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 | | Azerbaijan - Helping Supply Caspian Energy Resources to World Markets |
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The general consensus at Baku's recent oil and gas exhibition was that there are still enough hydrocarbon resources in Azerbaijan to attract foreign investors. This idea was confirmed during the conference "The Decade of Achievements - Perspectives and Opportunities" within the framework of the 10th Caspian Oil & Gas Exhibition and Conference, which was held in Baku 3-6 June.
Minister of Energy of Azerbaijan Medjid Medjidov stated that Azerbaijan's proven reserves of oil and gas are estimated, respectively, at 6 billion tons and 4 trillion to 5 trillion cubic meters. Proven reserves of the Azeri-Chirag-Guneshli fields are estimated at about 730 million tons, and "Shah Deniz" is considered to contain gas deposits of 1 trillion cubic meters.
However, as SOCAR President and BTC Board Chairman Natik Aliyev pointed out, these evaluations are actually small in comparison with ones made by NATO experts, who estimate that reserves in Azerbaijan total about 30 billion tons. Aliyev stressed that the average daily rate of oil production within the Early Oil Project has already reached 120 thousand barrels, and that BP intends to increase this to 140 thousand barrels per day in the near future.
Drew Goodbread, the head of ExxonMobil-Azerbaijan Operating Company, thinks that Azerbaijan has not had the last word yet. He stated that today Azerbaijan is open for foreign investors. So far, Exxon has invested about $1 billion in Azerbaijan. The company's trust in the Azeri shelf is reflected by the construction of the DSS-20 well, which will allow drilling taking into account a 1km water horizon, as well as further drilling of the Caspian seabed to a depth of 10 km. Completion of the DSS-20 is scheduled for the autumn of 2003.
The Chinese Factor
The Chinese are increasing their share in the Azeri oil market. At present, a $130 million share of the $7.3 billion worth of projects being realized by oil companies belongs to Chinese companies, which are operating in the "Kursengi," "Karabagli" and "Gobustan" fields.
On 4 June, during the above-mentioned conference at the Hyatt Regency hotel, the president of SOCAR and the vice-president of the Chinese oil company Shengli Ma Mingue signed an agreement on the rehabilitation, exploration, development and production sharing in the block that includes the "Pirsaat" oil field. Previously, on 9 April 2003, the same parties signed a contract on the basic commercial principles and regulations of the PSA.
According to the agreement, Aliyev said, 50% of the shareholding belongs to the operator, which is Shengli, 25% belongs to SOCAR, and the remaining 25% is still free. The agreement covers a period of 25 years, with a possible 5-year prolongation. During the 3-year exploration term, foreign shareholders will conduct three-dimensional seismic exploration and also drill two exploration rigs. If necessary, there is a possibility to have an additional two-year exploration term, during which two more exploration rigs would be drilled. The distribution of the profitable hydrocarbons will be traditionally based on R-factor. Azerbaijan's share in this contract will be, depending on the volume of investment and validity term of the agreement, between 40% to 90%.
The field is currently being exploitating. There are 25 rigs in the exploitation fund, 10 of which annually produce about 8,000 tons of oil. Experts estimate that residual oil deposits are 7 million tons. According to the vice president of Shengli Ma Minge, the Chinese company is planning to invest $140 million in the rehabilitation of the field and increase the extraction to 200,000 tons per year.
The Black Sea Pitfall
Of course, for the hydrocarbon potential of the Caspian region to be fully realized, the problem of moving the supplies of the "black gold" to world markets should be solved.
Almost all of the pipelines operating in the Caspian region - Baku-Novorossiysk, Baku-Supsa and CPC (which links the Tengiz field to the Russian port of Novorossiysk) - run to the Black Sea. At the conference, Russian Foreign Minister Victor Kalyujniy - who also serves as the President's special representative on the legal status of the Caspian Sea - described the situation in the Black Sea region. Last October, he said, Turkey adopted new regulations on navigation through the Black Sea Straits. Kalyujniy thinks that implementation of this new order would lead to a substantial restriction of transportation, significantly reducing the transit of oil tankers through the Strait. According to information given by ship owners, the authorization of these regulations would cause a drop in traffic and a subsequent financial loss.
In this regard, Kalyujniy called on Azerbaijan for solidarity with the positions of other Caspian states and companies. Azerbaijan, however, has already made its choice by launching the construction of the new pipeline to the Mediterranean Port of Ceyhan, Turkey.
Turkey's involvement in the development of the energy corridor from the Caspian region is a matter of great importance, as Turkey could be considered as the gateway for transporting energy resources to European countries. Furthermore, it is Turkey that maintains control over the Bosporus Strait, which is the only entry-point from the Black Sea into the Mediterranean.
Kazakhstan and Turkmenistan
The energy corridor through Azerbaijan, Georgia and Turkey would be incomplete without the participation of Kazakhstan and Turkmenistan. During the OSCE Istanbul Summit on 18 November 1999, the presidents of Azerbaijan, Turkey, USA, Kazakhstan and Turkmenistan signed declarations, including agreements on the beginning of the construction of the Main Export Pipeline Baku-Tbilisi-Ceyhan, as well as the Transcaspian gas pipeline Turkmenbashi-Ceyhan. This pipe was supposed to be built along the seabed of the Caspian Sea and through the territory of Azerbaijan, Georgia and Turkey, parallel to the BTC route.
The issue now concerns Kazakhstan's directly joining the BTC pipeline. Work on the organization of the sea transport corridor Aktau-Baku has already begun. According to the governing director of the "KazMunayGas" Stock Society, Karigeldi Kabildin, a special transport company will be created for this corridor and will sign a contract with BTC Co. Kazakhstan is planning, Kabilidin says, to increase the volume of oil extraction from today's 47.2 million tons to 150 million tons by 2015. And what should never be forgotten, he said, is that oil converts into a "gold coin" only after it has been exported to world markets.
However, real success of this energy corridor can begin only if construction of the Transcaspian Gas Pipeline is realized. This route would enable exports of gas to reach Turkey and Europe via the Transcaspian route: Kazakhstan-Turkmenistan-Azerbaijan-Georgia-Turkey. According to Kabildin, Kazakhstan intends to increase its gas extraction to 30 billion to 40 billion cubic meters by 2015 (current levels are at about 14.5 billion cubic meters).
A key player who could help ensure a full-scale launch of this energy corridor is Turkmenistan, whose "special position" on the status of the Caspian Sea, as well as on other matters, became one of the main problems in the development of the West-East corridor through the "Great Silk Route." But as time passes, Turkmenistan is beginning to consider not only its huge gas reserves, but also perspectives of its oil deposits. When Turkmenistan at last decides to fully use its shelf treasure in the Caspian Sea, it might consider more attentively the mutually profitable cooperation with Azerbaijan.
By 2024, i.e. the beginning of a possible oil-extraction decrease in Azerbaijan, the energy transportation infrastructure will be pumping crude hydrocarbons from the Eastern shores of the Caspian Sea. Azerbaijan will then have an opportunity to help substitute decreasing revenues from oil with profits from transportation.
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