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2016-05-19 19:50:00

AZERBAIJAN NEED GAS

AZERBAIJAN NEED GAS

 

AZERBAIJAN SHAH DENIZ GAS PIPELINE

Whatever hopes the European Union and Turkmenistan may have had for a pipeline that would carry Turkmen gas across the Caspian to Europe are now being steadily buried as Azerbaijan moves to import gas from Russia to resolve its domestic gas shortfall.

Socar President Rovnag Abdullaev disclosed last week that Azerbaijan was in the process of negotiating an agreement under which it would purchase 3-5bn m³/yr of gas from Gazprom.

It's a relatively small amount, but it solves an immediate problem faced by Azerbaijan, which is that while it is on the verge of becoming a major gas exporter, it is suffering from a shortage of gas for domestic use.

By turning to Russia to secure that gas, Azerbaijan is almost certainly bringing down the curtain on an extended effort to secure Turkmen gas, notably gas being developed by Malaysia's Petronas Carigali just 100 km from Azerbaijan's own giant Shah Deniz field.

The most important element of the Abdullaev announcement on 11 May is that it came from the head of Socar himself. Previously, when the issue of possible Azerbaijani imports of Russian gas came up, Socar had stressed that this was not a matter for Socar, but for the companies seeking to purchase the gas for their own use, notably the privately-owned AzMeCo and the state-owned electricity company Azerenergy.

Abdullaev himself was at the centre of Azerbaijan's efforts to secure Turkmen gas by means of a trans-Caspian link, visiting Turkmenistan five times in the last two years.

There were other encouraging signs for those who thought that Turkmenistan might look favourably on the development of a Trans-Caspian Gas Pipeline (TCGP) in the face of increasing concerns that the ending of its gas sales to Russia and reductions in sales to Iran meant that it was becoming almost wholly dependent on China for its gas exports – and these constitute by far the largest element in government revenues.

Last year Petronas moved to take a 15.5% stake in Shah Deniz, raising the possibility that it would seek to use Azerbaijan's pipeline systems to carry gas from Turkmenistan's Block One fields, for which it has a production sharing agreement, to market, either in Azerbaijan itself or, via the Southern Gas Corridor's pipeline system, to Turkey and/or European destinations beyond Turkey.

Azerbaijan expects gas production to increase modestly this year to around 29.3bn m³ from last year's 29.1bn m³. However, as NGE has noted previously, a fall in Socar's own production means that existing export commitments risk leaving it short of gas for domestic use.

In 2020, Azerbaijan's development of the giant Shah Deniz field will indeed make it a very significant gas producer. But this gas is essentially earmarked for export, and under existing contracts will continue to be exported even though Azerbaijan's production for domestic purposes is facing tough challenges.

Getting Azerbaijan's gas balance right is clearly one of Socar's main priorities. Abdullaev indicated his confidence that Socar would indeed be able to ensure long-tern supplies for the domestic market as well as meet its export commitments when he said that most of the gas to be purchased from Russia would be pumped into underground gas storage.

It is not yet completely clear that the negotiations with Gazprom, which have been going on for several months, will be successful. After the latest round of talks, Abdullaev simply said: "We are waiting for their response. The ball is in their court."

The company's emphasis on development of the country's gas resources, as opposed to its oil resources for which it also has responsibility, was further demonstrated by Socar Vice President Tofig Gahramanov in a presentation to a business club in Baku on 11 May. Gahramanov said that Socar's Development Strategy 2025 was now ready and that it was setting gas projects as the priority. Gahramanov has previously said that the strategy document, which has not yet been published, would include some $26bn in planned investments.

"The strategy focuses on gas projects – Shah Deniz, Absheron, Umid, etc – which are followed by oil projects: Azeri- Chirag-Guneshli, shallow water around the Absheron Peninsula," Gahramanov said. He also indicated that there would probably be further delays regarding the implementation of a massive $17.1 bn project to construct an oil and gas processing and petrochemical complex at Sangachal, on which construction was to have started in 2015.

"Negotiations with investors on this complex are ongoing. The first stage requires $8.45bn, given interest on loans. The priority of this project is not so actual," Gahramanov said.

The first phase of this project involves building a 12bn m³/yr gas processing plant capable of producing 670,000 metric tons/yr of polyethylene and 550,000 mt/yr of polypropylene. This was originally due to enter operation in 2022-23. The second phase is to include an 8.6mn mt/yr oil refining complex to enter service at some stage in the 2030s.

naturalgaseurope.com

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Earlier: 

AZERBAIJAN AIMS FOR 50 BLN 

SHAH DENIZ $1.5 BLN 

SOUTHERN CORRIDOR FUNDING 

BP & AZERBAIJAN COOPERATION 

EUROPEAN GAS COMPETITION 

EAST WEST PIPELINE $2.5 BLN

 

 

Tags: AZERBAIJAN, RUSSIA, GAS, SOCAR, SHAH, DENIZ, GAZPROM

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