CHEAP OIL PLUSES

The drop in prices on the oil stock markets is naturally an extremely unple-asant phenomenon, primarily for the producers and sellers on the energy resources markets. But a spoonful of honey may even be scraped from that barrel, for the drop in energy resources' prices means that the costs of implementing projects to extract it and transport it have automatically fallen as well. What has happened to the major regional project today, in which Azerbaijan is playing first fiddle, namely the construction of the TANAP [Trans-Anatolian Gas Pipe-line] which is called upon to transport to world markets gas extracted within the framework of the Shahdeniz project Stage-2. 

A favourable state of the market

Thus, thanks to low oil prices, the amount of capital expenditure on the TANAP construction has fallen from 11bn dollars to 9,5bn, which naturally only has a positive impact on the deadlines for completing the construction work. As TANAP director Saltuk Duzyol stated at the Caspian Technical Conference held in Baku, the first Azerbaijani gas will be transported to Turkey along the Southern Stream gas pipeline in June 2018.

The total length of the pipeline in the TANAP countries alone is 1,850 km, crossing 20 provinces, 67 districts and going through 600 villages. "Work on the construction of the pipeline which forms part of the Southern Stream Gas Pipeline is going ahead apace," S. Duzyol gave assurances.

The TANAP's initial through-put capacity remains as scheduled and is expected to be 16bn cu m per year, of which 6bn are destined for Turkey and the rest for Europe. Incidentally, Azerbaijani gas is to reach Europe at the beginning of 2020, and in the initial stage the volume of it will be 10bn cu m per year, to be doubled in the future.

Gas extraction from Stage-2 will reach its peak (16bn cu m) in 2022, and in total Shahdeniz is expected to yield 25bn cu m between 2022 and 2028, which will be the maximum amount registered in the entire history of gas field development.

Consequently, the main income from gas exports is expected in this period, so the principle of maximum effectiveness and thriftiness needs to be applied in distributing this income. It is important to retain funds for future generations of Azerbaijanis, as well as for the stable development of the country's entire economy and of the national oil and gas sector. In short, the marketing of the Shahdeniz gas alone from 2007 through 1 November this year yielded an income of 2.4bn dollars for the State Oil Fund of Azerbaijan (SOFAZ).

These funds help to create a certain security cushion for the long-term development of the economy and have a serious effect on stable credit ratings. They are already allowing us to readily borrow large sums to implement other important projects. All the more so since low oil prices have created a favourable state of affairs on the market to attract finance at low interest rates.

Thus, according to SOCAR's deputy general manager for investments, Zaur Qahramanov, Azerbaijan plans to borrow a total sum of 7bn dollars to finance part of our debt for the Shahdeniz gas field development project and the construction of the Southern Stream Gas Pipeline. The total cost of this project will be 45bn dollars, of which Azerbaijan will be responsible for 14bn dollars. It is planned to borrow 7bn dollars to fund part of Azerbaijan's debt, if of course this will be productive and advantageous," Z. Qahramanov said.

Among the potential lenders at the present time there are the European Investment Bank, the International Finance Corporation and the European Reconstruction and Development Bank.

Moreover, according to Xosbaxt Yusifzada, SOCAR's first vice president of geology, geophysics and field development, since gas exports started from Shahdeniz up to 1 November 2015, a total of 36bn cu m of Azerbaijani gas have been exported to Turkey and 4.8bn cu m to Georgia. The daily volume of gas supplies to Georgia is 4m cu m and to Turkey 18m cu m.

Friendship is friendship…

Azerbaijan is also buying up certain volumes of gas within the framework of the Shahdeniz project. Besides this, the country's needs are met from the resources extracted from our own SOCAR gas fields, as well as the gas extracted on the "Azeri-Chirag-Guneshli" [ACG] bloc and supplied free by SOCAR. The existence of these sources has made it possible to considerably extend the gas supply network in the country. "Over the last few years a process of providing gas supplies to towns and villages has actively been carried out and today the level is more than 90 per cent. This is leading to a growth in gas consumption," SOCAR president Rovnaq Abdullayev noted earlier.

Of late the idea of getting gas supplies from Russia has come up. Moreover, the company AzMeCo has concluded a contract with Gazprom to deliver 2bn cu m to the Qaradag methanol plant. But the deliveries stopped before they had even begun normally. The price of Russian gas owing to the drop in the price of methanol on the world markets did not suit AzMeCo.

SOCAR itself intends to try a scheme of temporary swap deliveries with Gazprom. The idea of the Azerbaijani company is to test the maximum capacity of Azerbaijan's gas storage facilities and thereby reduce the collection of the gas from the ACG in order to pump it back into the strata to obtain more oil from the bloc.

For the moment the idea is at the discussion stage, including the price factor. "At any rate, Azerbaijan has sufficient reserves of gas and we are only prepared to obtain additional volumes at a good price," the state oil company representative said. 

He said that at the present time the formula according to which Gazprom calculates its gas prices is linked to oil prices. "If the Russian company would market the gas at the spot price, the situation would be more attractive for us," he added.

Moreover SOCAR is strong enough to allow itself to apply the principle of "nothing extra, only business" even with a giant like Gazprom.