WILL OUR HOMES BE HEATED AND LIT?

In 2007, the Azerbaijan Government belatedly adopted the fuel and energy balance-sheet. This was explained by the need to clarify the production volume of oil products and natural gas following the country's refusal to import Russian gas for domestic needs. First Deputy Prime Minister Eyyub Yaqubov discusses the current situation in the country's oil and gas market.

- Mr. deputy prime minister, what is the current status of the development of the country's fuel and energy balance-sheet for 2007?

- The fuel and energy balance sheet has already been approved. All energy production and export volumes have been calculated and their indicators are set out, including surpluses. Although the country's demand for electricity used to be addressed by importing Russian gas to power stations, today we are trying to sell electricity and gas to other countries.

- Could you specify what Azerbaijan's demand for natural gas is, and how much we can export?

- Domestic demand for gas, which constitutes around 8 billion cubic metres, is fully met from our own reserves. The remaining volume will be sold. In 2007, a total of 5.6 billion cubic metres is to be produced by Sah Deniz, while our own gas production will amount to 6 billion cubic metres. According to the plan, production volume from Sah Deniz next year will be 8 billion, and about as much will be contributed by the State Oil Company. At present, Azerbaijan exports 1 billion cubic meters of Sah Deniz gas and 1.3 billion cubic metres from its own reserves to Georgia. We are only selling gas to Georgia now.

- How much natural gas can we expect to export in the near future and what are the tariffs?

- In 2007, gas supplies to Georgia will fluctuate between 500 and 700 million cubic metres. Of this, about 300 million cubic meters will be natural gas from Sah Daniz, while the volume of supplies from the reserves of Azariqaz JSC is yet to be agreed. We intend to sell as much gas as Georgia needs. Our main objective, however, is to access European markets as soon as the export of gas to Turkey commences through the South Caucasus Pipeline. Let me remind you that during the summit of heads of state in Poland President Ilham Aliyev outlined Azerbaijan's plans to take part in European energy security. We are going to access Europe through Turkey. As for the tariffs, we are currently exporting Sah Deniz gas at $63 per 1,000 cubic metres, while Azariqaz exports gas for $120.

- Could you please describe the situation as regards oil production and oil products output in 2007?

- As in previous years, oil production is quite stable, it is not reducing. The only change is that Baku oil refineries are expected to produce 800,000-900,000 tonnes of fuel oil in 2007 to bring the total to 2.5-2.6 million tonnes. This growth is explained by the fact that, starting from 1 January 2007, we rejected the import of 4.5 billion cubic metres of Russian gas. Therefore, we are sending more oil for refining to fuel oil. Whereas earlier we used to export some fuel oil, now we use it for electricity production and only part of it is sold. At the same time, the rejection of Russian gas imports has not affected exports of oil products in any way, because the State Oil Company made up for the fuel supplied to power stations by increasing its own gas production. Why should we buy gas from Russia at $235 per 1,000 cubic metres if the cost of Azerbaijani gas is much lower?

- The Tariffs Council decided to raise tariffs for electricity from 8 January 2007. How did this decision affect consumption and what volumes of electricity production are incorporated into the fuel and energy balance sheet?

- Consumption of electricity in the countryside has reduced by about 20 per cent, which is explained by the tariff hike early this year. This has also led to proper record-keeping of electricity consumption, by the installation of meters. The volume of electricity consumption is incorporated into the fuel and energy balance-sheet at 25 billion kilowatts/hour, but I think 22-23 billion kilowatts/hour will be produced.

The reduction in the volumes is explained by a decline in consumption. We don't feel there is a need to use expensive fuel to produce electricity and then to sell it afterwards. At the same time, Azerbaijan is already exporting electricity to Georgia and Russia. With Georgia we are exchanging energy: if Georgia gives us energy in the summer, Azerbaijan will provide the same quantities in winter. We are both buying and selling electricity in Russia. It is difficult to say at this point how much we will be exporting this year, because this depends on the country's capacities. We will sell depending on the balance and the current situation. 

- What are the government's plans as regards the introduction of gas and electricity meters with advance payment?

- We are already starting a pilot project. The installation of gas meters is beginning in Ganca and a contract has been signed with the French Actaris Metering Systems for the supply of 60,000 meters. The pilot introduction of meters with advance payment will start in Ganca and Saki District. Considering the number of users, a total of 80,000-100,000 meters will be bought to Ganca and 100,000 to Saki. Meters assembled in China will be installed in Ganca, while Actaris will supply meters for Saki.

The expense of the installation of advance payment meters will be covered by AzeriGas and AzerEnergy, i.e. this is not going to cost consumers anything. A gas meter costs $140. The price of an electricity meter will be slightly different: it will depend on assembly and require the supply of additional fuses. Actaris meters will cost an average $100. 

- How long will it take to install such meters throughout the republic?

- We first need to wait for the results of the pilot project and see what such a system can give us. By and large, the project is quite beneficial in terms of energy supply and 100 per cent payment for gas and electricity. The pace of the process will also depend on how the population makes advance deposits for the future use of energy. To cover the whole of Azerbaijan we need 1 million gas, and more than 1 million electricity, meters.