MORE GAS IN AZERBAIJAN

"Azerbaijan is a ful-ly independent country today both from the point of view of extracting and from the point of view of transporting oil and gas and in the next few years the republic will not have any energy security problems." This statement was made recently by Azerbaijani President Ilham Aliyev. The head of state went on to say that the country is now facing a more global objective: helping to ensure Europe's energy security. And the latest discoveries at the Sah Daniz gas field show that Azerbaijan is capable of this. 

Sah Daniz: a fantastic find

Azerbaijani specialists have been saying for a long time that the gas reserves in our sector of the Caspian Sea are far greater than the confirmed figures. Azerbaijani Minister of Industry and Energy Natiq Aliyev recently said that the combined reserves at Sah Daniz, Alov-Araz-Sarq, Asrafi, Naxcivan, Dan Ulduzu and the gas reserves in the deep beds at Azari-Ciraq-Gunasli are at least 6,000 billion cubic metres. The reserves at Sah Daniz alone are estimated at 1,200 billion cu.m. and Azari-Ciraq-Gunasli at 500 billion. "Gas extraction in Azerbaijan had been falling at 13 per cent a year, but now there is annual growth. We think that in 2020 Azerbaijan will be extracting 30 billion cu.m. of gas a year," the minister said. However, until recently the figures published by SOCAR's foreign partners in the Sah Daniz project were only half the figures of the Azerbaijani side, 625 billion cu.m. This was only until recently, though. 

In mid-November BP announced on behalf of the Sah Daniz partnership the discovery of another major gas condensate reservoir during drilling of the SDX-4 appraisal well at the field, 70 km south-east of Baku. "When drilling the well we found reserves which make Stage 2 of the Sah Daniz project commercially viable. After this we decided to drill deeper than the Fasila suite and found a new, significant reservoir," BP President Bill Schrader told journalists. He said that the size of the reservoir would be delineated after the drilling of further assessment wells. It is already certain that the new reserves will not be extracted as part of Stage 2 of the Sah Daniz project; these reserves will require the latest technology, which is to be used for the first time in the Gulf of Mexico a few years from now. The appraisal well also hit gas condensate in the currently producing horizons which means an extension of the Sah Daniz field to the south. "We believe the results have significantly added to our understanding of the entire field," Bill Schrader said.

Sah Daniz is currently producing over 500 million cubic feet (around 14.2 million cubic metres) of gas and over 30,000 barrels of condensate a day. In the first nine months of 2007 the project extracted 1.7 billion cu.m. of gas and 0.5m tonnes of condensate. The stable phase of extraction during Stage 1 at the field is expected to reach 8.6 billion cu.m. of gas a year and around 45,000 barrels of condensate a day. Extraction will increase as the remaining wells come into operation by the end of the year. Later this year drilling of new wells will begin from the platform.

Greece just the beginning

"When we began to exploit the Sah Daniz gas field, we could not imagine that the European market would be interested in our gas," President Ilham Aliyev admitted in a recent speech. He said that only Turkey was initially considered as a market for the gas. Even Georgia was involved in the project then as just a transit country, as a certain amount of gas from Sah Daniz was to be given to Georgia in payment. "But now the situation has changed and demand for our gas is growing. At present Azerbaijan is meeting Georgia's demand with gas from Sah Daniz and from the oil company's older fields. Today Georgia receives 70-75 per cent of its gas from Azerbaijan."

Moreover, Azerbaijani gas is today exported to Turkey and some of it will be sent to Greece and onwards to European Union markets. In mid-November the Azerbaijani president attended the ceremonial opening of the gas pipeline between Turkey and Greece. The document on construction of this pipeline linking the gas networks of Turkey and Greece was signed in April 2002 and in February 2003 an intergovernmental agreement was reached. Some 210 kilometres of the 296.5 km pipeline pass through Turkish territory and 86.5 through Greek. The project cost around 250 million euros. During the first phase 250m cu.m. of gas will be pumped through the pipeline, during the second year 500 million and during the third 750 million In the subsequent 15 years volumes are expected to reach 12 billion cubic metres. Another pipeline is to be built across the bed of the Adriatic Sea by the end of 2012. This will link Greece and Italy and will expand capacity to supply natural gas from the Caspian region to central Europe. 

President Aliyev thinks that the gas pipeline link between Turkey and Greece has renewed the region and opened new opportunities for cooperation. "A new format of cooperation in the energy sector has emerged and this is just the first step," he said. Azerbaijan is now exporting gas to three countries - Georgia, Turkey and Greece.

Nabucco - a possible continuation?

It is no secret that the extraction and export of gas are riskier than the sale of oil: extracted gas has to be sold, as it cannot be stored like oil. Therefore, before beginning any new stage of the Sah Daniz project, the partners first have to determine the future gas consumers. As of today, Azerbaijani exporters are seriously considering the Nabucco project. "As an alternative to Russian gas, European countries can receive gas from the Persian Gulf, Iraq and the Caspian region. However, the Caspian and Azerbaijan look the most realistic prospects today," Azerbaijani Minister of Industry and Energy Natiq Aliyev said. "Everyone knows about certain problems in supplies from Iraq, the Middle East and Persian Gulf, which cannot be said of Azerbaijan," Aliyev continued. "That is why we now want to speed up implementation of Stage 2 of the Sah Daniz project so that we can get the first gas in 2011."

He also said that he considers it very important for Azerbaijan to join the project. Moreover, Turkmenistan and Kazakhstan can become sources of natural gas for Nabucco only in the future, while Azerbaijan can do it today. Natiq Aliyev said that during implementation of Stage 2 of Sah Daniz Azerbaijan will be able to supply up to 12 billion cubic metres of gas in all to Europe via Nabucco, and talks are already under way between SOCAR and the project's shareholders about joining the project. Recently President Ilham Aliyev instructed the government to get on top of the issue of joining the European gas pipeline project and speed up the process. 

Nabucco is not the limit today, though: Azerbaijan has been invited to take part in the Trans-Adriatic pipeline too. The pre-existing part of the pipeline crosses Italy to Switzerland, therefore the Ministry of Industry and Energy and State Oil Company are considering a package of possible supplies of gas to Italy, Greece and onwards to Switzerland which has already expressed a desire to buy Azerbaijani gas. 

President Ilham Aliyev made the best comment on the interest in Azerbaijani gas: "If our partners want to deliver their energy supplies from east of the Caspian Sea to the west across our territory, then we can of course consider this on the basis of agreed terms and conditions and the issue can be decided. However, we will not initiate this, as we have already implemented the overwhelming majority of our own oil and gas projects."