NEW ENERGY BOOM IN AZERBAIJAN
The commencement of the second phase of the Shah Deniz Field in the Azerbaijani section of the Caspian Sea, which is scheduled for 2016-2017, is boosting the interests of foreign investors, consumer countries, and service companies in Azerbaijan and its oil and gas sector.
Roughly 8.6-9 billion cubic meters of gas are expected to be produced at the peak of the giant field's first phase, which has reserve volumes of 1.2 trillion cubic meters of gas. The entire volume has already been contracted and divided between Turkey, Azerbaijan and Georgia. Peak production in the first phase of Shah Deniz's development is expected in 2011.
Total production will further increase by at least 16 billion cubic meters per in the second phase.
Energy supply route diversification is a major element of Azerbaijan's state energy policy. The process not only helps to increase energy security by eliminating dependence on only one route, but also increases the supply's economic efficiency due to transportation options to different markets. Therefore, the implementation of any future gas supply projects depends primarily on the economic attractiveness of a given market.
Negotiations with companies in countries in the South Corridor that are potential buyers of Azerbaijani gas have markedly intensified. The corridor includes pipeline projects such as Nabucco, ITGI and the Trans Adriatic Pipeline (TAP).
Today, the participants of all of these projects are actively negotiating gas purchases in Azerbaijan, as well as the possibility to fill these pipelines with Turkmen gas. Caspian gas transportation projects (compressed and liquefied) from the SOCAR-owned Georgian port of Kulevi via the Black Sea to Romania and Bulgaria are also receiving attention. The Azerbaijan-Turkey transit agreement signed in early July on Azerbaijani gas transportation through Turkey is important for intensifying negotiations on gas supplies to Europe. The agreement will allow Azerbaijani producers to directly sell gas to consumer-countries in Europe.
Negotiations on gas supplies to Europe are occurring on the backdrop of an expected increase in gas production in Azerbaijan and the conclusion of an Azerbaijan-Turkey transit agreement. One of the first countries that will receive Azerbaijani gas via a direct contract could be Greece, as a memorandum on deliveries has already been signed. Greece is linked with Turkey via a gas pipeline. Azerbaijan and Greece have launched talks on direct gas supplies, and a similar memorandum has also been signed with Bulgaria, which may also receive gas through Turkey.
In addition to Europe, countries such as Russia and Iran are also showing considerable interest in Azerbaijani gas. In particular, Russian gas monopolist Gazprom CEO Alexei Miller stated that the company intends to build long-term relations with Azerbaijan. Miller added that Gazprom is interested in buying a share in a mining project, such as Shah Deniz. Today, Russia receives Azerbaijani gas under a contract signed with SOCAR. The gas comes from the volume produced independently by SOCAR on its own fields.
Iran has also expressed an interest in buying gas from Azerbaijan. Country intends to purchase up to 5 billion cubic meters of gas per year. Azerbaijan supplies gas to Iran under a "swap" contract for the Nakhchivan Autonomous Republic.
Today one sees new proposals in addition to the "traditional" potential markets for Azerbaijani gas supplies. One recent proposal came from Syria, which has expressed the desire to buy Azerbaijani gas in the volume of 1-1.5 billion cubic meters from mid-2011 for 20 years.
Economic interests prevail over politics when considering Azerbaijani gas supply routes. The implementation of previous energy projects and the presence of considerable energy reserves allowed the country not only to ensure its energy security, but also to become one of the leading countries in the region. Hence, the implementation of major new infrastructural projects and the strengthening of Azerbaijan's political weight bring, first of all, considerable economic benefit. One can expect the beginning of new energy boom in Azerbaijan based on the country's huge gas reserves.