A NEW HORIZON

The gas reserves in Azerbaijan are sufficient to satisfy its own needs in natural gas and its exports for 100 years. This statement by Azerbaijan's president, Ilham Aliyev, was made back in 2007, when the country had only just started to export gas, supplying it to Georgia and Turkey, albeit in only small amounts, so that the experts were sceptical about it. At that time, the amount of the gas reserves were estimated as being something like 1.5 trillion cu. m. However, the past years have shown that Azerbaijan does not intend to limit itself solely to the requirements of the countries in the region and is capable of occupying its own place in Europe's energy market.

The implementation of the large-scale Stage-2 in the project to exploit the "Shah Deniz" [Sah Daniz] gas field, together with the major Trans-Anatolian [TANAP] and Trans-Adriatic [TAP] gas pipelines, with investments of 45bn dollars is called upon to provide for Europe's growing needs in gas and to diversify the sources of the "blue fuel".

In compliance with the contracts concluded, from 2019 Azerbaijan is to supply 10bn cu m of gas to Greece, Bulgaria and Italy.

The partners in exploiting the "Shah Deniz" gas field do not intend to stop at what has been achieved. This structure is continuing to testify to its own status as a super giant, offering new horizons to those who are exploiting it.

In connection with this, the "Shah Deniz" project's share-holders are planning to implement another stage in exploiting the gas field - Stage-3, the SOCAR [State Oil Company of the Azerbaijan Republic] spokesman has reported to Regionplus.

"The parts that have not yet been enveloped by the first two stages, have fairly large reserves of gas, something like 500bn cu m. A fundamental accord has been reached with the share-holders on exploiting this part," the source said.

He noted that geophysical studies and the drilling of prospecting bore-holes are envisaged to check the initial data, after which it will be possible to talk about the concept for Stage-3, the volumes of gas to be produced and the investments needed, among other things.

The source thereby stressed that the implementation of Stage-3 would not be possible earlier than 2025, since the whole process of preparing the project, checking the amount of the reserves and getting together the investments needed would take at least 8-10 years. "This project will allow us to maintain maximum volumes of gas output from the 'Shah Deniz' field for a lengthy period. On the whole, taking into account the proven reserves, the total volume of gas reserves in "Shah Deniz", we hope, is something like 1.7 trillion cu m. But new technologies will be needed to extract additional volumes of gas," the source noted. 

The BP chief executive officer [CEO], Robert Dudley, also spoke about implementing the Stage-3 in the exploitation of the "Shah Deniz" gas field.

Deep prospecting bore-holes drilled at the deposit back in 2007 showed that there were good reserves in the deeper-lying strata. Full-scale prospecting needs to be carried out. New technology, which is still being developed, is needed there, because, as well as being in deeper strata, the gas is also under higher pressure.

Based on my own intuition and experience, I can say that there are large reserves of gas there that will last until the next century," Dudley said in December last year.

At this stage, besides implementing the Shah-Deniz-2 project, which is referred to as the "Contract of the 21st century", the share-holders involved in exploiting this gas field are planning to implement a complex of additional measures within the framework of Stage-2, in order to maintain the maximum gas output for a greater period of time. 

Let us remind you that, within the framework of Stage-1, it is planned to reach a maximum output of 10.4bn cu m of gas, while within Stage-2 an output of 16bn cu m is envisaged. For its part, the government of Azerbaijan is continuing to render not only institutional support, but also financial assistance in implementing Stage-2 in the exploitation of the "Shah-Deniz" gas field. A closed joint stock company is already being formed for this purpose to manage the "Shah-Deniz" projects and supplying gas to Europe more efficiently; the setting up of this closed joint stock company is provided for in an instruction from Azerbaijani President Ilham Aliyev. The share capital in this closed joint stock company is 100m dollars. Fifty-one per cent of it is to be state-owned and SOCAR will have a 49-per-cent stake. The State Oil Fund of Azerbaijan (SOFAR) has been charged with financing the state's share, in connection with which the Fund has already initiated a change to its budget for 2014 allowing for the allocation of 51m dollars. 

According to SOFAR executive director, Sahmar Movsumov, the closed joint stock company's overall outlays will be 5bn dollars. In its turn, it is envisaged that 2-25bn dollars will be allocated by ARDNF over five years within the framework of the company's involvement. "We are calculating that the investments of the State Oil Fund will be fully recouped before 2023-2024," the head of the Fund stressed.

Not all the companies involved in the exploitation of "Shah Deniz" are prepared to take upon themselves the additional investment commitments relating to Stage-2, which, it is true, does promise good profits. With the total investments of 28bn dollars (excluding the cost of the TANAP and TAP main pipelines) in the exploitation of the second stage in the work, it is forecast that the incomes will be something like 200bn dollars.

The Norwegian Statoil company has already sold part of its share in the contract on "Shah-Deniz" exploitation to BP and SOCAR. Of its 25.5- per-cent stake Statoil has relinquished 10 per cent in total worth 1.45bn dollars; BP has acquired 3.3 per cent and SOCAR 6.7 per cent.

The French company Total may also be one of the "faint-hearted". True, in this case it only a rumour at the moment. According to unconfirmed reports, Total intends to sell its 10-per-cent stake in "Shah Deniz" or relinquish half of it. The media are naming [the Turkish pipeline company] Botas as the buyer. But these reports remain unconfirmed for the moment. At least the representatives of BP and SOCAR have not received notification of the French company's intention to sell its stake. According to the conditions set forth in the contract, the share of companies wishing to pull out of the project should be offered to other signatories first and foremost, and only then to third parties. SOCAR has moreover noted that a number of companies are showing interest in becoming share-holders in TANAP and the exploitation of the "Shah Deniz" gas field.

Why would Statoil and Total reduce their stake in an attractive project like "Shah Deniz"? It was reported to Regionplus at one of the oil companies that such major players in the oil and gas market are not that interested in projects where they only have a small stake but are not the main operators. In circumstances where the interest of a number of companies in the "Shah Deniz" project is increasing, the cost of the stake grows, which makes the issue of relinquishing such a share more feasible for a certain period. Moreover, Total is on the whole carrying out a programme of selling its assets world-wide. The company's CEO, Christophe de Margerie, has stated that Total may extend the plan for selling its assets to 25bn dollars. He has noted that the plan announced earlier to sell 15-20bn dollars worth of assets in 2012-2014 will be fully realised, possibly with the target being increased to 25bn dollars. De Margerie also said that the company is planning to sell its assets after 2015 as well. But even in the event of its withdrawal from the "Shah Deniz" project, Total does not intend to withdraw from its involvement in the "Abseron" project, in which it is the operator with a 40-per-cent stake. This gas field with reserves of roughly 300bn cu m is one of the additional resource bases for expanding exports of Azerbaijani gas to Europe. 

It is also expected that talks will be concluded in the very near future on the exploitation of the deep-lying gas horizons in the "Azeri-Chirag-Guneshli" [AchG] block. The current contract on the exploitation of the AchG, is known to provide solely for the extraction of oil from certain strata. But in the course of the prospecting work quite large reserves of something like 300bn cu m of gas were discovered, on the exploitation of which BP is holding talks. SOCAR has noted that these talks have already entered their final stage and it is expected that a contract will soon be concluded.  

Thus, in total the reserves of the above mentioned gas fields, as well as the prospects for the exploiting the "Babak", "Umid", "Safaq-Asiman", "Naxcivan" and others, the total gas reserves in Azerbaijan already exceed 3 trillion cu m. This volume envisages a growth in gas production of up to 40-50bn cu m per year, a significant part of which will be exported. This allows us to confidently assert that Azerbaijan will increasingly be able to boost its presence on Europe's gas market, providing for the continent's growing demand for the "blue fuel" for more than a century.

OUR NOTE

The contract on the exploitation of the "Shah Deniz" gas field was signed in Baku on 4 June 1996 and ratified by the Milli Maclis [parliament] on 17 October of that year. The share-holders in the project are BP - 28.8 per cent, SOCAR - 16.7 per cent, Statoil - 15.5 per cent, LUKoil - 10 per cent, NIOC [National Iranian Oil Company] 10 per cent, Total - 10 per cent and TRAO - 9 per cent. 

The TANAP gas pipe line is intended for the transportation of Azerbaijani gas from the "Shah Deniz" gas field within the framework of Stage-2 from the Georgian-Turkish frontier to the western borders of Turkey. The cost of the TANAP project is estimated at 10-11bn dollars. The participants in the project are SOCAR (68 per cent), BP (12 per cent) and Botas (20 per cent).

The TAP gas pipeline is intended for the transportation of natural gas from the "Shah Deniz" gas field within the framework of Stage-2 to Italy via Greece and Albania. The pipeline will have a capacity of 10bn cu m per year, but will offer the possibility of  increasing this to 20bn cu m per year, depending on demand. The share-holders in the project are the following: SOCAR (20 per cent), BP (20 per cent), Statoil (20 per cent), [the Belgian company - tr.] Fluxys (16 per cent). Total (10 per cent), E-On (9 per cent) and Akhro (5 per cent).