CASPIAN SOURCE OF LIGHT

November has been rich in significant dates and events in Azerbaijan. First and foremost, it marked the Victory Day in the Second Garabagh War. At the same time, there were events that, although not included in the calendar of official holidays, played a huge role in the development of the oil industry and the entire state.

On November 7, 1949, the first oil fountain gushed at the legendary Oil Rocks 110 km from Baku, which marked the start of the offshore oil production in the world.

On the same day in November 1997, 48 years later, the first oil was produced on the Chirag platform as part of the Contract of the Century. For 25 years now, the Azeri-Chirag-Guneshli (ACG) block has been a guarantor of Azerbaijan's stable economic development.

First oil

The day when the first oil was produced from the Chirag (lantern, or source of light in Azerbaijani) platform is a significant day in the history of modern Azerbaijan. After all, it was the first oil produced under a contract designed to boost the development of the country that was in a bad economic situation at the time.

"Today I am filled with pride to say that in the middle of the Caspian Sea, on the high seas, we could build such a beautiful platform, which meets the world's highest standards in offshore oil production," President and National Leader of Azerbaijan Heydar Aliyev said at the official celebration of this important event back in 1997.

The start of production is a big event for the oil industry. And because it happened just three years after the signing of the contract, it was an unprecedented achievement in the world. The oil industry is well aware that the period from signing any contract to getting the first oil involves extensive work, and that it is rare to get everything done in such a short time.

The Chirag platform is located 120km east of Baku, with wells drilled to the depth of 120m.

The platform was built by Azerbaijani oil workers even before the Contract of the Century was signed, but was reconstructed specifically for oil production in 1995 in accordance with international standards. In order to drill more inclined wells, the platform's top module was upgraded and fitted with new equipment. The new rig provided an opportunity to drill horizontal wells. The maximally inclined wells A-18, A-19 (inclination 5,500m and 6,300m, respectively) and other wells thus provided large quantities of oil.

"The day the first oil was produced from the Chirag platform in November 1997 is in fact a symbolic date for the practical launch of Azerbaijan's new oil strategy. This platform marks the start of production at the ACG field. It was the only source of production and exports from the field until 2005, when the newly built, larger and upgraded platforms were commissioned. Today, Chirag is one of our six production platforms at ACG and will remain so for a long time to come," said Elkhan Mammadov, BP vice-president for production in Azerbaijan, Georgia and Turkey.

For twenty five years the Chirag platform provided a total of 766 million barrels of oil, which is about a fifth of all production from the ACG block.

New stage with a new platform

Initially, it was planned that the Chirag platform would operate only for seven years. Yet BP notes that the platform still meets the highest global standards for workplace safety, as well as high operational efficiency, making it suitable for many more years of operation.

Following Chirag, BP, as the operator of the ACG project, has built five more production platforms at ACG, which have already produced more than 3.4 billion barrels of oil, and 4.2 billion barrels together with Chirag.

In parallel, there were painstaking works ongoing on the export infrastructure, including the Sangachal terminal, the Baku-Supsa and Baku-Tbilisi-Ceyhan oil pipelines and the Baku-Tbilisi-Erzurum gas pipeline.

Azerbaijan now has a well-established reputation as a reliable supplier of energy resources to world markets, which allows it to move forward and further expand both its own export infrastructure and the geography of its hydrocarbon supplies and number of buyers.

Meanwhile, 25 years of development has impacted production levels. As with any field, the decline has naturally affected the ACG block as well. In recent years, BP has made efforts to ensure that the decline in oil production from ACG has not been painful for the industry. Currently, the company pins its highest hopes on the project Central East Azeri (CERA). Estimated at $6b, the project assumes the construction of a new production and drilling platform with a living quarters unit, which will be installed between Central Azeri and East Azeri. As a result of drilling additional wells and installing offshore facilities, BP expects to achieve daily peak production of up to 100,000 barrels of oil and 350,000 cubic feet of gas daily and to maintain oil production from ACG at a stable level for several years.

The company plans to receive first oil by the end of 2023, with more than 80% of the infrastructure complete so far. BP assures that everything is on schedule to complete the design, procurement and production and installation works in 2023.

Neil Phillips, General Manager of the project, said that the construction of the base block and piles of the Central East Azeri production platform has already been completed and the company intends to send them offshore for installation in the first half of 2023. The construction of the platform's topsides is also almost complete (95%).

Under the project, it is planned to drill 48 wells, which will be done by Turan Drilling Company.

Gas production

The potential of the ACG block is not limited to oil production and the Central East Azeri project. There is also a lot of work to be done to develop deep gas reserves in this contract area to extract deep gas. Discussions with SOCAR have been going on for several years, but so far without results. Given the growing demand for natural gas in global markets and the country's plans to increase gas supplies, especially after signing a memorandum on strategic partnership in the energy sector with the EU, Azerbaijani authorities will focus all efforts to increase gas production. Consequently, it is possible to expect intensive works on the deep gas project as well. Actually, there is not much time left – BP announced its plans to start drilling a data-well at the ACG block by the end of 2022. "Drilling the well is necessary to obtain information on the reserves of deep natural gas and the structure of deep gas reservoirs at ACG," BP vice president of communications and external relations for the Caspian and Middle East regions Bakhtiyar Aslanbeyli said.

The company believes that this information will help determine the feasibility of extracting deep gas from the ACG. The company believes this information will help determine the feasibility of extracting deep gas at ACG, which is currently estimated at 300bcm, but could be revised upwards with drilling.

Plans for export

In addition to plans to increase gas production and exports, Azerbaijan is also making serious efforts to increase oil exports to world markets. President of Azerbaijan Ilham Aliyev confirmed the seriousness of these intentions in his public statement during his recent official visit to Georgia.

"Oil exports through the Baku-Tbilisi-Ceyhan pipeline will increase next year. In parallel, we want to use the Baku-Supsa oil pipeline, which is not used at the moment. Mr. Prime-Minister of Georgia and I discussed this issue as well. There is both great potential and great need for this," Aliyev said in Tbilisi at a joint press statement with Georgian Prime Minister Irakli Garibashvili.

The Baku-Tbilisi-Ceyhan (BTC) oil pipeline was built as an export route linking Azerbaijan directly to world markets. BTC also serves to strengthen economic and political relations between Azerbaijan, Georgia, Turkey and the West as a strategic objective.

To date, around 3.9 billion barrels of oil has been shipped to world markets by means of 5,163 tankers from Azerbaijan through the Baku-Tbilisi-Ceyhan pipeline. BTC currently supplies oil from the ACG, condensate from the Shah Deniz field, as well as the oil produced by SOCAR and a number of other countries in the Caspian region.

Oil exports from Azerbaijan will increase due to increased condensate production from Shah Deniz and oil transit through the BTC pipeline at the expense of Kazakh oil in addition to the already exported Turkmen oil. Kazakhstan currently exports 65-67 million tonnes of oil annually through the Caspian Pipeline Consortium (CPC) and the Atyrau-Samara pipeline. The CPC accounts for over 78% of Kazakhstan's oil exports. However, problems with exports due to repair works on the CPC system this summer have increased Astana's interest in alternative routes, especially via Azerbaijan.

In early July 2022, Kazakh President Kassym-Jomart Tokayev instructed state company KazMunayGas to develop the best options for implementing the Trans-Caspian International Transport Route (TCITR) in order to diversify Kazakhstan's oil supplies.

On August 16, Magzum Mirzagaliyev, head of KazMunayGas, arrived in Baku to meet with Rovshan Najaf, President of SOCAR, to discuss cooperation between the companies to develop the Trans-Caspian infrastructure.

Negotiations with Azerbaijan resulted in an agreement to export 1.5 million tonnes of oil through the Baku-Tbilisi-Ceyhan route starting from 2023, with a further increase to 6-6.5 million tonnes under consideration.

Kazakh Prime Minister Alikhan Smailov announced this plan and the development of a special roadmap for export diversification during a parliamentary hour held on November 10.

Transit of 1.5 million tonnes per year via BTC is a good start to diversify Kazakhstan's oil exports. Anything is better than remaining totally dependent on single export route. The hardest thing is to get started. There is no doubt that the volume will be increased. There will be time to prepare for exporting larger volumes, including using the available tanker fleet as well.