and future of the region's energy but also world trends. 

The battle of the pipelines

So, the specific timeframes have been announced and confirmed for the commencement of the implementation of key projects in Azerbaijan's gas sector which, in essence, will strengthen the country's role on the world energy map and turn it into a leading exporter of gas to Europe. "The first gas through the Trans-Anatolian pipeline will be transported in 2019 and work on the project of this pipeline has already been in progress for two years," Abdullayev said at the conference. According to his deputy, Suleyman Qasimov, the construction of TANAP, with an initial capacity of 16bn cu m of gas annually (6bn for Turkey and 10bn for Europe), will commence in 2014. That said, in 2023 the capacity of the gas pipeline may be extended to 23bn cu m annually, and in 2026 to 31bn. Moreover, there has also been definite progress at SOCAR's talks with BP, TOTAL and Statoil on the question of their participation in the TANAP project.

But, of course, today's intrigue around TANAP is not about the date for the start of the pumping of gas but via which pipeline it will run to Europe from Turkey. It has already been announced that the choice of the route will become known before the end of June, and SOCAR is concluding commercial talks with potential buyers of Azerbaijani gas in Europe and is assessing proposals on prices for the gas and tariffs for its transit.

As we know, there are two pipeline routes on the agenda - Nabucco West and TAP. Each of them has its pluses and minuses and the management of both projects is confident of victory. For example, the managing director of Nabucco Gas Pipeline International GmbH, Reinhard Mitschek, told journalists that their project will win the "battle of the pipelines" because it "provides the best solution and the more attractive concepts not only for the Shah Deniz (Sah Daniz) consortium but also for sellers and buyers". In his opinion, one of the main advantages of Nabucco West is the fact that it can also provide gas deliveries to the transit countries of its rival, TAP (Trans-Adriatic Pipeline), but TAP cannot supply gas to Nabucco West's countries. "We can also offer gas transportation for Greek, Albanian and Italian companies, because the interconnector pipelines either already exist or are being planned on the routes from Bulgaria to Greece, Serbia, Macedonia, and so on," Mitschek said. According to him, the talks on a shareholders' agreement with the Shah Deniz partners have been completed, and as soon as the consortium clarifies its position it will come into force and construction of the gas pipeline can start in 2015.

Ultimately, if it is successful, Nabucco West will be able to provide up to 10% of the requirements of the European countries for gas, which is the basic aim of this project. "Our aim is not satisfying the requirements of the European gas market in full measure, but its diversification," Mitschek said, adding that the gas requirements of the transit countries through which Nabucco West will run will be 43bn cu m by 2030, and with regard to the neighbouring countries these requirements will increase to 246bn.

It will be recalled that the capacity of the Nabucco West pipeline is 10bn cu m annually, but with a possibility of extending it to 20bn depending on supply and demand.

Be that as it may, we will have to wait just 2-3 weeks before we know with which of the projects the consortium for the development of the Shah Deniz field has decided to work. However, in late June Azerbaijani President Ilham Aliyev will be visiting Brussels at the invitation of the President of the European Commission Jose Manuel Barroso. "I think this meeting will carry us forward in the question of the Southern Gas Corridor," the head of the EU's office in Azerbaijan, Roland Kobia, said.

Incidentally, he said, the gas purchasers, i.e. the EU, regard the Southern Gas Corridor as a multi-stage project. "We anticipate that this pipeline will receive gas from other Azerbaijani fields as well, and it also has the potential to attract Turkmen and Northern Iraqi gas," he said, adding that in this context "the construction of a larger scale and more extensive infrastructure for gas supplies in the region is inevitable".

"On the strength of this we shall continue our talks with Azerbaijan and Turkmenistan on the construction of the Trans-Caspian gas pipeline. We hope we shall be able to come to an agreement in this sphere," Kobia said. The US Deputy Assistant Secretary of State for Energy Diplomacy, Amos Hochstein, goes along with this. "The US has a vested interest in the realization of the Southern Gas Corridor. After gas from the Shah Deniz reaches Europe there are also prospects for the export of gas from Turkmenistan and Northern Iraq," Hochstein said.

A new wave

Thus, in both Europe and the US they have expressed support for the projects for the extraction and transportation of Azerbaijani gas to world markets, as well as the participation of Azerbaijan in them as a transit country. However, there should be no doubt that the country will be able to cope with the first part of this process without difficulty: the goal has been set to raise annual gas extraction in Azerbaijan to 20bn cu m by 2015, and this is not counting the volumes of gas injected into the beds, and only from Shah Deniz.

Incidentally, according to BP's regional director for Azerbaijan, Georgia and Turkey, Gordon Birrell, 42bn cu ft of gas and 88m barrels (12m tonnes) of condensate have been extracted from this field since the start of development. "Within the context of Stage-1 we have reached the highest stable level of annual extraction with a daily volume of 966m standard cubic feet of gas and 55,000 barrels of condensate," he emphasized. As regards Stage-2 of the field's development, Birrell pointed out that at this stage, for the first time in the Caspian, a special technology of offshore extraction will be applied. At the same time, the extraction of the first gas within the context of Stage-2 will commence in 2018 and its annual volume will be 16bn cu m.

In other words, 20bn cu m is only the first stage. In 2019, virtually parallel with the launch of TANAP, SOCAR intends to extract gas using its own resources from a prospective structure "Babek" (Babak). Specifically, by 2016, SOCAR will take possession of a new state-of-the-art drilling rig which will enable exploratory drilling to be carried out at this and a number of other structures and bring them into operation.

And again, it is in 2019 that the extraction of the first gas from deep-lying seams at the Azeri-Chiraq-Guneshli (AChG) (Azari-Ciraq-Gunasli) block of fields is planned. Overall reserves here are estimated at 300bn cu m. "The preparation of a contract for the development of deep-lying seams at AChG is being completed and a draft copy has been handed to our partners for their consideration. This will be a 'risk services contract'", Abdullayev said, for his part.  We should point out that unlike production sharing agreements (PSA), with RSC contracts all extracted ores are passed over in balance to SOCAR and it distributes the funds earned from the sale of the energy resources between the participants in the project. Commenting on this question from Reuters, a SOCAR spokesman noted that the state-run oil company is taking this plan as a base, but is adding a number of mechanisms which will be of interest to foreign partners. Specifically, the company is prepared to compensate them for losses in well drilling. He said that RSC contracts instead of PSA will be adopted by Azerbaijan henceforth taking into account the individual peculiarities of various fields in the Caspian.

In accordance with a comprehensive plan of measures up to 2025 SOCAR intends to independently carry out the development of the offshore fields Qarabag (start of extraction in 2020, reserves - 20bn cu m of gas and 20m tonnes of condensate) and Ashrafi (Asrafi) (2023, 13bn cu m of gas and 17m tonnes of oil). Furthermore, Abdullayev recalled, Azerbaijan has a number of gas fields and prospective structures, the gas from which could be transported in the future via the Trans-Anatolian gas pipeline. In particular, the Umid and Absheron (Abseron) fields, gas reserves at which amount to 600bn cu m, were opened quite recently. The development of these fields will clearly attract foreign companies.

And that, as they say, is not the end of it. The vice-president for exploration of BP Azerbaijan, Gregory Riley, is confident that new gas fields may be opened in Azerbaijan in the future and the Caspian basin in general is very promising. All that is required to confirm these prospects is to conduct competent prospecting.

So the picture of Azerbaijan's gas future is full of bright colours and it promises to be sufficiently popular not only on a regional but also a world scale.