IS AZERBAIJAN IN CONDITION TO COVER ITSELF DOMESTIC DEMAND FOR NATURAL GAS?

Azerbaijan can fully cover its demand for natural gas at own expenses, the Government urges. The President of the State Oil Company of Azerbaijan (SOCAR), Rovnag Abdullayev, stated that even in the absence of imported gas, Azerbaijan is able to provide gas at the expense of private resources reserved in the winter period.

The country is currently implementing a state program which would enable to increase gas production by 2bln at the expense of domestic potential starting from 2007.

Azerbaijan is a power consuming company. The public consumes energy in volumes. We could cut energy consumption by 50% if meters are installed everywhere and optimal energy consumption is provided. In this case we will not need to import gas and electricity, SOCAR President stated.

He noted that SOCAR has definite interests in the purchase of Iranian gas. Talks with Russia on the purchase of gas continues. We are also studying our own gas resources. Azerbaijan has an opportunity of choice and the Country would prefer the most lucrative option, he indicated.

By Own forces

At present the State Oil Company of Azerbaijan (SOCAR) is implementing a program on the increase of gas production. This year the volume of production will be raised to 500 million cu.m. Next year the figure will be increased by 500 million cu.m. more at the expense of the construction of new platforms, drilling of new wells where it is planned to drill approximately 23 new wells, as well as several other enterprises. Over 2 years SOCAR intends to increase its own gas production by 2 billion cu.m.

In 2008 Azerbaijan will produce 30 billion cubic meters of gas, whereas Azerbaijan's general demand for natural gas is estimated to 12-14bln cu m per year. 15 bln m3 out of this volume - associated gas will be produced in Azerbaijan from Azeri-Chirag-Gunashli field, 9.9 bln m3 will be produced during the development of the gas-condensate field Shahdeniz and 5.1 bln m3 own production of the State Oil Company of Azerbaijan.

Gas Production in Azerbaijan, in ths. cu m

In 2006, the total gas production in Azerbaijan comprised 4,995.6 million cu.m. or 874.7 million cu.m. (21.2%) more as compared to 2005. The oil and gas production units of SOCAR produced 3,032,72 billion cu.m. of gas, or 194.3 million cu.m. more as compared to 2005. JV and OC produced 83.51 million cu.m. of gas in January - August, or 13 million cu.m. less than in 2005. During this period the Azerbaijani International operating Company (AIOC) produced, from the Azeri-Chirag-Gunashli field, 1,840,92 million cu.m. of associated gas, or 654.9 million cu.m. more as compared to 2005.

The talks on increase of a share of liquefied gas given to BP company from Azeri field are still underway. At present the country receives approximately 4mln cu m of gas a day, while he AIOC is committed to present 2.1bln cu m of associated gas to Azerbaijan under the Azeri-Gunashli-Chirag fields. In 2007 the AIOC intends to deliver approximately 1.4bln cu m of associated gas, whereas the SOCAR is eager to receive more and more volume of associated gas.

On November 10, the clean-up of the first exploitation well began with the help of the gas obtained from Shah Deniz field.

On November 10, the first gas was produced from Shah Deniz field. In compliance with the contract on Purchase and Sale Azerbaijan will receive over 700mln cu m of gas this year. The country can receive additional volume of gas in case Turkey turns out unable to admit gas indicated in the contract due to failure to complete its section of the South Caucasus Pipeline. In 2006 it is planned to extract approximately 1.2bln cu m of gas from the field. In accordance with the contract gas will be sold to Azerbaijan, Turkey and Georgia, and a small part will be given to BTC Co.

So, Azerbaijan seems to have many alternatives for covering its domestic demand in blue fuel', including the increase of gas production from different fields.

Import is also necessary

Nevertheless, the country is not going to refuse from gas import and is considering different variants in this respect газа. Russian company Gasprom is a major and sole gas importer to Azerbaijan on the base of a contract signed between SOCAR and Gasexport in 2004. Major part of import gas is given to heating power stations for generation of electricity. It actually replaces mazut which SOCAr in its turn directs for export.

Firstly, the point is that the SOCAR sells mazut at price higher than gas and so far it actually has been meeting the company's interests. If prices of import gas exceed the price of mazut, this operation will become senseless and the country will have to refuse from purchase of import gas and use its own resources.

Secondly, thanks to import of gas produced in Azerbaijan in the volume of over 6bln cu m is directed at covering the demand of country's population.

In 2004 the Russian gas was sold to Azerbaijan at the price of $52 per 1,000 cu m. In 2005 Azerbaijan imported 46.8bln cu m of gas worth $277.2mln. This volume is 2.4% down than 2004, while 9.7% up, as in 2005 gas was supplied at the price of $60 per 1,000 cu m. At present, SOCAR (State Oil Company of Azerbaijan) is buying gas from GazExport OJSC at the price of $110 per 1.000 cubic meters, which exceeds the last year figure twice. But it is not the ceiling. Next Russian gas prices are expected to increase. Yet its price for Azerbaijan is unknown, while Georgia have to pay $230 for the Russian blue fuel'.

The country's alternative step in gas policy is the demonstration of definite interests in import of gas from Iran. However, the purchase of gas from Iran will depend on its cost. In winter 2006 Georgia purchased Iranian gas by transit via Azerbaijan at the price $110-120 per 1,000 cu m. If Iranian gas costs lower for Azerbaijan, it will enable to cover the country's demand more effectively. Azerbaijan is ready to purchase around 2bln cu m of gas from Iran.

Respectively, the volume of gas that Azerbaijan expected to import next year, will depend on many constituents. Along with the price factor, these are volume of gas that Azerbaijan will produce from Shah Deniz field, quality of associated gas that the Azerbaijan International Operating Company will deiver to Azerbaijan from the Azeri-Chirag-Gunashli fields, as well as increase of production of gas production by the SOCAR itself.

We are importers

Georgia is expecting to receive from Azerbaijan the first consignment of gas to be lifted from Shah Deniz. It will be rater high as compared 60mln cu m that Georgia was going to receive by the end of the year. In case Turkey turns unable to receive the Shah Deniz gas in the volume allocated of the total 1.2bln cu m, Azerbaijan could supply 300mln cu m of gas to Georgia in autumn-winter season.

It is likely to occur because Turkey has not made official notification on its readiness to receive the Azerbaijani gas. It is explained with incompleteness of the Turkish session of the pipeline. According to operator of the project BP, unless Turkey is ready to receive gas, the fuel will be given to Azerbaijan and it is up to Azerbaijan to resolve whether to deliver this volume to Georgia, or reserve in the country.

According to BPAzerbaijan, under the relevant contract Azerbaijan will receive 6709mln of the total gas production (1.24bln cu m of natural gas) from the Shah Deniz field, Georgia 60mln cu m, Turkey 470mln cu m, and 40mln cu m of gas will be given to BTC Co for functioning of the pump stations of the BTC oil pipeline.