REORIENTATION TO GAS

The gradual depletion and consequent decline of oil production in Azerbaijan in recent years are compensated by the discovery and development of new gas fields. The discovery of large gas condensate fields Umid and Abseron, as well as the prospects of a number of other structures confirm the presence of large stocks of "blue fuel" in the country, which, in turn, requires a review of the direction of the development of industrial production and consumption of energy in the country.

The management of SOCAR (State Oil Company of Azerbaijan) has repeatedly stated that the age of cheap oil is over and the discoveries made in Azerbaijan in recent years indicate the presence of gas fields in the country. In view of these forecasts and prospects, Azerbaijan's gas resources should be used not only for export, but also in a variety of sectors.

Europe needs it more

According to SOCAR, in total the potential oil and gas reserves of the country are estimated at 10bntonnes in oil equivalent. At the same time, the proven gas reserves in Azerbaijan total 2.55 trillion cubic metres and oil - at the level of 2bntonnes again.

Speaking about the discovery of gas fields, it should be noted that the estimated reserves of only five promising offshore blocks and structures Babak, Naxcivan, Zafar-Masal, Araz-Alov-Sarq and Safaq-Asimanare estimated at 2.2 trillion cubic metres. Although the projected gas production for 2015 is at the level of plans for 2014 (28.42bncubic metres), production is expected to increase in the future - up to 30bncubic metres in 2018 with a possible growth to 45-50bncubic metres by the mid-2020s. And, as you know, most of this volume will be exported.

More specifically, in the second stage of the development of the Azerbaijani gas condensate field Shah Deniz [Sah Daniz] (1.2 trillion cubic metres), gas in the amount of 6bncubic metres per year will be exported to Turkey and 10bncubic metres - to the European market through the Trans-Anatolian and Trans-Adriatic pipelines. The opening of TANAP will take place in 2018 with an initial capacity of 16bncubic metres and then with an increase to 31bncubic metres per yearin 2026. The TAP project is, we recall, also designed to transport gas from Shah Deniz in Stage 2 via Greece and Albania to Western Europe. The capacity of the pipeline is 10bn cubic metres per year, but with the possibility of expansion to 20bn cubic metres, depending on supply and demand. Azerbaijani gas supplies by TAP are expected to begin from 2019.

It should be noted that the construction of the latter gas pipeline was recently discussed during the visit to Greeceby SOCAR President Rovnaq Abdullayev. At a meeting with Greek Prime Minister Antonis Samaras, they also touched upon the completion of the transaction with the purchase of a 66-per-cent stake in the Greek gas distributing state-owned company DESFA. The European Commission earlier started an in-depth study of the acquisition by SOCAR of the Greek state-owned gas distributing company DESFA for compliance with the Merger Regulation of the EU. "The commission is concerned that the deal may reduce competition on the wholesale market of natural gas supplies to Greece, as it may enable the combined company to prevent competitors of SOCAR from accessing the Greek gas network. The commission is committed to ensuring that the sale of DESFA causes no harm to competition and, ultimately, does not lead to higher gas prices for consumers in Greece," the European Commission noted in a press release.

In December 2013, SOCAR signed with the Hellenic Republic Asset Development Fund (HRADF) and the Petroleum company a contract for the sale of shares, according to which SOCAR acquires 31 per centof DESFA shares from the Greek government and 35 per cent - from Hellenic Petroleum SA.

According to SOCAR President Rovnaq Abdullayev,the privatization of DESFA is more needed for Greece than for the State Oil Company [of Azerbaijan]. All issues, including the issue of competition, have been agreed with the Greek government, which was reflected in the documents. However, now the question has been raised at the EU level, which is a normal process. "Europe, including Greece, needs this project more than we do. There are a lot of more profitable projects in which we can invest," he said.

Internal growth

As has been noted, the government's plans with respect to the export of gas will be implemented only after the internal needs of the country are met. And they will also increase -the decline in the level of oil production will force some industries to make more use of "blue fuel".

And the pioneer in this field is electricity generation. The basis of the electricity potential of Azerbaijan is currently made up from 14 thermal and more than 10 hydroelectric power plants. Currently, the main source of electricity generation (92 per cent) is gas, 7.9 per cent-water resources and only 0.1 per cent- alternative sources.

The capacity of the power grid Azerbaijan is 7,105 megawatts, which makes it possible to produce about 24bn KW/h annually and export more than 2bnKW/h of electricity.

However, this country is not going to stop at that. By 2020, Azerbaijan plans to put into operation additional power generating facilities with a capacity of 2,400 megawatts. The capacity of the country's power grid will increase with the launch of the second combined-cycle plant at the Simalstation (409 MW), a power plant in Yasma (920 MW), the Hovsan power plant (600 MW), etc. The discovery of new energy and industrial enterprises will further increase gas consumption in the country.

It is important to note the fact that SOCAR has made adjustments to the implementation of such major projects as the creation of a new complex for oil and gas refining and petrochemical production (OGPC) in the country. As a result of studies, it was decided to give up naphtha as a feedstock for the petrochemical industry and reorient it to gas. Naphtha was also excluded from the general list of products that will be produced at the new oil refinery in the OGPC, which, incidentally, will have a positive impact on its economic performance.

The capacity of the gas refinery will be 12bn cubic metres, chemical production - 860,000 tonnes of polymer products per year and oil refineries - 8.6m tonnes. The first two enterprises within the framework of the first phase of the project are planned to be commissioned in 2020 and oil refineries - in 2030. France's Total can also benefit from the new gas refinery while developing Abseron. This possibility is currently being studied by the working group.

Since the construction of the new refinery has been postponed to 2030, SOCAR has already started large-scale reconstruction of the Heydar Aliyev Baku Oil Refinery. In parti-cular, it is planned to renovate the plant and construct 7-8 new plants at a cost of about 1bn manats. Work is expected to be completed in late 2018 - early 2019, which will ensure the operation of the plant for another 15 years. As a result, this will increase the capacity of the plant from 6 to 8m tonnes and gasoline production to 3mtonnes per year. Moreover, the enterprise will produce petrol and diesel fuel that mee the Euro-5 standard.

Speaking about the production of petrol, it must be noted that the consumption of this type of oil product in Azerbaijan has increased significantly. To meet the growing demand of the republic for petrol, SOCAR had to completely stop the production of AI-95 petrol and switch to consumed more AI-92. The country's demand for petrol with an octane rating of 95 and above is met through imports.

An important step in addressing the issue of providing the domestic market with motor fuel may be the creation of a network of CNG (compressed natural gas) gas filling stations. The Azerigaz production association of SOCAR is dealing with this issue. According to the head of the company, Rovnaq Abdullayev, six gas stations will be built in Baku and its suburbs in 2015. First of all, they will help meet the needs of the Baku Bus company, which will import passenger buses running on gasin the first quarter of the next year. About 150 Crealis CNG buses, which meet the latest environmental standards (Euro 6) and run on gas, have been purchased from the French company Iveco for Baku Bus, which was established by the Baku city executive authorities.

It is planned to increase the number of gas stations in the country annually and open them all over the country at a distance of 180 km from each other. Expanding the network of gas stations is advisable both from an economic and environmental point of view. This can lead to a fall in petrol consumption, which will allow State Oil Company to export the excess amount of fuel, which SOCAR has reduced to zero due to the need to ensure the needs of the domestic market. The efficiency of gas stations has already been successfully tested in Georgia.

Thus, the increased use of gas in various sectors of the country is evident. With the development of gas resources, this effect will be even more noticeable. Azerbaijan has significant gas reserves, which should be used efficiently and with maximum benefit. The expansion of the use of gas, along with the acquisition of an alternative to oil and oil products, will have a positive impact on the environment and lead to a significant fall in emissions of harmful substances.