Major highlights of oil and gas sector of Caspian region in 2011

Major highlights of oil and gas sector of Caspian region in 2011

Azerbaijan, Baku, Dec. 29 / Trend /

The interest in the Caspian region and its hydrocarbon resources has rather expanded for the last 20 years. The development of Caspian oil and gas reserves and their delivery to the international markets can make a big contribution to the economy of many regions and play a role in getting the world economy out of a prolonged crisis. It would be interesting to recall some important developments in this part of the world that occurred in 2011.

January

Azerbaijan and the EU signed the Declaration on the Southern Energy Corridor in Baku. Both parties agreed to encourage the process of distributing available gas reserves within the Shah Deniz 2 project and other fields in Azerbaijan. The total goal is to create and rapidly put the Southern Gas Corridor on to an operational level, as well as to determine Azerbaijan as being the main gas supplier for this project. In the joint declaration both parties stated that the strategic corridor complements the EU existing gas corridors by transporting gas from Azerbaijani fields. By creating a route from the Caspian region to the European market, it meets the strategic objectives of both the EU and Azerbaijan to diversify gas supply routes and establish direct energy and transportation ties.

The State Oil Company of the Azerbaijan Republic (SOCAR) and National Iranian Gas Export Company (NIGEC) signed an agreement in Baku for long term supplies of Azerbaijani gas to Iran. Under the contract, which runs for five years, Azerbaijan will supply one billion cubic metres of gas to Iran in 2011 and the volume will increase in the coming years.

The Azerbaijani and Ukrainian governments also signed an agreement on measures to promote cooperation in the field of oil transportation through Ukraine.
The contract will see delivery of two billion cubic metres of liquefied gas in 2014, and five billion cubic metres of liquefied natural gas from Azerbaijan in 2015.
Transportation of Azerbaijani oil through Ukraine can be carried out via the Odessa-Brody oil pipeline.

July

A 52-million ton capacity load per year for Kazakh oil is expected to be available in the first quarter of 2015. Expansion is planned in three phases with full completion in 2014. The CPC expansion project sees the construction of 10 additional oil pumping stations (two - in Kazakhstan, eight - in Russia), six crude oil storage tanks in Novorossiysk and a third mooring facility at the CPC Sea Terminal, as well as replacement of 88 kilometres of the pipeline in Kazakhstan. The cost of the expansion will reach $5.4 billion. The main financing source will be CPC's own funds.

The State Oil Company of the Azerbaijan Republic ( SOCAR ) has obtained a portion of British BP shares in the development of the Azeri-Chirag-Guneshli (ACG) offshore fields in the Azerbaijani sector of the Caspian Sea for $585 million.

The increasing equity of SOCAR affiliate AzACG Limited Company in the ACG is up by 1.6461 per cent - 11.6461 per cent, occurred due to an acquisition from Devon's shares.
SOCAR has acquired part of the Devon stake from British BP, earlier obtained by BP from Devon.

Currently the proportional share of operator BP in Azeri-Chirag-Guneshli is 35.83 per cent, Chevron - 11.27 per cent, Inpex - 10.96 per cent, AzACG - 11.16 per cent, Statoil - 8.56 per cent, Exxon - 8 per cent, TPAO - 6.75 per cent, Itocu - 4.3 per cent, and Hess - 2.72 per cent.

September

Total announced the discovery of large reserves of natural gas and condensate on the Absheron field in the Azerbaijani sector of Caspian Sea.

The Absheron PSA shareholders are SOCAR (40 per cent) France's Total (40 per cent) and Gaz De France Suez (20 per cent).

The field's potential reserves are estimated at 350 billion cubic metres of gas and 45 million tons of condensate.

The Absheron block is located at a depth of 500 metres in the Caspian Sea, 100 km from Baku.

Uzbekneftegaz, South African Sasol Synfuels International (Pty) (Sasol) and Petronas International Corporation (Petronas) signed a trilateral investment and project agreement to build a synthetic liquid fuel plant on the basis of the Shurtan Gas Chemical Complex (Kashkadarya) in September 2011. The plant will process 3.5 billion cubic metres of gas and produce 672,000 tons of diesel oil, 278,000 tons of air fuel, 361,000 tons of naphtha and 63,000 tons of liquefied gas. The GTL plant with a preliminary cost worth 2.739 billion is planned to be constructed in 2017.

October

All three pipeline projects, aimed at transporting Azerbaijani gas to Europe under the second phase of the project on development of the Shah Deniz gas-condensate field submitted final proposals to the Azerbaijani side, the State Oil Company of the Azerbaijan Republic (SOCAR) told Trend on Monday.

Pipeline projects Nabucco, ITGI and TAP have submitted their proposals to the Shah Deniz-2 consortium.

The Azerbaijani side is going to deliver 10 billion cubic metres of gas per year to Europe under the Shah Deniz-2 project through the chosen pipeline.
The Shah Deniz-2 consortium will review proposals submitted in accordance with previously announced criteria, including commercial attractiveness, ability for project realisation from the technical and financial point of view, engineering and design work, management, coordination and transparency and the possibility of a phased scale-up and other criteria.

Moreover, the Shah Deniz project team is considing the fourth possible variant of export proposed by BP. It is one of the Shah Deniz major shareholders. The decision on the route will be taken during the second quarter of 2012.

The Shah Deniz field's gas reserves are estimated at 1.2 billion cubic metres.
The contract to develop the offshore Shah Deniz field was signed on June 4, 1996. Partners to the agreement are: BP (operator) - 25.5 per cent, Statoil - 25.5 per cent, NICO - 10 per cent, Total - 10 per cent, LukAgip - 10 per cent, TPAO - 9 per cent and SOCAR-10 per cent.

The independent British auditor Gaffney, Cline & Associates said that the Galkynysh gas field (South Yolotan - Osman) in Turkmenistan ranks second in the world. The maximum estimate of its reserves will reach 21.2 trillion cubic metres of gas, average - 16.4 trillion, minimal - 13.1 trillion.

Uztransgaz, a division of the Uzbekneftegaz National Holding Company which controls the movement of gas transportation and supply in Uzbekistan and the PetroChina International Company, a division of the China National Petroleum Corporation (CNPC) signed a contract to supply Uzbek gas to China. The contract was signed on the basis of an intergovernmental agreement on the principles of the construction and operation of the Uzbekistan-China gas pipeline and the agreement of the basic conditions of the contract of purchase and sale of natural gas between Uzbekneftegaz and CNPC, signed this year.

The terms or volume of natural gas supplies envisaged by the export contract were not indicated.

Initially, natural gas from Uzbekistan will be supplied through the second branch of the gas pipeline. After the third branch is constructed, the technical possibilities for the export of Uzbek gas will significantly increase.

In accordance with the framework of the agreement, China plans to buy 10 billion cubic metres of natural gas in Uzbekistan annually.

Turkey and Azerbaijan signed a package of gas agreements including the cost of Azerbaijani gas for Turkey from the Shah Deniz-2 and gas supplies to Turkey from this field after 2017 and an agreement on Azerbaijani gas transit via Turkey. The transit agreement is required to implement Azerbaijani gas transportation projects to Europe within the Southern Gas Corridor.

November

As a result of Bulgarian President's visit to Baku, a deal was concluded to sell one billion cubic metres of Azerbaijani gas to the country by 2015.

The State Oil Company of Azerbaijan (SOCAR) signed agreement with Exxon Mobil over acquisition of its Swiss division, Esso Schweiz GmbH.

Following the acquisition of Esso Switzerland, SOCAR has taken over a retail network consisting of 170 filling stations, a division specialising in fuel marketing for industry and wholesale clients (this division is responsible for household fuel and balloon gas sale to independent suppliers throughout Switzerland), the gas filling station Wangen-Olten, filling stations, joint ventures specialising in aircraft fuel at Geneva and Zurich airports and the Swiss Provision and Supply Company that controls joint ventures managing terminals and pipelines.

After talks between Turkmenistan and Pakistan, a joint declaration on the sale of gas via the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline project was signed in Islamabad.

The implementation of the largest regional gas project TAPI and putting it into operation is a key factor for economic growth in Pakistan whose industrial and infrastructural development is directly dependent on energy supplies. The basic document for the promotion of TAPI is the inter-state agreement on the start of TAPI, signed in Ashgabat on a high level in December 2010.

Turkmenistan and China signed the agreement on additional gas supplies via the Turkmenistan- China pipeline. The contract sees an increase in gas supplies by 25 billion cubic metres of natural gas per year. This will bring the total volume up to 65 billion cubic metres of gas per year taking into account the previous agreement.

December

The Kazakh government and shareholders of the Karachaganak oil and gas project signed an agreement to transfer a 10 per cent share in the project to Kazakhstan. The project participants sold part of their shares in proportionately.

In addition, taking into account Kazakhstan's joining the project as a participant, the country agreed to allocate an additional quota to the Caspian Pipeline Consortium (CPC) to the sum of 0.5 million tons per year with a further increase up to two million tons per year.

Karachaganak with reserves of 1.2 billion tons of oil and condensate and more than 1.35 trillion cubic metres of gas is one of the major oil and gas fields in the world. About 49 per cent of all gas and 18 per cent of all oil production are extracted from this field.
The oil and gas field being developed is the Consortium Karachaganak Petroleum Operating BV. The Consortium members are the British BG and Italian Eni (each having 32.5 per cent in the project), another 20 per cent is owned by the U.S. company Chevron and 15 per cent - Russian Lukoil.

Gazprom intends to increase its purchase of Azerbaijani gas by 1.5 times - up to three billion cubic metres compared to the planned two billion cubic metres for 2011.
A corresponding agreement was reached at a working meeting of Gazprom Board Chairman Alexei Miller and President of the State Oil Company of Azerbaijan (SOCAR) Rovnag Abdullayev.

Uzbekistan and China have commenced constructing the third branch of the Central Asia- China gas pipeline. The length of the Uzbek sector will reach 529 kilometres. The design capacity of the third branch is 25 billion cubic metres of gas a year with the project cost standing at $ 2.2 billion.

Gas deliveries are expected to begin through the third part in January 2014 and reaching the planned capacity in December 2015. The project will be financed by loans from the Chinese State Development Bank, as well as direct investments of China National Petroleum Corporation (CNPC).

Turkey and Azerbaijan signed a Memorandum of Understanding to establish a consortium which will construct a gas pipeline to transport gas from Azerbaijani Shah Deniz field to Europe through Turkey.

The construction of Trans Anadolu gas pipeline (TANAP) is required for the export of most of the 50 billion cubic metres of gas that Azerbaijan intends to produce in 2025.
The State Oil Company of Azerbaijan (SOCAR), Turkey's state-owned pipeline operator Botas Boru Hatlari Ile Petrol Tasima AS and oil company Turkiye Petrolleri A.O. will be founders of the consortium, with more international oil and gas companies becoming involved in the future.

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