AMONG THE SELECT FEW

In December, representatives of the Organization of Petroleum Exporting Countries (OPEC) backed a possible cut in oil extraction at an extraordinary meeting in Oran, Algeria. It is clear why the meeting was convened: world oil prices have slumped below 40 dollars per barrel, which is why oil-producing countries, like developing countries, have to take measures to support their economy. Since July 2008 when a record price of 147 dollars per barrel was registered, oil has become four times cheaper. In mid-December, the price of January futures for American light oil, Light Sweet Crude Oil, slumped below 34 dollars per barrel for the first time since April 2004.

For this reason, OPEC decided to cut oil extraction by 2.2 million barrels per day at its extraordinary meeting in Algeria on 17 December. The organization said in a statement that oil extraction will be cut from 1 January 2009 by 4.2 million barrels per day compared with the real level of extraction in September, which was 29.045 million barrels per day. Thus, the total volume of extraction by member states of the cartel will total 24.8 million barrels per day from the first day of 2009. Moreover, OPEC will continue reducing its oil extraction quota until oil prices stabilize, the chairman of the oil cartel, Shakib Khalil, said…

For Azerbaijan, this meeting was notable not only because our country also has an interest in boosting oil prices. The matter is that if previously OPEC meetings were attended by member states of the cartel, it was decided to invite as many oil-producing states as possible to the December meeting. For this reason, four non-member countries - Russia, Oman, Syria and Azerbaijan - were invited to Oran to discuss the distribution of oil extraction quotas and prospects for the development of the oil market.

According to numerous experts, Azerbaijan's participation in the OPEC meeting shows the growing interest of the world community in our country which exports energy resources to the world market. Today Azerbaijan is involved in such large-scale projects as Baku-Tbilisi-Ceyhan (BTC) and Baku-Tbilisi-Erzurum and has an interest in the implementation of projects to transport hydrocarbon reserves to the world market - Nabucco, Odessa-Brody-Plotsk-Gdansk, Burgas-Alexandropoulis and so on.

According to Azerbaijani Minister of Industry and Energy Natiq Aliyev, the country extracted 52 million tonnes of oil and 27 billion cubic metres of gas in 2008, and in the next four years, Azerbaijan is planning to export 208.2 million tonnes of oil.

"Some 850,000 barrels of oil per day are exported by the Baku-Tbilisi-Ceyhan pipeline, and by the end of the current year, export will increase to one million barrels per day," Aliyev said.

According to the government's forecasts, in 2009 oil extraction in Azerbaijan is expected to reach 61.8 million tonnes, including 8.65 million tonnes to be extracted by the State Oil Company of the Azerbaijan Republic (SOCAR) and more than 53.15 million tonnes by the Azerbaijan International Opera-ting Company (AIOC) and the consortium of foreign contractors to develop the Azari-Ciraq-Gunasli (ACG) field in the Azerbaijani sector of the Caspian Sea.

According to calculations by the US Department of Energy, oil extraction in non-member states of OPEC will increase by 410,000 barrels per day in 2009 despite the decline in extraction in Mexico, the North Sea and Russia. Washington calls Azerbaijan, Brazil and the United States the "key sources" of this growth.

An OPEC report posted on the official website of the cartel says that oil supplies from Azerbaijan to the world market will increase by 130,000 barrels per day in 2009 - to 1.17 million barrels per day.

In other words, Azerbaijan is actively increasing its oil extraction. But at the same time, our country had to back the OPEC initiative to cut extraction. The matter is that oil extraction was suspended due to a gas leak at the biggest platform in the world - the Central Azari platform - from 17 September to 19 December. As a result, oil extraction dropped by 300,000 barrels per day and is not expected to increase in the next few months.

At the same time, the volume of oil transported by Baku-Tbilisi-Ceyhan will be reduced to 568,000 barrels. BTC Co explains this by the decline in oil extraction in Azerbaijan. Platts reports that due to transit problems, the country will cut oil extraction from 781,000 barrels in December to 568,000 barrels in January. Thus, next month it is expected that 213,000 tonnes less oil than was planned will be loaded on tankers in the port of Ceyhan. BTC Co says that "this cut is caused not by technical problems, but by transit problems". In January, it is planned to load seven SuezMax tankers and one VLCC tanker in the port of Ceyhan.

The Platts report also quoted energy experts as saying that the fall in oil prices on the world market forces oil-producing countries to cut their sales. "In this way, they are planning to push up the price of oil. However, in the current market conditions, the economic cost of oil is no more than 20-30 dollars. For this reason, exporting countries should forget the time when they sold oil for 147 dollars per barrel and reconcile themselves to the average price of 30 dollars."

Meanwhile, the Azerbaijan International Operating Company (AIOC) has taken a number of measures to increase the safety of development operations as part of the plan to resume the operation of the Central Azari platform. For example, in the process of beginning restricted oil and gas extraction, special protective equipment and equipment to monitor the safety of the exploitation process was installed at the platform. Currently, work is under way to increase the volume of extraction at the platform - using from three to five wells and then totally resuming the operation of the platform. Next year it is planned to use the project capacity of the Central Azari platform - about 400,000 barrels per day.

Earlier, representatives of BP Azerbaijan said that by the last 10 days of December, the volume of oil export by BTC would increase from 850,000 to 1.2 million barrels per day. No such amount of oil is currently being exported, but Azerbaijan is now able to export up to 60 million tonnes of oil per year. So the country will certainly play a great role in oil supplies to the world market.

Returning to Azerbaijan's participation in the OPEC meeting, we should say that Minister of Industry and Energy Natiq Aliyev did not rule out that Azerbaijan may join the organization in the future. He said that the issue of Azerbaijan's membership of OPEC will depend on the "behaviour" of prices on the market. According to Aliyev, the current level of prices is not fair, and OPEC's decision should also ensure that prices become predictable in the long-term.

"Azerbaijan's participation in the latest meeting of OPEC member states is a positive factor," an expert in the oil and gas sphere told R+. "This shows that our country is recognized as a serious player on the world oil market and has asserted itself among oil-producing countries even if we took part in the session as an observer. Incidentally, this is not legally binding for Azerbaijan. Our country is simply making its own contribution to OPEC decisions to cut oil extraction, which will help establish, as OPEC says, a 'fair' price for oil on the world market."

It was pointed out that Azerbaijan's membership of OPEC is a problem issue. "Most of the oil is extracted by the consortium of international companies that develop the Azari-Ciraq-Gunasli block of oil fields. A question arises: how will the government link its actions to PSA contracts which clearly indicate points of hydrocarbon extraction and export? In practice, this scheme is unlikely to be used because according to the contracts, changes are possible, but only with the full consent of all stakeholders. Otherwise, all problems should be solved in an international economic court."