SECOND BREATH

The year of 2023 was a turning point in the operations of TotalEnergies (France) in Azerbaijan. Following the signing of a memorandum with the country's government in June to assess the construction of a 250MW solar power plant (SPP) and a 250W wind farm in Nakhchivan and Eastern Zangezur, the company started the long-awaited production of hydrocarbons from the Absheron field. Indeed, it was a delayed production, as the commissioning of the field has been postponed repeatedly since 2020. Yet, this significant event finally took place in the first decade of July 2023.

Currently, the first stage of development of the Absheron contract area is implemented, while the gas produced from the field is expected to meet exclusively Azerbaijan's domestic demand.

Justified expectations

Historically, it all started back in the 1990s, when the low prices of oil globally required a more rigorous approach to project selection and influenced exploration.

In 1997, Azerbaijan saw the signing of the first PSA-type contract for exploration and development of the promising Absheron structure between Chevron (30%) of the US, SOCAR (50%) of Azerbaijan and Total (20%) of France. At that time, the total volume of investment was estimated at $3-4 billion, with initial hydrocarbon reserves forecast at 1-3 trillion cubic metres of gas and 150 million tonnes of gas condensate.

Drilling of the first exploration well at Absheron began in December 2000 and was completed in mid-July 2001. The depth of the well exceeded 6,700 metres. Foreign shareholders spent about $75-78 million on drilling operations, but it resulted in gas inflows only. The outcome was so disappointing to foreign shareholders that they refused to extend exploration drilling, paid compensation to SOCAR, cancelled the contract in 2005.

Frustration of investors was natural, as the oil prices were at the level of $30 per barrel. This negated any desire to invest in a project that would not result in the large discovery of reserves from the first exploration well. There have been many such examples in the Caspian, including the fields of Oghuz, Yalama, Garabagh, Dan Ulduzu-Ashrafi, Inam, Nakhchivan, Zafar-Mashal, etc.

In the early 2000s, few would expect that Absheron would start the life anew, and hardly anyone would imagine it operated by one of its former shareholders, Total (now TotalEnergies).

A new production sharing agreement was signed on February 27, 2009 for a period of 30 years, with SOCAR and TotalEnergies being the equal shareholders (each 50%) of the project. A new exploration well confirmed the presence of significant hydrocarbon reserves in the area, estimated at 350 billion cubic metres of gas and 45 million tonnes of condensate.

In the first stage, the field will produce 4 million cubic metres of gas and 12,000 barrels of condensate daily. In total, it is planned to get 1.5 billion cubic metres of gas from the field annually. All the gas is intended for the domestic market of Azerbaijan.

According to TotalEnergies, total production during the plateau period will be 110,000 barrels of oil equivalent per day, including 11 million cubic metres of gas (4 billion cubic metres annually), and 35,000 barrels of condensate per day (about 2 million tonnes annually).

The development concept includes the drilling of three or more subsea wellhead wells to be connected to onshore infrastructure for processing and exporting gas and condensate.

This is the first gas-condensate field put in the operation in the Azerbaijani sector of the Caspian after an eleven-year break. Umid was the last field used for commercial development in the Azerbaijani sector of the Caspian back in September 2012.

As to the significance of Absheron, the development of the field will provide additional gas supplies to meet the growing demand in the local market. Plus, it will increase Azerbaijan's export potential, as the gas from the subsequent stage will be exported.

President of Azerbaijan Ilham Aliyev noted that the operation of the field would increase the energy security of Azerbaijan and the volume of exported in addition to volumes produced from the Shahdeniz field.

"We have very good yield from the field. The volumes of gas and condensate from a single well in Absheron is more than that of produced in Shahdeniz. It is true that Absheron falls behind Shahdeniz in terms of reserves. According to initial estimates, this volume is somewhere around 300 billion cubic metres, but I am sure there will be more than that," President Aliyev said.

According to Aliyev, the Absheron project has once again confirmed Azerbaijan's hydrocarbon potential. "SOCAR should probably start more active negotiations with its foreign partners regarding the second stage of development at Absheron. Frankly, we were expecting exploration works, but not such remarkable results. This was very good news and a very good answer to so-called experts trying to cast a shadow on Azerbaijan's energy potential. From now on our plans for gas exports will be accelerated and become larger in terms of volumes," Aliyev said.

Meanwhile, SOCAR expects to expand co-operation with TotalEnergies in the gas production. In particular, the French company may be involved in the development of the Babek prospective structure.

As to the plans of SOCAR, First Vice President Khoshbakht Yusifzade said that SOCAR intended to accelerate prospecting and exploration works at the Babek structure, thereby was negotiating with foreign partners. SOCAR signed an MoU with TotalEnergies to start these works on May 10, 2023.

The estimated reserves of the Babek prospective structure are twice as large as the reserves of the Umid field, i.e., 400 billion cubic metres.

Taking this into account, as well as TotalEnergies' focus on the development of renewable energy sources (RES) and the memorandums signed with Azerbaijan on cooperation in this field, we can see the growing interest of the French company in Azerbaijan.

New old projects

Whether to satisfy the demand in the domestic market or to boost exports from Azerbaijan, Absheron is just the first sign. In the next year, Azerbaijani authorities expect to produce the first gas from the deep-water Guneshli field of the Azeri-Chirag-Guneshli block of fields, with projected reserves of 300 billion cubic metres.

In the medium term, it is planned to put into operation a number of new fields in Azerbaijan, including Garabagh, Umid-Babek (Stage 2), which will seriously boost the country's exports.

Meanwhile, the geography of Azerbaijani gas supplies is also expanding. At the Global Media Forum held in Shusha, President Ilham Aliyev reiterated that by the end of 2023, two more European countries will join the list of importers of Azerbaijani gas (Hungary and Slovakia). In addition, Azerbaijan has intensified the negotiations with Albania. In particular, Baku and Tirana are working on the possibility of supplying 700 million cubic metres of Azerbaijani gas a year to Albania.

In addition, SOCAR is working on the construction of a gas distribution network in Albania. A feasibility study will be completed by the end of 2023, after which financing will begin. "These will be purely Azerbaijani investments in Albania, intended for the construction of the gas distribution network," President Aliyev explained.

As for doubling the capacity of the Southern Gas Corridor, Mr. Aliyev underlined that Azerbaijan relied exclusively on its own gas resources. Yet, Baku would welcome opportunities to act as a transit country for gas from the eastern coast of the Caspian Sea. This, however, requires the construction of the relevant infrastructure - the Trans-Caspian Gas Pipeline (TCGP). Unfortunately, this is impossible in the current situation. Either way, Azerbaijan considers the TCGP project unrealistic, as there is still no clarity about the sources of funding and construction plans.

"As for the Trans-Caspian pipeline, this project, its idea, is based on Turkmenistan's gas resources. Therefore, it is not for us to initiate it and not for us to invest in it. What can we do? We can provide our existing infrastructure or some territory to build new infrastructure on it," President Aliyev explained.

Getting gas from the east coast of the Caspian Sea to Europe is not easy. It will require the Trans-Caspian pipeline to be laid under the sea and the construction of a system similar to the Southern Gas Corridor from Baku to Europe.

"The key question is who will fund these important projects? We do not have an answer to it. Therefore, until we find out who will finance the project, I think that its implementation or even some ideas about it will look unrealistic," Aliyev concluded.

Aliyev also reminded that European banks were not ready to provide financing currently, thereby making the attraction of funds for the Trans-Caspian gas pipeline considerably difficult.

Nevertheless, Aliyev emphasised that if someone wanted to join the construction of the TCGP, Azerbaijan would be happy to cooperate. After all, it would allow Azerbaijan to receive additional transit duties and create new opportunities for co-operation with other countries.

Meanwhile, Turkmenistan's Ministry of Foreign Affairs released an official statement showing Ashgabat's commitment to the strategy of diversification of energy flows and its readiness to continue co-operation with partners on the TCGP.

The Turkmen Foreign Ministry sees no problem with this and believes that it is directly related to the demarcation of the seabed between Turkmenistan and Azerbaijan (!).

"Turkmenistan believes that there are no political, economic, or financial factors hindering the construction of the Trans-Caspian gas pipeline. The project is justified from the economic point of view and can make a tangible contribution to ensuring energy security in Eurasia," the Turkmen Foreign Ministry said.

The initiative was also supported by the European Union, which sees it as a way to diversify energy supplies.

The construction of the pipeline will ensure long-term and uninterrupted access to raw materials for European consumers, "while respecting the obvious benefits and interests of the transit side," the statement reads.

Apparently, Ashgabat is ready to continue discussions on the TCGP. According to the Turkmen Foreign Ministry, everything depends on the unresolved issue of delimitation of the Caspian Sea. In other words, it would be logical to assume that the next step should be bilateral negotiations with Azerbaijan on the delimitation of the Caspian Sea bed and the subsequent conclusion of agreement. There has been a long pause on the issue since the beginning of this year. In fact, there were no heated discussions on the issue last year either.

Nevertheless, if the TCGP project gets a green light, it will help Turkmenistan diversify and increase its exports of natural gas, which is one of the country's main sources of income. Azerbaijan's economy will also benefit from the project. It is hard to foretell whether the process will get off the ground. Intentions are not enough, because the key to success is motivation and persistence.