GAINING ADVANTAGE FROM A CRISIS

The low oil prices are leading to a reduction in investments in developing new oil fields. As a result, oil's return to its previous positions on the world stock markets is only a matter of time. In the view of the OPEC secretary general Abdallah Salem el-Badri, the 130-billion-dollar drop in investments in oil extraction may lead to a growth in prices as soon as 2016, since the inevitable reduction in the volumes of oil extracted will lead to demand equalling supply.

Moreover, the current situation allows investments to be expanded in future projects, the cost of which has already dropped owing to low oil prices. In particular the TANAP [Trans-Anatolian Gas Pipeline] project, which envisages supplies of Azerbaijani gas from the east of Turkey being delivered to the west, on the frontier with Greece, has become 20-25 per cent cheaper. According to SOCAR [State Oil Company of the Azerbaijan Republic] president Rovnaq Abdul-layev, this has become possible owing to the successful tenders for carrying out the construction work and the purchase of the pipes. 

The low oil prices are moreover opening up space for investment activity in separate sectors of industry. This primarily applies to oil refining, the profitability of which is growing as oil prices fall. In this connection, SOCAR's interest in buying a share in one of Egypt's oil refineries is not accidental. "Egypt offers a big market which keeps on developing. We have been supplying something like more than one million tonnes of oil and petroleum products to Egypt for several years now. But we would like to expand the scale of our operation in Egypt," R. Abdullayev said, when the talks with Egyptian Prime Minister Sherif Ismail ended.

The Egyptian prime minister promised to promote Azerbaijani invests in any way he could. This step is being taken from the point of view of the geography of supplies.

 On the one hand, the location of Egypt on the African continent allows supplies of petroleum products to be organised right into the continent's hinterland. Besides this, Egypt also has ports on the Mediterranean Sea, which allow access to the extensive market of southern Europe. On the other hand, the Suez Canal also opens up prospects for accessing the markets of Southeast Asia. Another plus is that, when necessary and more profitable for the refinery in Egypt, Azerbaijani oil may be supplied from the Turkish port of Ceyhan on the Mediterranean Sea. If the oil refinery talks in Egypt turn out well, this will be SOCAR's second foreign oil-refinery asset after the construction of the STAR refinery in Izmir has been completed. 

SOCAR regards Canada as another promising direction. "Our SOCAR Trading commercial company has begun a big and active operation in Canada. We have already got business ties with that country going and we believe that we shall be able to work there as a trader in the petroleum industry as well. We have been making certain preparations before this," R. Abdullayev reported, commenting on the news of the opening of a SOCAR Trading office in [the Canadian city of] Calgary. The company's head noted that certain changes were occurring owing to the drop in world oil prices. "Canada has an oil field where extraction of the hydrocarbon reserves is difficult. We think that we can become engaged in doing that," the head of SOCAR stressed.

This direction on the part of the state oil company is calculated more as a long-term trend based on a rise in oil prices in the future. The Canadian oil and gas fields are also non-traditional ones and require high prices to make them profitable. But it is advantageous to purchase projects at this stage owing to their low cost.

The implementation of the "Southern Gas Stream" project is opening up new markets to SOCAR, to which it can supply its gas. Two Balkan countries in particular, namely Albania and Montenegro, which have not yet been provided with gas supply systems, are interested in receiving Azerbaijani gas. During his recent visit to Azerbaijan Montenegro's Prime Minister Milo Dukanovic discussed the issue of a gas supply system with Economic Development Minister Sahin Mustafayev and SOCAR CEO Rovnaq Abdullayev. "We have been working on a project to supply Albania with a gas supply network. Montenegro has joined us in this effort recently. Now we are thinking about this topic, so we can draw up a combined technical and economic basis for providing Albania and Montenegro with gas supply networks and design a single extended project which can be more profitable," R. Abdullayev reported, noting that the project is being examined in the context of the construction of the Trans-Adriatic Gas Pipeline [TAP]. reported.

At the same time, oil and gas projects are being fully implemented in Azerbaijan itself. This not only applies to oil and gas fields that have already been developed like the Shah Deniz Stage 2 project, the work on which is on schedule; oil extraction is actively continuing at the Azeri-Chirag-Guneshli block.

BP is already thinking about the third stage in the Shah Deniz project to maximally obtain the gas resources at that gas field, which are estimated at 1.2 trillion cubic metres. "We plan to implement the third phase in the Shah Deniz project. This will be possible using special technologies and equipment which will allow gas to be extracted from the strata under high pressure. Together with SOCAR, we are continuing to assess the possibilities of this oil field," BP Southern Corridor vice president Joe Murphy said at the Caspian Technical Conference held recently in Baku.

BP does moreover intend to begin work at the beginning of 2016 on a new contract to develop promising fresh structures envisaging the study of the shallow-water part of the Absheron archipelago. The agreement, according to which BP and SOCAR have equal 50-per-cent shares, envisages the development of a contract area of 1,900 square kilometres. "We are very pleased about signing this agreement with SOCAR relating to this project and believe that there are opportunities for long-term cooperation within the framework of this project. We have already started the preparatory work. In February-March 2016 the first seismic studies will started on the contract-related area," Gordon Birrell, the BP regional director for Azerbaijan, Georgia and Turkey said. According to him, the company plans to complete the interpretation and processing of the data obtained during seismic exploration before the end of 2016, after which further steps will be determined.

In principle, BP may be regarded as a lucky company for Azerbaijan. Two of the major blocks of Azerbaijan's shelf in the Caspian Sea, the Azeri-Chirag-Guneshli and the Shah Deniz, are being developed by a British operating company. The fact that there is an onshore infrastructure like the Sangachal terminal and the branching network of pipelines for oil and gas exports, potentially facilitates and boosts the profitability of developing resources from the shallow-water area of Abseron.

 But not only BP is interested in expanding the operation on the country's oil and gas structures. In particular, all the details have almost been agreed with the Canadian Zenith company on developing the block of the onshore Muradxanli-Jafarli-Zardab oil and gas fields. "The contract is ready and permission has been obtained from the president of Azerbaijan. Now experts are drawing up the technical details of the contract. Muradkhanli is a complex oil field and there are big problems there. It is the third time that we have agreed on developing it," R. Abdullayev noted.

"We are impatiently waiting for investment in Azerbaijan, a dynamically developing country with extensive possibilities for foreign investors. We have conducted re-search, studied the country's laws, held a series of negotiations and have become convinced that working conditions, business and the infrastructure environment are favourable and attractive to investors. We hope that we can find a project here relating to returning old on-shore oil fields to production and to use their own technologies for finishing the development of them," Andrea Cattaneo, the president of Zenith Energy Ltd stated earlier.

At the end of the 1990s and the beginning of the 2000s RAMCO company were engaged in the deve-lopment of the oil field. But it was unable to meet the commitments took upon itself. In 2012, the Vietnamese Petrovietnam was interested in the block, but the issue was not finalised before the contract was signed. In this case, it is quite possible that Zenith Energy will offer SOCAR access to the Canadian assets in exchange for the Muradxanli contract.

On the whole, the forthcoming SOCAR projects will allow companies to assert themselves among the leaders of the world oil and gas market and provide for a growth in incomes, in spite of the natural reduction in extraction at our own oil fields, many of which have been exploited for many decades.