Nowadays the development of world’s large economies is based on the access to energy resources as a major driver of economic development and energy security. In this regard Azerbaijan energy resources are of major interest for the growing consumption markets, mainly for European markets. When the Contract of the Century was concluded on September 20, 1994 under the leadership of Nationwide Leader Heydar Aliyev, Azerbaijan was the first to launch oil exploration in its sector of the Caspian Sea. Later Azerbaijan started celebrating this date as Oilmen’s Day. Possessing big reserves of energy resources, Azerbaijan managed to build its oil marketing system based mainly on national interests and market mechanisms. The situation with gas turned out more complicated, however, a long and thorny way of negotiations held under guidance of President Ilham Aliyev resulted in creation of the chain of Baku-Tbilisi-Erzurum, TANAP and TAP projects – implementation of the Southern Gas Corridor designed for ensuring diversified supplies of Azerbaijani energy resources and energy security of the European countries. The State Oil Company of the Azerbaijan Republic, the main promoter of this system, ensures participation, represents interests of the state and Azerbaijani people in this global distribution. Today SOCAR is already a world class company promoting interests of Azerbaijan far beyond the country.
The year 2013 has come down into history as the important year in terms of implementation of the energy policy in Azerbaijan. “The whole world has focused its attention on Azerbaijan. The route of the Southern Gas Corridor has been selected. It was a historical event. It is as important for us as Baku-Tbilisi-Ceyhan oil pipeline and Baku-Tbilisi-Erzurum”, President Ilham Aliyev said while evaluating Azerbaijan’s achievements in the energy sector.
Indeed, about 10 routes for delivery of Azeri gas (from Shah Deniz II) had been studied over the past 4 years. There were only two routes left to choose until this summer – Trans-Adriatic gas pipeline (TAP) and Nabucco-West. Taking 8 main criteria into account, the choice was made in favor of TAP project on June 28. Thus, Europe will receive Azerbaijani gas through the Trans-Anatolian (TANAP) and Trans-Adriatic (TAP) gas pipelines.
“The decision made in Azerbaijan will cause serious changes in the future energy map of the region”, President of Azerbaijan says in this regard. According to him, selection of the Southern gas corridor route and single position of Shah Deniz consortium in this matter should be regarded as a positive fact. “This project will enable us to implement our gas potential maximally and investments worth tens of billions of dollars will be attracted into the Azerbaijani economy”, President Ilham Aliyev emphasized.
According to preliminary calculations, Shah Deniz Stage II and other related projects will lead to flow of new investments to Azerbaijan reaching almost $40 bln.
In general, Azerbaijan’s initiatives in the energy sector have always played a decisive role. Azerbaijan proved once again that decisions it makes are bearing a decisive role. In this regard, President of Azerbaijan Ilham Aliyev stated clearly: “Decisions of Azerbaijan are an irreplaceable contribution to the energy security matters. Decisions passed in Azerbaijan will keep saying the last word on this matter in future. It is a reality. It raises the significance even more and once again acknowledges country’s importance both for the continent and the region. It is what our advantage is. We have created it on our own thanks to our self-sacrificing work, focused efforts and bold steps”.
Signing of agreements on TANAP and TAP projects created additional opportunities for successful implementation of an important energy project (Southern Gas Corridor) which cardinally changed the energy map of Europe. In such situation, Azerbaijan will be able to find a long-term and predictable gas market in Europe while the latter will find an alternative and reliable gas source in Azerbaijan for many years to come.
Azerbaijan did not miss the initiative at later stages. Soon after selection of the route for high gas volumes delivery, the State Oil Company of Azerbaijan (SOCAR) represented interests of the country in TAP project by acquiring 20% of shares. A little earlier, Azerbaijan’s interests were provided in TANAP project (80% initially). The pipelines are scheduled to export 16 bcm of gas. Of this total, 6 and 10 bcm will flow to Turkey and Europe respectively.
Commenting on agreements reached with Azerbaijan, President of the European Commission Jose Manuel Barroso said: “It is collective success for Europe and an important milestone in strengthening of energy security of the EU”. According to him, the decision concerning the gas pipelines is based on the strategic joint declaration signed by him and President of Azerbaijan Ilham Aliyev early in 2011. “It will give an additional incentive to sooner implementation of the whole Southern Gas Corridor project”, the head of the European Commission resumed.
Thus, Azerbaijan is going to supply gas directly to Europe through a new gas transportation system. According to the European Energy Commissioner Gunther Oettinger, in the view of energy security it does not matter whether this system will consist of two gas pipelines (TANAP and TAP) or just one pipeline as it was planned before. “Now Europe has obtained a new gas partner and I am confident that we will witness the growth of supplies”, he said.
TANAP and TAP are international projects. According to the forecasts of the International Energy Agency, the demand for gas in the European Union will grow from present 526 bcm up to 622 bcm per year by 2030. As the result of implementation of the Southern Gas Corridor projects, from now on Azerbaijan will become a very important and irreplaceable gas exporting country at least in coming 100 years. The first 10 bcm of gas to be exported to Europe will be only the beginning of the supply process. In future, the State Oil Company expects the growth of export volumes. Azerbaijan possesses a serious resource base for reaching these goals. Nowadays, Azerbaijan’s fields, including those that are under development, have proved reserves reaching 2 trillion 550 bcm of gas. Meanwhile, predicted gas reserves of Azerbaijan are estimated at 6 trillion cubic meters of gas. Proved oil reserves total 2 bln tons in Azerbaijan. Forecasted reserves make additional 2 bln tons. Altogether, forecasted reserves of Azerbaijan total 10 bln tons of oil equivalent.
Azerbaijan is currently developing one of the biggest offshore gas fields Shah Deniz where recoverable reserves total at least 1.2 trillion cubic meters of gas and 240 mln tons of condensate. Gas volumes, produced within the framework of Shah Deniz I project, are exported to Georgia and Turkey. Production on this field will make over 25 bcm of gas in 2020 after the commissioning of the second stage of Shah Deniz project. Investment decisions of Stage 2 of the project have already reached the completion stage.
Latest successes on Umid (200 bcm of gas and 40 mln tons of condensate) and Absheron (350 bcm of gas and 45 mln tons of condensate) fields, as well as gas reserves in deepwater Azeri-Chyrag-Gunashli and other areas let us assume that Azerbaijan will look for an additional gas export route by 2020. The joint work is already underway with the European Commission for searching new gas export routes through such countries as Bulgaria, Romania, Hungary and Austria.
There are still many unexplored structures in Azerbaijan. Exploration will be continued on Shafag-Asiman (jointly with BP), Nakhchivan (jointly with RWE), Zafar, Mashal and Babek areas. In April 2013 SOCAR signed a memorandum of understanding on promising structures Zafar and Mashal to accelerate these operations. This document aims (within a year after it was reached) at signing of the agreement about main commercial principles and terms of the contracts on development of these areas.
Special emphasis is also laid on provision of gas supply within the country. According to the set task, 90% of all dwelling settlements have to be supplied with gas by the end of this year. Now this work is broadly carried out in the regions. SOCAR focused its efforts on maximum provision of gas supply to the regions of Azerbaijan.
SOCAR is also strengthening its positions in the Caspian by expanding the potential of the oil-gas fleet. Construction of the shipbuilding plant, which has no analogues in the Caspian Sea, will be completed by Oilmen’s Day. The plant will also produce large-size vessels including tankers with the capacity of 60,000 tons. The facility will meet both domestic needs of Azerbaijan and fulfill foreign orders.
To produce oil products meeting highest international requirements, the work on preparation of the project of new oil-gas processing and petrochemical complex (OGPC) in Garadagh district is underway. Construction of the gas processing plant is planned to be commenced in 2013 within the framework of OGPC creation. Gas extracted from Azerbaijan fields shall be used as a raw material in the plant. The commissioning of the plant is expected in 2017. The processing capacity of the plant will total 10 bcm per year. Additional substantiation of the OGPC project is carried out at the same time. The complex is expected to be fully launched in 2020. In Azerbaijan’s history it has been the biggest industrial project to ensure perspective development of the country.
SOCAR’s structures are also operating in Sumgayit for construction of units on production of polypropylene and polyethylene as well as preparatory work for the construction of carbamide plant.
SOCAR has also determined other perspective directions of development. Among them noteworthy are such projects as the construction of the oil refinery in Turkey, development of Petkim Holding and other investment projects. SOCAR, as the main shareholder of the biggest petrochemical concern Petkim, is controlling about 30% of oil processing market in Turkey. Construction of the new oil refinery has been commenced in Turkey in order to supply raw materials to petrochemical complex Petkim. The expansion of the port operating there is also carried out. Soon it will become the biggest port of Turkey. Preparatory work for construction of a new power plant is performed in order to improve power supply of petrochemical complex Petkim.
The State Oil Company also plans to implement investment projects in other countries as well, especially along gas pipelines laid to Europe. Successful completion of negotiations with the Hellenic Republic Asset Development Fund (HRADF/TAIPED) for acquisition of 66% of Greece gas transport company DESFA (natural gas transmission system operator in Greece) by the State Oil Company of Azerbaijan has been one of the perspective steps in this direction.
In general, SOCAR continues running successful business-activity in Switzerland, Turkey, Romania, UAE, Ukraine and Georgia. Opening of foreign representative offices of SOCAR indicated an intensive development of the company. After acquisition of Esso Switzerland, SOCAR obtains a retail network in Switzerland consisting of 170 petrol filling stations as well as a number of other subdivisions engaged in sale of energy resources. 37 petrol filling stations are already operating in Ukraine under the brand of SOCAR. The network of petrol filling stations will reach up to 100 by the end of 2013. An opportunity of investing in other areas of oil-gas industry is under consideration. SOCAR Energy Georgia is controlling about 2/3 of the oil products market in Georgia. SOCAR Energy Georgia has completed laying of new gas pipelines in settlements of Marneuli and Dmanissk regions the other day. In the whole gas pipelines to the length of over 3.6 thousand km were laid in Georgia during 2009-2013.
In general, development of SOCAR’s projects both domestically and externally, aims at meeting of national interests and strengthening of Azerbaijan’s position in the global market of energy resources.
