Review of oil and gas operations in Azerbaijan (2012)

1. FEC

а) OIL AND GAS

In 2012, Azerbaijan produced 42.98 million tons of oil and gas condensate, or 5.3 percent less than in 2011, the State Statistics Committee said.

The main volume of oil production last year accounted for Azeri-Chirag-Guneshli block of oil and gas fields and Shah Deniz gas condensate field, which are developed in cooperation with foreign partners.

Gas production in 2012 totalled 17.24 billion cubic meters (excluding associated gas), or 5.4 percent more than in 2011.

In 2011, the country produced about 26 billion cubic meters (including passing gas) compared to 26.23 billion cubic meters in 2010.

2012 in the mining industry in the country was marked by a sharp decline in oil production at the largest Azeri-Chirag-Guneshli fields. President of Azerbaijan Ilham Aliyev noted this problem at the meeting of the Cabinet of Ministers in October 2012. Harsh mistakes of the bp-operated international consortium [the Azerbaijan International Operating Company] have led to a sharp decline in oil production on the Azeri and Chirag fields, Azerbaijani President Ilham Aliyev said. President Aliyev noted that reaching the peak in oil production and its subsequent decline is a natural process, but the problem itself is in failure to fulfill the presented forecasts.

While commenting on the reasons for the decline in production volumes at the ACG, specialists said they are technical. After BP's problems in the Gulf of Mexico, the company preferred the preventive measures to maintain the production level, as a result, it failed to fulfil its obligations. The primary task of the consortium was to stabilize the level of production in the field.

Within a short time, by the end of the year, As a follow up to discussions between BP and SOCAR to manage oil production, BP has completed an in-depth review of Azeri-Chirag-Gunashli (ACG) field performance. The purpose of the review was to analyse plans for 2013 production delivery and identify opportunities to respond to the technical challenges presented by the field. Plans have been developed and actions have been agreed to access global technology experience in the areas of reservoir pressure and decline management; well management and system optimisation; as well as sand control.

Partners of the development of the Azeri-Chirag-Guneshli (ACG) block of fields in the Azerbaijani sector of the Caspian Sea started developing a programme on extraction in 2013, 2014 and 2014-2024. Stabilisation of oil production in the field at 33 million tons is projected in 2013. Production will be increased to 35 million tons in 2014.

Another indicative event was the fact that Total company on behalf of the partners exploring and developing "Absheron" field in Azerbaijan has officially confirmed the existence of large natural gas reserves at the field. The results obtained from the first exploration well showed the availability of gas and condensate in the volume from 150 to 300 billion cubic meters in the northern part of the field.

BP-Azerbaijan announced the preliminary engineering and design work within the second stage of developing offshore gas condensate field "Shah Deniz".

During the year drilling of two exploratory wells was completed, one of which showed good results. Therefore, it was decided to use it as production well. The State Oil Company of Azerbaijan (SOCAR) has started gas supplies from "Umid" field to the country's gas transportation system.

b) Refinery

About 1.3 million tones of gasoline was produced in Azerbaijan in 2012, which is 0.1 percent more compared to the same period last year, Azerbaijani State Statistics Committee told Trend on Friday.

Azerbaijan produced almost 4.8 million tons of main petroleum products in 2012.

Summary table of oil production in Azerbaijan:

The main event in the field of refining in 2012 was the government's decision to create a new complex for the processing of oil and gas and petrochemicals production in Azerbaijan. An international forum was held in Baku dedicated to this event, which was attended by over 150 companies from 30 countries.

The purpose of the construction of the complex is the domestic demand for petroleum products and petrochemical products, increasing export potential, as well as becoming a regional leader in this field.

Creating a new complex envisages construction of petrochemical enterprise with capacity of 900,000 tons per year, oil refinery with capacity of ten million tons per year, and gas processing plant with capacity of 10 billion cubic meters a year. In the perspective the capacity of the gas processing plant will be increased up to 15 billion cubic meters a year.

Oil refining plant is planned to produce about three million tons of gasoline per year, aviation fuel - in the amount of 1.7 million tons, diesel - 3.5 million tons. Depth of processing at the plant will be about 95 percent, while the yield of light oil products - 85 percent.

As part of the new complex it is planned to create heat and energy center with capacity of 250 megawatts.

The complex will be located on 1,500 hectares 60 kilometers from Baku. The entire OGPC complex is scheduled to open by the end of 2020.

c) Sale

Around 4.8 million tons of oil products were delivered to the Azerbaijani domestic market in 2012, or 8.8 percent more compared to 2011, the State Statistics Committee said.

In particular, supplying petrol, diesel fuel, petroleum bitumen, lubricants and other petroleum products to the domestic market has increased during this period, while jet fuel and liquefied gas supplies have fallen.

In total, 6.5 million tons of Azerbaijani oil products were delivered to consumers (including exports) last year, or 1.4 percent more than in 2011.

Around 73.8 percent of the total volume of oil products delivered to consumers, were sold in the domestic market, while the remaining 26.2 percent - transported for export.

2.Chemical complex

SOCAR's Azerkimya" production association (chemical manufacturer) produced 195,730 tons of chemical products in 2012.

According to the statement, the large volume of industrial production last year fell to the high pressure polyethylene, which was produced at the amount of more than 67,300 tons.

A summary table of the chemical products produced by Azerkimya production association:

High-pressure polyethylene is exported to such countries as Russia, Turkey, China, Ukraine, Kazakhstan, Georgia, Kyrgyzstan, Turkmenistan, Uzbekistan and Lithuania. Propylene is exported to Russia, Poland, Turkey, Belarus and Romania. Pyrolysis liquid resin is exported to such countries as the U.S, Turkey, UAE and Oman.

The following can be considered major events of 2012 in chemical sector of the country:

- Design work continued within creating a new chemical industrial park, which will be established in Sumgaut,.

- Heydar Aliyev Baku Oil Refinery of SOCAR started naphtha supply to the plant "Ethylene-Polyethylene" via the new main pipeline with length of 60 kilometers. Earlier naphtha was supplied to the plant by the railway.

-A contract was signed to purchase installation for polypropylene production abroad.

-After major repair, production at the "Ethylene-Polyethylene" plant of Production Association "Azerkimya" was resumed. Production of large quantities of ethylene and polyethylene and other chemical products began.

- SOCAR has commissioned a new chemicals transshipment complex at the Kulevi oil terminal. The facility includes compressors, transformers, nitric station and pier to supply polypropylene. Production at the terminal will be loaded directly from rail tank cars to gas tankers

- All goods manufactured by the production association obtained European registration codes to enter the European market. Some 90 percent of goods are exported and the export area is gradually increasing..

-Transhipment of chemical products through the oil terminal of SOCAR in Georgia started.

3. Electricity

In 2012 Azerbaijan produced 20.43 billion kilowatt / hours of electricity, or 6.8 percent more than in 2011. In 2011, the country produced more than 20 billion kilowatt / hours of electricity, or 8.4 percent more than in 2010.

During the year, power interchange was carried out with neighboring countries - Russia, Iran, Turkey and Georgia. The capacity of the power stations owned by "Azerenergy" company exceeds 6,000 megawatts. The company has more than 200 substations with a capacity of 500, 330, 220 and 110 kV, as well as six hydroelectric power stations and 13 thermoelectric power stations.

One of the major developments in electricity production in 2012 was the crisis in hydropower engineering, which was confirmed by the State Statistics Committee. As the State Committee said, generation of electricity at power plants (HPP) amounted to 1.685.9 million kilowatt-hours, which was 33.4 percent below the level of 2011. As a result, the share of hydropower, which hit 10-11 percent, fell to 8.7 percent of the total electricity generation. At the same time, production of electricity at thermal power plants (TPP) was 18.747 billion kW / h, which was 12.9 percent more than the output in 2011. The share of TPPs in total generation rose to 91.7 percent. Thanks to TPPs total electricity production in the country grew by 6.8 per cent to 20,432.9 billion kW / h

In 2012 several power facilities were commissioned: Fizuli hydroelectric power plant with capacity of 25.2 megawatt, small hydropower plant "Gusar-1" with capacity of 1 megawatt, substations "Ganjlik" and "Icherisheher" of JSC Bakielektrikshebeke. In 2012 Azerbaijan completed the reconstruction of several power facilities within implementing the project "Energy bridge Azerbaijan-Georgia-Turkey".