Azerbaijan looking beyond latest contract success, official says

March 17, 2014
Azerbaijan will continue to develop partnerships with other countries as it tries to export more natural gas west from the Caspian basin, an official of the country's state-owned oil company said.

Azerbaijan will continue to develop partnerships with other countries as it tries to export more natural gas west from the Caspian basin, an official of the country's state-owned oil company said. This will involve not only potential customers, but also other producers in the region, he added.

"We're really looking hard to make this 37th oil and gas contract Azerbaijan has concluded the contract of the 21st century," Vitaliy Baylarbayov, deputy vice-president for investment and marketing at State Oil Co. of the Azerbaijan Republic (SOCAR), said of the Dec. 17, 2013, agreement, which represented the final investment decision for the second stage of development of Shah Deniz gas field.

"This achievement to spend money and build something which we've all tried to establish as a strategic goal involved many people and groups," he said during a Mar. 4 appearance at the Center for Strategic & International Studies.

"The choices were not easy, financially or technically," he maintained, adding, "But because of intensive negotiations within the partnership itself, we reached an agreement we all could celebrate."

He said, "What we have is a project of international scale. Seven countries and six different regulatory systems are directly involved. It's not easy to satisfy regulatory requirements in Georgia, in Turkey, in Azerbaijan, and in Europe. Many companies also will be involved, both from outside and in our own country."

Condensate is an important part of developing a field roughly the size of Manhattan, Baylarbayov noted, adding that about 55,000 b/d of natural gas liquids currently are being produced. "We've had conversations and negotiations within the partnership about how to develop it further, to maximize the development's effectiveness, the resources the field has, the recovery of those resources, and future development," he said.

'Already a project'

"Stage 3 already is a project for us," Baylarbayov said. "We're planning to use new technologies that have never been tried such as subsea compression, which some of the best companies in the world are working on at the moment. This is the core of this new stage's development of 0.2-0.3 trillion cu m of additional resources. We believe this will take place."

The gas has not been contracted or produced, "but it's something we have in mind as we consider new pipelines from Azerbaijan to Italy's main gas distribution system by 2019, when we expect to begin deliveries to customers along its entire route," he continued. "There is a possibility to build connectors from this network which doesn't exist yet to countries like Bulgaria and pipelines like Nabucco."

It's important to Turkey and Georgia that SOCAR and the Shah Deniz consortium are on time with the pipeline's second phase, Baylarbayov said.

"Azerbaijan already supplies gas as well as oil products to Georgia, but it's also an important transit country that gets a transit fee in kind—as gas—at a fair price," he said. "We expect to continue playing an important role in it and Turkey's energy security, which also is relying on Shah Deniz supplies."

'A huge commitment'

Companies involved along the project's value chain already have said they intend to spend more than $45 billion on this second stage, he said.

"It's a huge commitment by producers, who we believe are extremely committed to development, as well as a British pipeline company which also is very interested in seeing upstream development move ahead," Baylarbayov said. "Our buyers are present, including those who are shareholders of the Trans Adriatic Pipeline, an important element of this system."

This supply corridor also is important to other Caspian basin producers, he indicated. "Without Shah Deniz, [it] wouldn't happen. But it will be available to central Asian supplies like Kazakhstan and Turkmenistan which want to export to European customers," Baylarbayov said. "We're not prejudiced. We're ready to work with anyone."

The signing of a contract and decision to move forward on the Shah Deniz project's second phase in December was significant and a welcome development, according to Elizabeth Urbanas, director of the Russian and Eurasian Affairs Office at the US Department of Energy, who also participated.

It's important because it increases Europe's energy security and expands global markets, allies interests of Caspian basin nations with other countries, and promotes the economic development of Caucasus region nations as well as countries along the route, she observed.

"To me, the real challenge here is a dog that hasn't barked yet, and that's Ukraine," added J. Robinson West, a CSIS senior advisor who also spoke. "Other projects have been discussed for years, but this is the first where contracts justifying the investments have been signed. SOCAR has a real opportunity to be the architect of the gas business feeding into countries which have been vulnerable to supplies from a single supplier, namely Russia."