FROM STABILITY TO DEVELOPMENT

"The oil and gas deposits discovered in Azerbaijan will continue to supply our country and our export potential for at least another 100 years. As a reliable partner, Azerbaijan will continue to play a positive role."

These words, pronounced by President Ilham Aliyev at the opening of the 15th Caspian Oil & Gas Exhibition, put an end to recent forecasts that, in the next 10-15 years, Azerbaijan will exhaust its energy reserves and "will be no better off than before".

Yes, our country is increasing its extraction of oil and gas and there are more and more buyers for our energy reserves as the number of companies seeking to become partners of SOCAR in the exploration of deposits is increasing. But this does not mean that the history of Azerbaijan's oil and gas will end in about 20 years. Both local oilmen and our foreign partners are working towards its successful continuation, because they have an interest in extending their cooperation with our country.

Mission accomplished

And this is quite logical. Ilham Aliyev pointed out that in recent years Azerbaijan has proved that it is a reliable partner. "We are working with foreign companies on the basis of our mutual interests and, in 14 years, from 1994 to date, the companies working in Azerbaijan and the State Oil Company have had no serious disputes or conflicts."

As we know, 1994 marked the opening of a new stage in Azerbaijan's oil strategy. The first exhibition "Caspian Oil & Gas" was also held in 1994. After that, the "Contract of the Century" was signed, which now determines Azerbaijan's long-term development opportunities. It is symbolic that the exhibition celebrates its 15th anniversary in the year that also marks the 85th birthday of the founder of the national oil strategy, Heydar Aliyev. Owing to the successful implementation of our oil strategy in those years, present-day Azerbaijan is a self-sufficient and developing country. The country's currency reserves currently exceed $10 billion. In the light of high oil prices on the world market, the country is expected to receive more revenues in the next few years. Oil prices have now reached $140 per barrel.

Thus the tasks outlined in the oil strategy initiated by Heydar Aliyev in 1994 have almost been accomplished. Azerbaijan is now in the run-up to a new stage outlined by Ilham Aliyev: to become a developed country. In other words, oil revenues will not only meet the country's demand for financial resources, but will also consistently increase the power of the state and its influence in the region.

ACG gets a further 3.4 billion tonnes of oil

According to the Azerbaijani president, oil extraction this year will exceed 50 million tonnes and next year - 60 million. It is already known that by 2012-2015, the country will be extracting 66-67 million tonnes of oil per year. "This is a great achievement for Azerbaijan," says the first vice-president of the State Oil Company of Azerbaijan, Xosbaxt Yusifzada.

It must be noted that Azerbaijan has been supplying profit oil to the market since 1999 and its volume has already reached 26 million tonnes. Of course, oil extraction has increased due to the development of the Azari-Ciraq-Gunasli block, which has already supplied 123 million tonnes of oil and 26 billion cubic metres of gas. The block currently has 46 wells supplying 800,000 barrels (110,000 tonnes) of oil and 27-28 million cubic metres of gas per day. By the end of 2008, BP -operator of the Azerbaijan International Operating Company - is planning to achieve the maximum volume of oil extraction from the Azari-Ciraq-Gunasli block - one million barrels per day.

It must be noted that, until recently, the overall volume of oil extraction from ACG was planned to be 5.6 billion barrels. However, at the conference "The Role of Oil and Gas Resources of the Caspian Sea in the Energy Supply of Europe", which was held during the exhibition, BP Azerbaijan President Bill Schrader unexpectedly announced that BP hopes to increase this indicator to 9 billion barrels.

"The use of new methods of oil recovery at the Azari-Ciraq-Gunasli block and the implementation of the project to develop the Balaxani productive oil formation at the Azari and Ciraq deposits will make it possible to extend the term of peak oil extraction from ACG - one million barrels per day - from 2013 to 2019. Moreover, this will increase the potential volume of oil extraction from the block to 9 billion barrels," Schrader said. As was reported earlier, it is planned to sanction the Ciraq-Balaxani project, which envisages the development of the Balaxani productive oil formation by the end of 2009. Oil is currently being extracted from deep productive formations at ACG.

According to Schrader, the construction of the Ciraq platform in 2013 to develop the Balaxani suite will make it possible to extract 100,000 barrels per day and will extend the life of the plateau by one year. This platform, like others within the ACG project, will be built in Baku.

The construction of a similar platform, Azari, to develop the Balaxani suite in 2015 will make it possible to extract another 100,000 tonnes of oil and extend the life of the plateau by a further year. This period can be extended by yet another year if wells are drilled with subsea wellhead equipment and also if drilling is used to compact grids, which will make it possible to open smaller sources in the reservoir bed with the help of a well with several horizontal shafts.

"The southern Caspian remains a world-class basin containing hydrocarbon reserves with quite a complex structure and will need the constant perfection of technology in order to increase the level of extraction. The effective implementation of this strategy will allow Azerbaijan to maintain its leadership in the region in the development and extraction of hydrocarbons and to create an industry which will make it possible to solve the country's strategic tasks in a sustainable manner in the future," said Schrader.

"The shah of the sea"

At the same time, as we know, Azerbaijan is pinning great hopes on gas extraction today. According to forecasts from SOCAR, gas extraction in Azerbaijan will reach 47.6 billion cubic metres by 2015 (2.8 times more than in 2007). "From this volume of gas extraction, Azerbaijan will achieve a pure volume of 23 billion cubic metres, including gas exports and the pumping of certain volumes of gas into formations to maintain pressure. The growth in the volume of gas extraction is forecast mainly due to increasing the extraction of gas from the Sah Daniz deposit and accompanying gas from the Azari-Ciraq-Gunasli block of deposits," said Yusifzada.

We have to say that, today, four wells at Sah Daniz provide 20 million cubic metres of gas and 5,000 tonnes of condensate. The daily debit of each well is 5 million cubic metres, which has been achieved for the first time in the history of Azerbaijan. So far, 6 billion cubic metres of gas have been extracted, 2.8 billion cubic metres having been sold to Turkey and 90 million to Georgia.

"According to our evaluations, only one fifth of the reserves of the deposit will be extracted within the framework of Stage 1 of the development of this project," Schrader said.

As for Stage 2, it is planned to extract 20 billion cubic metres of gas within its programme, but local experts and the government of Azerbaijan are sure that this indicator can be increased by another 10 billion cubic metres if necessary. "I think the 20 billion cubic metres which we want to extract during Stage 2 of the development of Sah Daniz, are not sufficient for such a deposit. If we take into account the fact that reserves in the deposit exceed 1,200 billion cubic metres of gas, the maximum volume of extraction at its peak has been understated. We can extract much more gas from this deposit. From the experience of Russian deposits with similar reserves and extraction volumes, the peak volume can be increased to 30 billion cubic metres," believes Azerbaijani Minister of Energy and Industry Natiq Aliyev.

He said that such a peak volume of gas extraction is realistic because the wells of the deposit "supply 3-5 million cubic metres of gas every day". The minister pointed out that in order to increase the volume of extraction to 30 billion cubic metres per year, it is necessary to reconsider the schedule for the development of the deposit.

Moreover, the minister expressed the opinion that BP is behind schedule in implementing Stage 2 of the Sah Daniz development project. "It is planned to start gas extraction within the framework of Stage 2 in 2013. I think that we should not worry too much about the market for our gas, because we have a really huge market. Taking account of the situation in Europe, its demand for gas and likely tendencies for the next 10 years, BP should accelerate the process of developing Stage 2," Natiq Aliyev concluded.

Staking on gas

At the same time, as a real "shah of the sea" and a unique offshore gas deposit, Sah Daniz contains the main, but not the whole, volume of Azerbaijan's gas reserves, both those proven and those still to be confirmed. The fact is that SOCAR has five promising deposits on its agenda today - Umid, Babak, Naxcivan, Abseron and Zafar-Masal, where exploration work is about to start. These deposits are at a great depth, where there may be more gas than oil.

"In the period from 2008 to 2015, it is planned to drill 19 exploration wells at these deposits, i.e. to carry out 150,000 metres of drilling overall. In total, about $2.7 billion will be required for this purpose, but this figure may change if oil prices rise. However, if we consider that the overall volume of reserves at these five deposits is forecast to be 1,400 billion cubic metres of gas and 200 million tonnes of condensate, then our expenses will be easily recovered," said Yusifzada.

Thus, if all the declared possible reserves are confirmed, one export pipeline will definitely not be enough to sell the gas extracted in Azerbaijan. For this reason, one of the oldest and best geologists in the country's oil and gas sector, Academician Yusifzada, thinks it logical to lay another gas pipeline. "If we discover deposits at the five structures - Umid, Babak, Naxcivan, Abseron and Zafar-Masal, this will mean an additional 1,400 billion cubic metres of gas on top of the existing 1,600 billion cubic metres of proven reserves. Naturally, one pipeline will not be enough and another will be required. This issue will be even more urgent if we remember that Kazakhstan and Turkmenistan may transport their gas through Azerbaijani territory."

Moreover, according to Yusifzada, the country needs at least one more large gas reservoir. "Since gas extraction in the country is growing, we need to create the facilities to store another 5-6 billion, or even 10 billion cubic metres of gas," he said.  The two underground gas deposits of Azerbaijan (Qaradaq and Qalmas) have an overall capacity of 1.3 billion cubic metres of gas. A new gas reservoir could be created on the basis of the Bahar gas deposit, SOCAR experts believe.

All this clearly shows that Azerbaijan can extract much more oil and gas, both within the framework of existing contracts and by means of continuing exploration work. Further exploration and development will allow Azerbaijan to create a more diverse base of assets, in order not to be dependant on one deposit, and to extend the service life of the country's oil and gas resources - for at least 100 years…