BUSINESS WITHOUT CONFRONTATION

In spite of all the pessimistic forecasts, Azerbaijan has now taken its place on the world's oil market. It will not be long before the republic also becomes one of the major exporters of natural gas to Europe. And no alternative supply routes will be able to change the interest among the countries of the Old World in the gas that is extracted in our sector of the Caspian.

It was Azerbaijani President Ilham Aliyev who explained best of all just how important this is for our country, when he spoke recently at the opening of the traditional exhibition "Caspian Oil and Gas": "Last November we signed a memorandum of mutual understanding on strategic partnership with the European Union on energy issues. This is a very significant and, I would say, historic event since Azerbaijan, in becoming an exporter of gas, intends to supply its gas to the European market. A similar document - a document on strategic cooperation in the energy sector - has also been signed between the USA and Azerbaijan. These are all issues of enormous significance for strengthening our independence and for our successful development."

Half a billion for one programme

Azerbaijan's main objective today is to fully supply itself with gas and to become a stable supplier to European markets. The first part is already being carried out, although… "The volume of gas extracted by our oil company does not as yet meet requirements, even though SOCAR has this year started implementing a broad gas programme. Compared with last year, the volume of gas extracted by the state oil company is increasing twofold. That is, the company alone will extract about 8bn cubic metres of gas. If you consider that the same volume is expected next year from Sah Daniz, then Azerbaijan will meet its requirements, also becoming a reliable exporter of gas," Aliyev said.

We should point out that the programme for increasing the volume of gas extraction in Azerbaijan which is being implemented by SOCAR is estimated at 500m manats, of which 300m will be invested this year. According to the president of the company, Rovnaq Abdullayev, SOCAR has now achieved a record daily volume of gas output at 15.5m cubic metres, and this figure is going to grow. In order to deliver this gas into the network, it is essential to modernize the infrastructure. First of all, a lot of work will be done on the Gunesli deposit, including the drilling of 27 new boreholes, returning to the system gas emitted into the atmosphere as a result of oil extraction, laying pipelines, bringing the pipeline infrastructure of the Azerigaz company up to scratch, etc.

And what is important, while all this is going on the volume of known hydrocarbon reserves continues to rise.

Thus, according to updated figures, an additional 500m tonnes of hydrocarbons has been discovered at the Azari-Cirag-Gunesli deposit, bringing the total to 1,350bn tonnes. This is the equivalent of opening eight new fields. And at the Sah Daniz field there is 1.2 trillion cubic metres of gas, plus 330bn that will be extracted from Azari-Cirag-Gunesli.

"In order to meet our own requirements, this is sufficient for at least 100 years. But I am, of course, convinced that new deposits will be opened in the coming years," President Aliyev said in comments on the new figures.

But SOCAR assure us that they will not allow themselves to sit around idly because of the optimistic forecasts. "We will carry out more prospecting work. This could ensure the export of hydrocarbons through the pipelines even without the participation of Kazakhstan and Turkmenistan," said first deputy vice-president of SOCAR Xosbaxt Yusifzada. He added that a few months ago the French company Total shared with him its fears that the throughput capacity might be insufficient and that additional options had to be sought. "I laughed. Previously the company had said that there were insufficient hydrocarbons to fill the branches. Now they are talking about the need for additional ones. We will make sure the pipeline is filled. Our deposits make this possible."

New player on European markets

The launch of a third borehole at Sah Daniz, following which daily extraction at the field increased to 15m cubic metres, enables us to start exporting gas to Turkey. But this is just the first stage. "It is obvious that Europe needs alternative routes for the supply of gas. Azerbaijan's overall reserves total up to three trillion cubic metres, and if need be we can support the diversification of the European gas supply network," says SOCAR vice-president for investments and marketing Elsad Nasirov.

"Raising the level of gas supplies along the transit route Azerbaijan-Europe is one of the key elements of the region's gas system. We are ready to start commercial negotiations on this issue," he said, adding that the main factor in resolving this issue is the commercial terms for Azerbaijan's involvement in implementing these projects. "Azerbaijan has already expressed its readiness to ensure reliable and transparent access to Caspian gas for the European markets, irrespective of the political aspects," he said.

In other words, the agreement between Turkmenistan, Kazakhstan and Russia on transporting gas from the first two countries to Europe across Russian territory does not affect Azerbaijan's plans to reach European markets. This was also borne out by US Deputy Assistant Secretary of State Matthew Bryza: "Gazprom has been one of the main suppliers of gas to Europe for 20 years. But there is a need to renew this network, since it has not been ideal for the consumers of the system." Thus, an economic assessment shows that the export of Azerbaijani gas in the British units BTU costs $2.5, while the export of Turkmen gas via Russian territory costs $2.9. "This is a very good margin, why shouldn't we make use of it?" Bryza said.

Nor is there any question of some kind of confrontation with Russia and Gazprom. This is simply business, where the principle of competition reigns. "We don't want to set any countries against one another, we would just like to have an alternative source of gas supplies to Europe. We're not pushing anyone out of the marketplace, we're just showing the advantages of multiple routes," Bryza said.

At the same time, according to Nasirov, the Asian countries will also stand to gain from the export of gas through Azerbaijan. This means access at market rates without the involvement of middlemen, the opportunity to have a stake in shared transportation in the future infrastructure, and also additional tariffs. "At the same time, Europe needs the construction of the necessary infrastructure, and the prompt implementation and guarantee of uninterrupted transit across each state along the route of the gas pipeline. The interests of the Caspian states lie in the existence of multiple-route access to the most lucrative markets, so a decision on an alternative route will undoubtedly be taken," Nasirov said.

From participant to full-fledged stakeholder

It is now abundantly clear that the said agreement between Turkmenistan, Kazakhstan and Russia does not mean at all that Turkmen gas will reach world markets only via this route. On the contrary, Europe is convinced that precisely this Central Asian republic jointly with Azerbaijan will provide a sufficient quantity of gas for transhipment through the NABUCCO pipeline. "We envisage extending the Azerbaijani pipeline with the Trans-Caspian in order to gain access to Turkmen gas, while also looking at the option of coastal systems," executive director of NABUCCO Gas Pipeline International GmbH Reinhard Mitschek said in Baku recently.

He said that Azerbaijan, Turkmenistan, Russia, Iran, Iraq and Egypt will be the sources of gas supplies for the project. "Europe consumed 5bn cubic metres of gas in 2006, most of which was received from Russia, Africa and the North Sea. Europe's expected gas requirement in 2030 will total about 700-800bn cubic metres, while its output will fall from 200bn to120bn cubic metres," he said. But at the same time Russia will remain a principal and integral source of gas supplies for Europe. "But the Caspian region and the Middle East are important regions in terms of gas exports. We need a new route, which will be provided by NABUCCO, linking the Caspian region with Turkey, Bulgaria, Hungary and Austria," Mitschek said.

NABUCCO is a projected trunk pipeline 3,300 km long, bypassing Russia from Central Asia to the countries of the EU, primarily Austria and Germany. Its estimated capacity is 26-32bn cubic metres per annum, construction work is expected to be completed by 2012, and the anticipated cost of the project is $6.2bn. The following companies are members of the consortium building the pipeline: OMV Gas GmbH (Austria), Botas (Turkey), Bulgargaz (Bulgaria), S.N.T.G.N. Transgaz S.A. (Romania), and MOL Natural Gas Transmission Company Ltd. (Hungary). Initially, the project for the NABUCCO pipeline submitted in 2004 envisaged the supply of gas from Iranian fields in the Persian Gulf, but in 2006, in the light of the conflict over Iran's nuclear programme, a decision was taken to alter the project in such a way as to make it possible to supply gas from Turkmenistan, Uzbekistan and Azerbaijan (Fineko).

At the same time, talks between Iran and Azerbaijan on the transit of Turkmen gas across Iranian territory to Azerbaijan have not yet yielded any success. "Iran agrees to buy Turkmen gas only in the volumes in which Turkmenistan is prepared to sell it. If Turkmenistan wants to ship its gas across our territory, we are ready to provide the same quantity of gas in transit without making any profit from the purchase and sale. For Azerbaijan it's much more advantageous to transit gas from Kazakhstan and Turkmenistan across its territory than taking small amounts of gas and trading it on the market," Nasirov said.

One way or another, Azerbaijan is currently ready to become not only a transit country as part of the project, but also one of its stakeholders, and it looks like the European countries are ready to support this ambition. At any rate, during a meeting with the president of SOCAR, Mitschek has already expressed his agreement to this proposal on behalf of the Austrian companies.