The international community and leading international organizations are unambiguously assuming that conventional energy resources will remain a major type of fuel in coming 50 years. Azerbaijan, abounding in oil-gas resources, is nowadays playing an important role in satisfying regional demand for energy resources as well as growing demands of Europe. It is the energy complex that plays an important and decisive role in the growth of economic power and international authority of Azerbaijan. This sector is experiencing intensive development. As an independent country and Caspian state, Azerbaijan was the first to start developing fields in its sector of the Caspian Sea after assigning of the Contract of the Century on September 20, 1994. The Southern Gas Corridor and its component parts “Shah Deniz”, South-Caucasus pipeline, TANAP and TAP became large infrastructure projects for Europe. Big foreign and internal investments turned SOCAR into an active regional player.
The 20th anniversary of the international Contract of the Century signed under leadership of Nationwide Leader of Azerbaijan Heydar Aliyev will be celebrated solemnly this year. The implementation of the Contract enabled to build a branched network of pipelines, draw considerable investments, of which $50 bln of spent on the oil-gas sector, into the economy of the country.
Late in January 2014 first oil was produced from a new platform “Western Chirag” commissioned within the framework of the program of full-scale development of “Azeri-Chirag-Gunashli” (ACG) offshore fields. This landmark event is considered as the following success gained in the modern oil history. The “Western Chirag” platform was set at an offshore depth of 170m. Its target capacity totals 25,000 tons of crude oil and almost 8 mln cubic meters of gas per day. Almost 8.2 mln tons of oil and 2.8 bcm of gas per annum will be produced from this platform. This platform, built on basis of new technologies, will secure maintenance of stable oil production in Azerbaijan for many years to come.
Implementation of the Southern Gas Corridor projects where Shah Deniz gas is the major source of energy resources will become the second stage of attraction of big investments, this time, into the gas sector. “Implementation of the TANAP project has already been launched. TANAP is the project of the 21st century. “Shah Deniz II”, TANAP and TAP are the biggest projects of Europe”, President of Azerbaijan Ilham Aliyev said in April and expressed confidence that the construction of the pipelines would be commenced in near future. The tenders for the implementation of these projects have already been announced.
These projects were launched already late in 2013. Azerbaijan is demonstrating leading characteristics in realization of the Southern Corridor projects. “I do assume and have no doubts that this project would never be realized without our policy, energy and brave policy. Azerbaijan is the initiator of these projects and plays a major role. The country took all the risks including financial and technical risks. I am sure that we will manage to have this project realized successfully since so far we managed to progress in all the energy projects that we initiated. Baku-Supsa, Baku-Tbilisi-Ceyhan, Baku-Tbilisi-Erzurum oil-gas projects have already become a reality. They have been operating for many years. Therefore, I am confident that we are implementing these projects with honor as well”, President Ilham Aliyev says.
Preparatory work for making a final investment decision on the Trans Anatolian Pipeline (TANAP) is now in process. Works on TANAP project’s implementation are carried out as per the set schedule. Route maps have been plotted and geological work performed. The documents on land plots to be crossed by the pipeline were handed over to BOTAS. SOCAR is doing its best to hold the ceremony of laying a foundation of the Trans Anatolian pipeline already this year.
The TAP pipeline will transport gas from the Caspian region, across the territories of Greece, Albania and the Adriatic Sea before coming ashore in Southern Italy. In the future it will be able to supply gas to Western Europe. Construction work will be launched in 2015. At present the countries involved are granting permits for construction of the pipeline.
The Shah Deniz stockholders have chosen TAP as a route to transport Azerbaijan gas to Europe. Gas to be produced within Shah Deniz Stage II is considered as the major source for the project. TAP will initially have a capacity of 10bcma with possible expansion up to 20bcma.
Azerbaijan has worked out a new financing scheme for the Southern Gas Corridor projects. To ensure efficient management of development Stage II of the Azerbaijan gas condensate field Shah Deniz, expansion of the South Caucasian Gas pipeline and construction of the Trans Anatolian (TANAP) and Trans Adriatic (TAP) gas pipelines, President of the Republic of Azerbaijan Ilham Aliyev established a new company (CJSC) by signing the relevant Order on February 5. Under the Order, the State Oil Company of Azerbaijan was charged to establish a closed joint-stock company with the equity stock of $100 million, where a 51-percent was to be owned by the government and a 49-percent stake owned by SOCAR, and thus ensure efficient management of the projects and involvement in the projects as a shareholder through the CJSC.
The aim of newly created company Southern Gas Corridor is efficient management of gas projects. As much as $15bn will be required to fund the share of Azerbaijan in these projects. On April 11, 2014 the State Committee for Securities registered the initial issue of 100 registered ordinary shares of Southern Gas Corridor CJSC (the nominal value of each share is $1 million). This loan will be used to fund the mentioned projects. Then the new company will receive funds together with interest at the cost of gained profit. Afterwards the company’s income will be divided according to the principle 49/51.
Shah Deniz field, one of world’s largest offshore gas fields with the recoverable reserves of not less than 1.2 trillion cubic meters of gas and 240 million tons of condensate, is the basis for the Southern Gas Corridor. At present gas produced within the Shah Deniz Stage I is exported to Georgia and Turkey. After the start of development of Shah Deniz Stage II, production from this field only in 2020 will make over 25bcm of gas. The investment decision on Shah Deniz Phase II was made in December 2013.
The last successes on Umid field (200bcm of gas and 40Mt of condensate) and Absheron field (350bcm of gas and 45Mt of condensate), and also gas reserves in the deepwater areas of Azeri-Chirag-Gunashli and others enable to say that by 2020 Azerbaijan will need an additional route for gas export. Studies to find new gas export routes are currently underway.
In Azerbaijan there are still a lot of unexplored fields, exploration work on Shafag-Asiman (jointly with BP), Nakhchyvan (jointly with RWE), Zafar, Mashal, Babek and other areas will be continued. In particular, for the purpose of accelerating these works in 2013 SOCAR signed a memorandum of understanding with Statoil (Norway) on perspective Zafar and Mashal areas. Under the memorandum, basic commercial principles and terms of the contract on development of these areas shall be worked out within one year after the singing.
SOCAR, which signed 17 PSA-type contracts with 25 companies from 15 countries, successfully represents Azerbaijan in the international arena. SOCAR has obtained the ratings from the all three world rating agencies (Standard&Poor’s, Fitch Ratings, Moody’s) recognized by international investors. In 2012 and 2013 SOCAR issued its Eurobonds. The five-year Eurobonds worth $500 million issued in 2012 were placed at coupon rate of 5.45%. One year later the Company placed Eurobonds worth $1 billion at 4.75% coupon rate. SOCAR’s risks after the second public offering of Eurobonds decreased by almost twice, which is the high growth indicator of SOCAR. The first securities were placed for a 5-year period, the second ones for a 10-year period. The third issue will cover even a longer period.
At present SOCAR is implementing different projects in foreign countries, including Georgia, Turkey, Switzerland, Romania, the UAE, Ukraine and other countries. Opening of SOCAR representative offices abroad confirm the intensive development of the Company.
The largest investments of SOCAR are made in Turkey. The Company is involved in the construction of the oil refinery in Turkey, development of Petkim Holding and other investment projects. As the major shareholder of Petkim Concern, today SOCAR controls about 30% of the petrochemical market in Turkey. To supply the petrochemical complex of Petkim with raw materials, SOCAR has launched construction of a new oil refinery in Turkey. The construction of the Star Oil Refinery is in the final stage. The issues with financing sources have been resolved. Besides, Petlim company (the subsidiary of Petkim) commenced construction and reconstruction of the largest and deepest container port in Turkey. To that end the contract was signed with Maersk Company which will be managing the port for a long-term period. At the same time preparatory work for construction of a new power station is currently underway to improve power supply of the petrochemical complex of Petkim.
Besides, SOCAR Turkey LNG has obtained the license to purchase and sell liquefied gas in the territory of Turkey for a 30-year period. The company also acquired the right to be engaged in import and export of liquefied gas. Now SOCAR is the largest foreign investor in the economy of Turkey. SOCAR implements projects in Turkey that by 2018 will have spent much over $17 billion, taking into account the construction of the Trans Anatolian Gas Pipeline (TANAP).
In 2009-2013 SOCAR’s investments into business development in Ukraine increased. 37 petrol stations under the brand of SOCAR are already operating in the country. By autumn 2014 SOCAR Energy Ukraine company plans to expand its filling stations chain in Ukraine by 50%. By the end of 2014 the number of filling stations is expected to reach 100 stations. The company is also studying the possibility of investing into other branches of the oil and gas industry. In Georgia SOCAR Energy Georgia controls about 2/3 of the oil products market. In total, SOCAR laid over 3.6 thousand km of gas pipelines in Georgia in 2009-2013. Now in Georgia there are 110 petrol stations and 16 gas-filling stations under the SOCAR brand. With the acquisition of Esso Switzerland the State Oil Company of the Republic of Azerbaijan received the retail network in Switzerland consisting of 170 petrol stations, and also some other divisions involved in sales of energy resources.
At present the activity of SOCAR covers the operation of 36 joint ventures and subsidiaries, and also 13 representations involved in the oil and gas sector of various countries worldwide. The prompt development of SOCAR’s projects is aimed at meeting the national interests and strengthening the positions of Azerbaijan in the global energy market.
