DISCOVERY TIME

This summer, a number of interesting events took place in the Caspian gas industry. On the one hand, they can increase the role of the region in the global gas market, and on the other hand, boost competition among the gas producers.

In Azerbaijan, BP has successfully launched a new section of the Shah Deniz field. Together with SOCAR, BP began exploration operations in the shallow waters of the Absheron archipelago.

Umid Babek Operation Company (UBOC), despite all the difficulties associated with the coronavirus pandemic, drilled and just recently put into operation a new production well at the Umid-Babek gas condensate block, thereby maximizing gas production potential of the Umid-1 platform.

Meanwhile, Iran announced the discovery of the largest natural gas field in its sector of the Caspian Sea near the city of Chalus. Tehran said that the new discovery could become a turning point in the exploration of huge oil and gas reserves in northern Iran and even change the energy map of Europe. Theoretically, this is quite possible, but to materialise this in practice, Iran will have to either create its own capacities for such supplies, or negotiate with Turkey or Azerbaijan, which has a ready-made infrastructure for the delivery of gas to the EU.

Shah Deniz: a new level

Meanwhile, Azerbaijan is successfully developing its own potential to increase gas production to fill in the Southern Gas Corridor (SGC). A key step in this direction was the development of the southeastern section of the Shah Deniz field. According to BP, technical operator of the project, this deep-water section of the field (water depth 540 m) consists of four wells, and full-scale gas production from this section is expected in 3Q2021. “This is the most important project that we have planned for Shah Deniz this year, and we have successfully completed it, on schedule and on budget, despite the challenges and constraints due to the COVID-19 pandemic,” said Gary Jones. BP Regional President for Azerbaijan, Georgia, and Turkey.

According to Jones, thanks to the southeastern section of the field, an additional 90,000 barrels of oil equivalent daily will be added to the total production from the Shah Deniz field. Currently, 58 million cubic meters of gas and 85,000 barrels of condensate are produced from the field daily.

Note that so far, as part of Stage-2, gas production has been carried out only from the northern section of the field. By 2027, BP expects to start production from the wells in the western, southeastern, southwestern and northeastern section of Shah Deniz.

Since the beginning of field development back in 2006, more than 147 billion cubic meters of gas have been produced in Shah Deniz, with more than 100 billion of this volume exported and 33 million tons being condensate.

By the way, according to the latest BP estimate, the countries with the largest gas reserves in the world (in trillion cubic meters) are Russia (37.4), Iran (32.1), Qatar (24.7), Turkmenistan (13.6) and the US (12.6).

The total gas reserves in the CIS countries at the end of 2020 are estimated at 56.6 trillion cubic meters, including in Kazakhstan (2.3), and Uzbekistan (0.8).

At the same time, according to the company, gas reserves of Azerbaijan were confirmed at the end of 2020 in the amount of 2.5 trillion cubic meters. Azerbaijan accounts for 1.3% of all world reserves of gas fuel. However, it is possible that in the next 1-2 years this indicator may increase due to the discovery of a new gas field in the Azerbaijani sector of the Caspian Sea - Shafag-Asiman in March and the search for hydrocarbon deposits in the shallow waters of the Absheron Archipelago (Shallow Water Absheron Peninsula , SWAP).

In search of new resources

In August 2021, SOCAR and BP began drilling the first exploration well in the shallow waters of the Absheron archipelago. The operations are carried out using the Satti jack-up rig and are expected to take two months. Based on the drilling results, BP expects to discover oil resources as well. In total, the company intends to drill three exploration wells within the SWAP project.

“The main objective in drilling this exploration well is to confirm the presence of hydrocarbons for the subsequent potential development of the contract area. It is planned that during the drilling of the second exploration well we discover hydrocarbon reserves at about 4,000 meters. Drilling of the third exploration well in the southeastern promising area of shallow water Absheron archipelago will begin with the completion of the second one,” said BP, which is the operator of SWAP and has a 50% share in the project along with SOCAR.

Most likely, the results of exploration drilling will not be disappointing, since this process was preceded by elaborate works to study the contract area with seismic exploration and other works to select the most optimal locations for wells placement. But how much the expectations will be justified (in fact, it is expected to discover the second Azeri-Chirag-Guneshli), it will become clear already in October.

In parallel, the company continues to study the results of exploration drilling in another Caspian block - Shafag-Asiman. However, exact numbers regarding the drilling operations are yet to be reported. Joint statement with SOCAR only says that the exploration was successful and revealed the first deposits of gas condensate. For a more complete study of the reserves, the companies will carry out technical design of another appraisal well. However, the discovery of new deposits sounds promising. After all, this will allow Azerbaijan to increase the volume of its own proven reserves, which can become an additional source of raw materials for the SGC and its last link - the TAP pipeline.

For these purposes Azerbaijan plans the joint development of another Caspian field, Dostlug (Dostyk), with Turkmenistan. Discussion have not materialised in the form of a contract yet, but there is some progress. Parliaments of both countries have already ratified the intergovernmental memorandum on joint exploration and development of hydrocarbon resources at the field signed in January 2021 in Baku. At the end of July 2021, a two-day meeting of the Turkmen and Azerbaijani delegations was held in Ashgabat, where the parties discussed specific steps for the practical implementation of the memorandum. The Turkmen side was headed by Batyr Amanov, Chairman of the Turkmengaz State Concern. Azerbaijan was represented by Energy Minister Parviz Shahbazov.

“We have specifically discussed joint operations to attract partners, as well as investors for the successful implementation of a promising intergovernmental document,” the Turkmen Ministry of Foreign Affairs said.

This issue may be extended following the results of the future trilateral meeting of the leaders of Turkmenistan, Turkey, Azerbaijan, which is expected to be held this year. The summit was originally planned for August, but was then postponed due to forest fires in several provinces of Turkey.

Meanwhile, the Russian company LUKOil has already expressed its interest in participating in the Dostlug project. “Consultations are underway on Dostlug, an intergovernmental agreement is being prepared. We would like to be operators, we don’t know the share yet,” President of LUKOil Vagit Alekperov said in his interview.

According to experts, Dostlug's reserves are estimated at 50 million tons of oil. For many years the field was considered controversial: Ashgabat called it Serdar and considered it its own. The Azerbaijani side called this field Kapaz and also disputed the ownership.

It is interesting that the development of the previously disputed Caspian field in such a format may become the first example of cooperation between Azerbaijan, Turkmenistan and Russia in the development of the Caspian hydrocarbon resources and greatly strengthen the positions of each of the parties in the energy market. In addition to the obvious dividends from the project, Russia through LUKOil would gain access to the facilities of the Southern Gas Corridor, Turkmenistan - a direct route for exporting its own gas to the European market, and Azerbaijan, due to the transit of Turkmen gas, would turn into a gas hub connecting the East with the West.

Growth forecast

Another significant event for the local gas industry was the commissioning by UBOC of a new well U1-18 at the Umid gas condensate field in the Azerbaijani sector of the Caspian Sea.

“The Umid project is of great importance for regulating the fuel and energy balance of Azerbaijan. Its implementation continues successfully. Since the drilling of the U1-18 well at Umid was conducted during the pandemic, necessary security measures were applied and a special control system was created to ensure uninterrupted operations," SOCAR President Rovnag Abdullayev said.

According to SOCAR, optimisation of previously drilled wells and exploration works on the new well were carried out to improve the development efficiency of the Umid-Babek offshore block. This made it possible to increase the potential of daily gas production from wells on the Umid-1 platform in a stepwise manner from 0.75 million to 3 million cubic meters, and condensate from 120 to 500 tons.

Currently, 3.1 million cubic meters of gas and 500 tons of condensate are produced from this platform dayly. With the completion and commissioning of a new well, the maximum production potential of the platform reached 6.7 million tons of gas and 950 tons of condensate daily. “We expect that this production potential will be the highest among the platforms operated by SOCAR in the Caspian Sea,” the company said.

So far, the Umid-1 field is in its first phase of development. At the next stage, it is planned to install another Umid-2 production platform.

In addition, the company plans to carry out exploration  drilling at the Babek structure, which has twice the resources of the Umid field (400 billion cubic meters of gas and 80 million tons of condensate versus 200 billion cubic meters of gas and 30 million tons of condensate).

However, the scope of works is broader, given the upcoming projects in D-230, Dan-Ulduzu-Ashrafi, Aypara, Garabagh, Absheron fields. Their development will require the drilling of new wells, as well as the construction of production and gas transmission infrastructures.

By the way, Rystad Energy expects the market for drilling and services in the oil sector of Azerbaijan to grow after 2022. At the same time, the company believes that in 2022 the volume of oil and gas drilling operations in the country's onshore fields will reach to $22 million, offshore to $1 billion. In 2030, these indicators are expected to grow to $35 million onshore and $1.6 billion  offshore.

In addition, according to Rystad Energy estimates, in 2022 the volume of goods and services in the oil and gas sector of Azerbaijan will reach $99 million and $1.3 billion onshore and offshore, respectively. In 2030, these indicators are expected to grow to $163 million and $1.6 billion, respectively.

SOCAR agrees with such assessments and notes that the projected expansion of the drilling and service market will occur both through operations to stabilise oil and gas production at existing fields and through increased exploration.

Iranian gas

Meanwhile, Iran has made a number of large discoveries in the Caspian. On August 24, Khazar Exploration and Production (KEPCO) announced the discovery of a giant natural gas field in the Iranian sector of the Caspian Sea, dubbed Chalous. The reserves of the field are estimated at approximately 3.55 trillion cubic meters.

“If the initial estimates are confirmed, the Iranian sector of the Caspian can play a significant role in gas exports to Europe in the near future. In this case, a new Iranian gas hub will be formed in the north. This will make it possible to take a 20% share of regional gas exports to Europe,” Ali Osuli, head of KEPCO, said.

KEPCO claims Chalous is the second largest natural gas field in the Caspian Sea after the Alborz project. Based on the available data, this structure may also have significant oil reserves.

According to a number of experts, since there is no proper infrastructure for exporting gas to world markets in the north of Iran, most of the largest fields are located in the south of the country and in the Persian Gulf. However, Tehran may well resolve this issue at no extra cost by connecting to the Southern Gas Corridor. Even if by that time Azerbaijan fills the pipeline with its own gas, the capacity of the Southern Gas Corridor can be increased, as envisaged by the project. In this situation, it will be easier for Azerbaijan to use Iranian gas instead of the Turkmen one. Iran is still under the US sanctions, and there are no prospects for easing them in the foreseeable future. Nevertheless, the situation may change, and this project may just become a good opportunity for expanding gas cooperation between Baku and Tehran, which at the moment is limited mainly to swap gas supplies for the needs of the Nakhchivan Autonomous Republic.