Eric Watkins
Oil Diplomacy Editor
The US Geological Survey recently released a new assessment of the undiscovered oil and gas resources of the Caspian Region that reconfirms existing estimates of the area's strategic value as a source of energy, especially for Europe.
Using a geology-based assessment methodology, the USGS estimated mean volumes of "technically recoverable, conventional, undiscovered petroleum resources at 19.6 billion bbl of crude oil, 243 tcf of natural gas, and 9.3 billion bbl of natural gas liquids for the Caspian Sea area."
Figures like that are bound to create a stir in the capital cities of the Caspian region and as far away as Brussels where the European Parliament's energy committee recently called for stepped up work on the Southern Corridor that aims to link the EU gas market directly with Caspian-Middle East basins.
In particular, the strategic objective of the Southern Corridor is to achieve a supply route to the EU of 10-20% of EU gas demand by 2020, equivalent roughly to 45-90 billion cu m/year of gas (OGJ, Nov. 29, 2010, p. 16).
Estimates increased
The importance of the Caspian Region to the EU was based on the bloc's earlier estimates that put Caspian gas reserves at 90.6 trillion cu m, or more than twice Russia's proved reserves of 44.2 trillion cu m.
Clearly, the USGS report has underlined those stakes by essentially equaling the estimated reserves of the Caspian Region's gas, the commodity most needed in Europe's energy future.
The Caspian Region's importance received a further boost in late 2010 when the State Oil Co. of the Azerbaijan Republic (Socar) announced the results of a first exploration well at the Umid structure in the Azeri sector of the Caspian Sea, confirming previous reserves estimates (see map, OGJ, May 22, 1995, p. 32).
The Umid well was drilled to a total depth of 6,500 m, and Socar Pres. Rovnag Abdullayev estimated recoverable volumes at a minimum of 200 bcm of gas and 30 million tons of condensate, which makes Umid Azerbaijan's second largest discovery after Shah Deniz to the northeast.
According to analyst BMI, the discovery could provide a major boost to Azerbaijan's gas reserves and suggests upside potential to neighboring Babak structure, which Socar estimates holds at least 400 bcm.
Prospects boosted
Analyst BMI said, "If either field is proved commercial, it would boost the prospects of the Nabucco pipeline project, which has struggled to source sufficient volumes of gas."
In an effort to determine the full extent of the Umid discovery, Socar plans to begin drilling a second exploratory well in mid-2011, according to the firm's vice-president for geology, geophysics, and mining, Khoshbakht Yusifzade.
"A few months will be spent on preparations for drilling the second well," Yusifzade said.
BMI is currently forecasting Azeri gas production to increase to 21 bcm by 2015 from 14.8 bcm in 2009, rising further to 32 bcm by 2017 as the second phase of Shah Deniz field comes on stream.
"This could boost prospects for the EU-backed Nabucco pipeline project, which has been hindered by doubts over whether it can source sufficient volumes of gas to fill the route," the analyst said.
As a sign of that future production, a consortium led by BP PLC said it will spend $3 billion to increase capacity at a pipeline in Azerbaijan carrying natural gas from the Shah Deniz second stage.
Pipeline capacity to be tripled
Rashid Javanshir, head of BP's subsidiary in Azerbaijan, said that the capacity of the 700-km South Caucasus Pipeline will be increased to 24 bcm a year from 8 bcm a year at present.
According to Javanshar, the $3 billion upgrade of the line, which stretches from Baku in Azerbaijan to Erzurum in eastern Turkey, is part of the overall cost of developing the Shah Deniz second stage, which is estimated at $20 billion.
BP says that Shah Deniz full field development is expected to deliver an additional 16 bcm/year of gas and up to 100,000 bbl of condensate, tripling overall production from the field.
The development will include new offshore platforms, up to 30 subsea wells, over 500 km of subsea pipelines, and a major expansion of Sangachal Terminal, in addition to expansion of the South Caucasus Pipeline.
Earlier in 2010, the governments of Azerbaijan and Turkey signed an agreement for gas sales to Turkey and gas transit across Turkey, which BP said "sets the frame for Azerbaijan to become an important supplier of gas to the EU through a new 'Southern Corridor.'"
BP, Socar sign new agreement
These developments in the region follow a statement by BP in October 2010 that it signed a 30-year agreement with Socar for the joint exploration and production of a major Caspian Sea gas prospect.
"BP and Socar announced today they had signed a new production sharing agreement on joint exploration and development of the Shafag-Asiman structure in the Azerbaijan sector of the Caspian Sea," the two firms said in a joint statement.
The Shafag-Asiman block is located 125 km southeast of Baku, and covers 1,100 sq km of previously unexplored territory, a point underlined by BP's newly installed chief executive, Bob Dudley.
"This is an important day for Azerbaijan and BP as it marks the beginning of our bilateral cooperation in exploration and development of a new offshore block," Dudley said.
"With Socar and our partners, BP has helped to establish Azerbaijan as a world scale oil and gas producer, and I believe the significant remaining potential will continue to make it relevant for decades to come.
"We in BP very much hope that the combination of our leading technology and expertise with Azerbaijan's experience and potential will lead to new discoveries in the Caspian," Dudley said at the signing in Baku.
Petronas starts Turkmen production
Meanwhile, new discoveries elsewhere in the region are coming on line.
Malaysia's state-owned Petronas was to have begun gas production from Block 1 in the Caspian off Turkmenistan by the end of 2010.
During the first stage of development output will total 5 bcm/year of gas, according to Yagshigeldy Kakayev, who heads Turkmenistan's State Agency on Management of Hydrocarbon Resources.
Ironically enough, that level of production already presents a problem for Turkmenistan, albeit a problem that Europe will doubtlessly welcome.
"Already in 2011, Turkmenistan needs to find a market for 5 bcm to be produced offshore by Malaysia's Petronas, and we simply don't have anywhere to send it," said Turkmen Deputy Prime Minister Baimurad Khodzhamukhamedov.
Clearly, the Caspian Region is gas-rich and on course to becoming gas richer if all of the estimates are right. That will certainly mean solutions for a lot of problems, but it may also mean, as the Turkmen example suggests, some emerging problems that will require new solutions of their own.
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