REASONABLE ENVIRONMENTALISM

On June 4, Azerbaijan celebrated the 25th anniversary of the contract for the development of one of the world's largest gas condensate deposits – Shah Deniz. It is this field that made possible for Azerbaijan to implement its National Gas Strategy aimed at transforming Azerbaijan into a strong producer and exporter of natural gas to the global market. After a quarter of a century, we can proudly say that the project was a huge success. Azerbaijan has created a gigantic gas export system with a length of 3,500 km, which has become a reliable energy bridge between the country and Europe.

In parallel with the Shah Deniz celebrations, St. Petersburg (Russia) hosted the annual International Economic Forum (SPIEF-2021), where the issue of gas production and export was one of the key topics of discussions.

Most productive wells

For 25 years, Azerbaijan has created a giant gas export system (3,500 km), which has become a reliable energy bridge between the region and Europe, and made Azerbaijan one of the key gas suppliers to the EU.

The number of buyers interested in Azerbaijani natural gas grows regularly. Gas production under the Stage 2 of the Shah Deniz development is increasing, while the consortium is studying the available resources for the implementation of the third stage of the project. Meanwhile, Azerbaijan continues the development of plans to build up volumes and expand the geography of natural gas exports. There are even discussions on the possible production of hydrogen in the country.

BP-Azerbaijan is planning to put into operation five more production wells at the Shah Deniz field this year, in addition to 19 existing production wells.

Shah Deniz wells are considered one of the most productive wells of BP in the world. The daily flow rate of the most productive well of the field is 36,000 barrels.

"The existing production capacity of the field is 58 million cubic meters of gas daily, or 21 billion cubic metres annually. With the maximum stable level of production at Stage 2, we are going to produce 16 billion cubic meters of gas annually from the Shah Deniz field," BP noted.

Therefore, the volume of supplies to the neighbouring countries and Europe will grow gradually. It is known that Azerbaijan is the main gas supplier of gas to Georgia. Thanks to Azerbaijani gas, Georgia could gasify more than 82% of its territory. As for the EU, as SOCAR President Rovnag Abdullayev said in his address at SPIEF-2021, the current share of Azerbaijan in European imports of oil reaches 4%. In December 31, 2020, Azerbaijan began the supply of natural gas through the TAP gas pipeline to consumers in Italy, Greece and Bulgaria. The export volume has already reached 2.3 billion cubic metres. Until the end of 2021, this indicator will be brought to 5 billion cubic metres, then gradually up to 10, and in the future - even to 20 billion.

Environment or politics?

Meanwhile, there are fierce global discussions regarding the future of natural gas due to the inevitable transition to the carbon-free economy. A number of states have already announced their intentions to achieve carbon neutrality or zero-level CO₂ emissions in the coming decades. It is assumed that these measures will slow down the process of climate change and save the planet and its inhabitants from death.

At the same time, in his speech at SPIEF-2021, Vladimir Putin stated that Moscow saw some bad intentions behind the transition to carbon neutrality, and urged not to turn the issue into a tool of unfair competition. "It is necessary to put aside political and other differences, and not to turn the drive for carbon neutrality into a tool of unfair competition, when, under the pretext of a carbon footprint, someone tries to reshape investment and trade flows in their interests," Mr.. Putin said.

The Russian president also announced the end of the construction of the first section under the Nord Stream-2 gas pipeline project and the readiness of Russia to consider the possibility of paying for the Russian gas in Euro and national currencies instead of US dollars, apparently, challenging the rivals of the Russian gas project.

"For now, our operators prefer to work with dollars. As an exchange commodity, oil is tied to the dollar more than gas, which is not an exchange commodity. This is why we are ready to consider transactions in national currencies as well. We are already doing it with many of our country partners. We are ready to consider euro payments. Euro is completely acceptable for gas transactions," Vladimir Putin said.

The Russian leader also confidently stated that gas was the most environmentally friendly commodity among hydrocarbons and the optimal product during the transition to the green energy.

Threat of shortage

Meanwhile, analysts and top managers of large oil companies agree that the chronic lack of investments in oil and gas supplies, as oil fields become depleted, will reduce the volume of supplies and increase oil prices in the future.

In May, International Energy Agency (IEA) presented a plan to achieve carbon neutrality on global scale by 2050. To achieve this goal, as well as keep the average annual temperature on the planet for the same period within 1.5 degrees Celsius, IEA proposed to cut to zero (!) the volume of investments in new projects for the extraction of fossil fuels. The agency believes that the world energy companies should immediately stop the exploration and development of new oil and gas fields, as well as the opening of new coal mines and expansion of existing ones.

Thee proposal was met with scepticism in Russia, however. CEO of Rosneft Igor Sechin warned that in the second half of 2021, the world risks to face the deficit of oil and gas. "There is a serious deficit of oil and gas threatening the world today. The world economy consumes oil, but is not ready to invest in it. According to current estimates, to maintain the current level of production until 2040, the global oil and gas industry requires about $17 trillion, or about a third of all global investments in the energy sector," Mr. Sechin said.

"Investments in oil production fell so low that not only are the existing reserves replaced, but they also become depleted," CEO of Trafigura, Jeremy Weir, said. He believes that the possible shortage of energy resources can prevent the restoration of economies.

Chevron’s Vice-President for Business Development, Jay R. Pryor, said that oil and gas will retain their significance in any scenario of the global energy transition.

Mr. Pryor’s position was supported by CEO of Baker Hughes, Lorenzo Simonelli, who believes that "hydrocarbons will be used for many more decades, and will play an instrumental role in the economy."

Ready for transformation

Heads of the largest energy companies and the leading market experts are confident that the traditional fuel and energy complex can become green and ensure the growing global need in energy.

"Today our society wants cleaner sources of energy, this is normal. And we must seriously consider these changes," said Robert Dudley, Chairman of the Oil and Gas Climate Initiative (OGCI) and the former head of BP.

However, key corporate leaders raise the issue for a balanced approach. "Oil and gas industry has long been working on decreasing greenhouse gas emissions. Today the industry takes a leading role in the transition to low-carbon energy, investing billions of dollars in the development of green technologies," said Exxon Mobile’s Senior Vice President, Neil Chapman.

In his opinion, oil companies in the transition period play a double role: on the one hand, they need to reduce the carbon footprint, so that the world community could solve the problems outlined in the Paris Climate Accord, while on the other hand - it is necessary to ensure reliable energy supplies in the coming decades so that developing countries could raise their standard of living.

For obvious reasons, Azerbaijan is not planning to abandon investment in fossil fuel. Apparently, the authorities decided to combine the works on extending oil and gas reserves while adapting to new realities of the future carbon-free world.

"Today gas has no alternatives as an energy source in terms of transition to an energetically pure economy. Over time, the consumption of traditional fossil fuels will reduce. And it is important to increase the use of environmentally-friendly hydrocarbon fuel, while increasing energy efficiency throughout the production chain, as well as implementing projects that ensure the absorption of greenhouse gases," Rovnag Abdullayev said in his speech.

According to Mr. Abdullayev, Baku is seriously concerned about the problem of climate change, the consequences of which are obvious. That is why in April 2016, Azerbaijan signed the Paris Accord aimed at reducing greenhouse gas emissions by 35% by 2030. To date, it was possible to reduce them by 30%.

Hydrogen production

"Reduction of the carbon footprint is inevitable due to the development of both oil and gas companies and the global economy. SOCAR Group of Companies already implements a number of projects in this area, including the production of hydrogen on the Absheron Peninsula for its further transportation through the SGC for European consumers," General Director of SOCAR Rus, Farid Jafarov, said.

In addition to hydrogen, the company considers other projects combining traditional and innovative technologies. One of them is in-situ ammonium production from associated petroleum gas, including the capture and pumping carbon emissions back to the reservoir to maintain the reservoir pressure. In parallel, the company plans to transport the ammonium to Europe as raw materials for further hydrogen production.

In addition, SOCAR carries out systematic work to reduce the emissions of associated petroleum gas from the developed fields. It is planned to reduce these volumes to zero by 2022, which currently is at 2%.

In other words, Azerbaijan once again demonstrated that it would keep up with modern challenges of the fuel and energy market and would build its development program in line with the requirements of the global energy complex.