Review of oil and gas operations in Azerbaijan (Jan-Sept. 2014)

1. FEC

а) Oil and Gas Production

Azerbaijan produced 32.1 million metric tons of oil and gas condensate in Jan.-Sept. 2014, compared to nearly 32.54 million metric tons in the same period of 2013, the Azerbaijani State Statistics Committee's report said.

Azerbaijan produced 43.1 million metric tons of oil and gas condensate in 2013, compared to 42.98 million metric tons in 2012.

The major part of oil produced in Azerbaijan falls to the Azeri-Chirag-Guneshli oil and gas fields' block and Shah Deniz gas condensate field, which are developed jointly with foreign partners.

Around 13.8 billion cubic meters of commercial gas was produced in the country in Jan.-Sept., compared to 13.08 billion cubic meters in the same period of 2013, the State Statistical Committee said.

Azerbaijan produced 17.9 billion cubic meters of commercial gas in 2013, compared to 17.24 billion cubic meters in 2012.

The State Oil Company of Azerbaijan (SOCAR) produced 6.3 million metric tons of oil from the country's offshore and onshore fields in Jan.-Sept. 2014, compared to 6.24 million metric tons in the same period of 2013.

SOCAR produced over 8.31 million metric tons of oil in 2013, compared to 8.24 million metric tons in 2012.

The State Oil Company of Azerbaijan (SOCAR) produced some 5.52 billion cubic meters of gas in January-September 2014 compared to 5.32 billion cubic meters in the same period of 2013.

SOCAR produced some 7.31 billion cubic meters of gas in 2013, compared to 7.46 billion cubic meters in 2012.

Proven gas reserves of SOCAR (State Oil Company of Azerbaijan) on January 1, 2014 amounted to 61.15 billion cubic meters versus 23.82 billion cubic meters by the end of 2012, stated the report on the sustainable development of SOCAR as of 2013, published on the official website of the State Oil Company Sept. 5.

The proven oil reserves of SOCAR on the results of last year totaled 78.5 million metric tons versus 71.66 million metric tons in 2012, according to the report.

The report noted that the volume of proven oil and gas reserves of SOCAR was determined based on the stocks of nine major fields. In particular, the matter rests in the Guneshli, Oil Rocks, Pirallahi, Bank of Darwin, Sangachal-Duvanly Deniz Khere-Zire Alat-Deniz, Bulla Deniz offshore fields, as well as the onshore Bibi Heybat, Lokbatan-Puta-Gushhana fields. Estimation of oil and gas on the basis of a contract with SOCAR was carried out by Miller & Lents.

The volume of drilling operations carried out by the State Oil Company of Azerbaijan (excluding joint ventures and operating companies) stood at 98,737 meters in Jan.-Sept. 2014, compared to 119,123 meters in the same period of 2013.

Some 97,109 meters of the total volume of the drilling operations carried out by SOCAR in nine months, fell to the production drilling (112,789 meters in Jan.-Sept. 2013), while the remaining part fell to the exploratory drilling, SOCAR said.

BP plans to stop operations at one of the platforms on the block of oil and gas fields "Azeri-Chirag-Guneshli" in the Azerbaijani sector of the Caspian Sea to conduct the planned maintenance work. Earlier, BP planned to stop two platforms - "West Azeri" and "Central Azeri" to conduct the planned maintenance work.

SOCAR (State Oil Company of Azerbaijan) has announced a tender for the joint development of the Umid field and Babak perspective structure in the Azerbaijani sector of the Caspian Sea, the first vice-president of SOCAR Khoshbakht Yusifzade said.

The drilling of new wells on Umid field, where two wells already operate, was stopped due to the announcement of a tender for the field, he said. Construction works on the field of the second platform were also suspended.

Yusifzade explained the stoppage of works by the fact that the winner of the tender may have another approach to the development of the field.

The daily debit of two wells in the Umid field varies in the range of 1.1-1.5 million cubic meters of gas.

Azerbaijan's State Oil Company (SOCAR) began installing support blocks as part of creation of the new platform No.6 at the Bulla Deniz field in the Azerbaijani sector of the Caspian Sea in September, SOCAR First Vice-President Khoshbakht Yusifzade said.

He said that in general the platform will consist of 11 blocks and is meant to drill four gas wells.

"If we get good results, their number will be increased in the future," Yusifzade said.

The daily debit of the four wells at platform No.6 is projected to reach two million cubic meters of gas and 600 metric tons of condensate. The platform will be installed at the point where the water depth is 26 meters.

b) Processing

Azerbaijan produced 911,700 metric tons of motor gasoline in January-September 2014, which is 13.3 percent less than in the same period of 2013, the country's State Statistical Committee said in its report.

Currently, the State Oil Company of Azerbaijan (SOCAR) carries out work on modernization of the processing facilities, as the demand for fuel has increased in the country.

Azerbaijan produced nearly 3.56 million metric tons of the main types of oil products in January -September, versus over 3.82 million metric tons in the same period of 2013.

The country produced about 1.41 million metric tons of motor gasoline in 2013, versus nearly 1.3 million metric tons in 2012.

Totally, 5.09 million metric tons of main types of oil products were produced in Azerbaijan in 2013.

Summary table of oil production in Azerbaijan:

SOCAR (State Oil Company of Azerbaijan) refused to transfer the old bitumen unit from Azneftyag refinery to Baku Oil Refinery named after Heydar Aliyev, the senior official of SOCAR said.

Earlier SOCAR considered the possibility of transfer of the bitumen plant to Baku Oil Refinery, based on the production of light oil within the plans to demolish the Azneftyag refinery.

However, this does not mean that the work of the Azneftyag refinery will not be stopped. The plant will eventually close, but by this time the Baku Oil Refinery named after Heydar Aliyev will have organized the new production capacities that will help to end the activities of Azneftyag without consequences. New production will be organized, and it will also produce bitumen. The organization of new production requires up to four years after the approval of the investment program.

Until the end of this year, the State Committee on Standardization, Metrology and Patents of Azerbaijan will receive about 100 standards for a new complex on oil and gas processing and petrochemical production (OGPC), which will be built by SOCAR (State Oil Company of Azerbaijan) in Azerbaijan, the State Committee said.

Standards, which are planned to be applied during the construction and commissioning of the new complex, are being prepared on the basis of the agreement signed between the Azerbaijan Institute of Standardization and Certification at the State Committee and SOCAR. Period of implementation of the first phase of the project is 2 years. The total duration of the project is 8 years.

The work as part of this project continues and about 1,000 new standards in total will be prepared and adopted on the basis of the contract, the committee said.

"The new standards relate both to the production processes and products to be produced by the complex," the committee noted.

2. Chemical complex

Azerbaijan produced 68,100 metric tons of polyethylene in Jan.-Sept. 2014, which is 23.7 percent more than in the same period of 2013, the country's State Statistical Committee said in its report for the first nine months of 2014.

Around 39,600 metric tons of propylene was produced in Azerbaijan in Jan.-Sept., which is 38.1 percent more than in the same period of 2013, according to the report.

The country produced 76,000 metric tons of polyethylene in 2013, or 13.9 percent more than in 2012.

However, Azerbaijan saw decrease in the production of other major types of chemical products in Jan.-Sept. 2014.

The table below shows the production volume of major types of chemical products:

The country produced 12,680 metric tons of solid polyethylene pipes, tubes and hoses, which is 41.9 percent less than the same period of 2013.

At the same time, some 164.5 metric tons of porous polyurethane plates and strips were produced in Azerbaijan during the reporting period, which is 65.1 percent less than in Jan.-Sept. 2013.

A polypropylene production unit, to be built on the territory of the Sumgait Chemical Industrial Park, SOCAR Polimer's activity will account for the third-fourth quarter of 2016, the head of the "Azerkimya" production association of SOCAR (State Oil Company of Azerbaijan) Mukhtar Babayev said. Regarding the construction of a unit for the production of low-density polyethylene, Babayev said that it will be commissioned after a polypropylene production unit is commissioned.

"Technical work has already started as part of the establishment of these enterprises," he said. "Some equipment has been delivered. It is being inspected and tested. An order for large equipment was made. The logistical issues are resolved. The excavation work is conducted."

Around 35-40 enterprises are planned to be established on the territory of the "Sumgait Chemical Industrial Park" industrial area. Up to 10,000 new jobs are planned to be created. The residents are exempt from income, land and property taxes for seven years to increase the investment attractiveness of the park. Moreover, the equipment and technologies used in the park are exempt from value added tax.

3. Electricity

Azerbaijan produced 16.97 billion kilowatt hours of electricity in Jan.-Sept. 2014, which is 6.8 percent more than in the same period of 2013, the country's State Statistical Committee said in its report for the first nine months of 2014.

Marketable electricity accounted for 16.09 billion kilowatt hours of the total volume of electricity produced in Jan.-Sept., which is 6.3 percent more than in the same period of 2013. The report said that thermal power plants accounted for 15.05 billion kilowatt hours of the total volume of marketable electricity generated in the country in Jan.-Sept. 2014, which is 7.4 percent more than in the same period of 2013.

This is while hydro power plants generated 1.04 billion kilowatt hours of marketable electricity during the reporting period, which is 7.8 percent less than in the same period of 2013. Moreover, the country's wind power generation facilities produced 5.1 million kilowatt hours of electricity in Jan.-Sept. 2014.

Nearly 20.63 billion kilowatt hours of marketable electricity was generated in Azerbaijan in 2013, which is 0.6 percent more than in 2012. Some 19.26 billion kilowatt hours of the total volume of electricity generated in 2013, fell to thermal power plants, which is 2.7 percent more than in the same period of 2012. Hydro power plants produced nearly 1.37 billion kilowatt hours of electricity in 2013, which is 21.7 percent less than in 2012.

Azerenergy JSC is the main producer of electricity in Azerbaijan. It has over 200 substations with a capacity of 500, 330, 220 and 110 kilovolt amperes, as well as ten hydro power plants and 14 thermal power plants.

The generation capacity of Azerbaijan's power supply system has increased by 30 percent in the last five years. Currently, its capacity is 7,105 megawatt and this allows the generation of around 24 billion kilowatt hours of electricity and subsequently, export of about 2.1 billion kilowatt hours of electricity.

Today, Azerbaijan is implementing the flow of electricity with Georgia, Iran and Russia.

The Azerbaijani State Agency on Alternative and Renewable Energy Sources plans to begin the project of creating new generating capacity in renewable energy with the total capacity of 300 megawatts from 2015, the head of the state agency Akim Badalov said as part of the business forum organized by Caspian European Club (CEIBC).

Badalov said that the project will focus on the generation of solar, wind energy, geothermal waters, small rivers and biomass. The wind power station was built in Yeni Yashma with a total capacity of 50 megawatts. "After the state commission checks it, we plan to connect this first big station to Azerenergy common power distribution network," Badalov said.

He said that the drafting of seven solar power stations is under completion in Azerbaijan. Their foundation is planned to be laid in late 2014 - early 2015.

There are plans to build the stations generating electricity from biomass in Sheki and Siyazan regions of Azerbaijan, where the cattle and chicken waste will be used as the raw materials.

Currently, the share of alternative energy sources in Azerbaijan is less than one percent and accounts for small hydro power stations. According to the preliminary research, up to 100 alternative energy facilities are planned to be built in Azerbaijan during five years.