Five points of Iran-Azerbaijan energy cooperation

Five points of Iran-Azerbaijan energy cooperation

By Dalga Khatinoglu

Iran and Azerbaijan have the potential to cooperate in the oil and gas sector, since the two countries boast huge deposits of oil and gas, and are capable to explore, produce, and export oil and gas. In October, the National Iranian Oil Company signed a memorandum of understanding in Baku to conduct exploration operations in the Caspian Sea.

Iranian Oil Minister Bijan Namdar Zanganeh, accompanied by a delegation led by President Hassan Rouhani, arrived in Baku last week. In an interview with the Trend Agency, Zanganeh said in addition to the participation in the development of Azerbaijan's Shah Deniz gas field, Tehran could cooperate with Baku in other projects.

"In order of importance, cooperation in the development of Caspian Sea fields, cooperation in the establishment of a pipeline to export gas from the two countries to Europe, issues related to the underground storage of Iranian gas in Azerbaijan, transaction of oil products, and investment in other countries, are the most important subjects."

Joint fields

For the time being, Azerbaijan and Turkmenistan have a dispute over the ownership of the Sardar field in the Caspian Sea, but in Iran case, it shares the Gonbadli gas field with Turkmenistan and has disputation over Alborz section in Caspian Sea with Azerbaijan. Iran is keen to participate in the development of the Caspian Sea fields. Iran is cooperating with Azerbaijan for a decade to develop the Shah Deniz gas field in Azerbaijan.

The gas field holds over one trillion cubic meters of recoverable gas reserves. Currently, the gas field produces 27 million cubic meters of gas and 50,000 barrels of condensates per day in the first phase. Iran has a 10 percent share in the project.

The second phase of the gas field is projected to come on stream by 2018-2019, increasing the gas output by 16 billion cubic meters annually. So, the first and the second phases of the field will produce 25 billion cubic meters of gas. Plans are to export the second phase's gas output to Turkey and Europe.

Gas export

Zanganeh also referred to the issue of exporting natural gas to Europe through establishing a pipeline. The second phase of the Shah Deniz has envisioned the establishment of a pipeline that will pass through Azerbaijan and Georgia to reach Turkey. Then, the Trans Anatolian Natural Gas Pipeline will transfer gas to western part of Turkey and the Trans Adriatic Pipeline will transfer gas to Eastern Europe and eventually to Italy.

Earlier, Iranian gas was supposed to be transferred to Europe via the Nabacco Pipeline, which was replaced by the Trans Adriatic Pipeline. But, sanction on Iran's energy sector has hindered the plan. If the EU sanctions on Iran are lifted, Iranian gas can join to TAP.

Gas storage

The Iranian oil minister also said that about the issue of storing Iranian gas in Azerbaijan, the two countries are to hold negotiations over the coming days.

Iran's gas production in winter is less than the country's consumption. But in summer Iran produces several billion cubic meters of surplus gas. The country stores some of the surplus gas in Shoorijeh and Sarajeh gas storage facilities to pump to the national gas network in winter. The facilities' stored gas stood at 2 billion cubic meters in autumn.

Azerbaijan has two natural gas storage facilities, Kalmaz and Garadag, with the total capacity of 5 billion cubic meters. The two facilities currently store only 3 billion cubic meters of gas, so Iran can store around 2 billion cubic meters of its surplus gas in the facilities, and receive them back in winter.

Joint investments

Another issue that the Iranian minister mentioned is trading oil products and mutual investments.
Azerbaijan invested $12 billion in foreign countries in the previous year. The lion's share of the investments was made in Turkey. The Trans Anatolian Natural Gas Pipeline will be constructed mainly with Azerbaijan's finance. Baku and Ankara have also signed several billion dollars worth of contracts for developments of downstream projects in the oil and gas sector (including petrochemical and refinery, pipeline, etc). Iran can also take part in the projects and gain some share.

Oil and gas cooperation

According to Zanganeh, Tehran welcomes Baku and the State Oil Company of Azerbaijan Republic (SOCAR) to take part in the development projects of Iranian oil and gas fields, as well as the country's petrochemical sector.

"Iranian investors are also willing to invest in Azeri projects," he said.

The Iranian part of the Caspian Sea have been studied by Azerbaijani equipments two times - once before the fall of the Soviet Union, and the second time in 1994 and 1995 - to discover possible hydrocarbon reserves, but to no avail. Until 2011 the existence of oil and gas reserves in Iran's share of the Caspian Sea was unclear. Iran was carrying out exploratory operations with Pejvak vessel in the Caspian Sea in the past decades, but the ship caught fire during presidency of Mahmoud Ahmadinejad. Pejvak ship performed 3-D seismographic operations in the Caspian Sea. Azerbaijan possesses Seismic vessels and can help Iran in this regard.

Iran announced in 2011 that while drilling a 1,000-meter well below the surface of the Caspian Sea, the country found a gas field at the depth of 700 kilometers. A year later Tehran announced the field was in fact an oil field with a gas layer.

The Amir Kabir drilling rig's crane crashed last March in the mentioned field. Baku has the necessary equipment to repair the crane.

Iran can rent this drilling rig to Azerbaijan. Baku, for example, has rented three drilling rigs to Dragon Oil Company to carry out operations in the Turkmen part of the Caspian Sea. Iran has also rented a rig to Turkmenistan.

Zanganeh also said that the two countries have not negotiated about buying gas from Azerbaijan. "We currently swap gas."

Azerbaijan daily sends 1.2 million cubic meters of gas to Iran. Tehran reduces its share and delivers one million cubic meters to Nakhchivan.

Dalga Khatinoglu is a specialist on Iran's energy sector and head of Trend Agency's Iran News Service

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