In the early May 2018, Azerbaijani officials announced that the commissioning ceremony for the Trans-Anatolian Pipeline (TANAP) will be held on June 19, 2018. It was initially planned that the ceremony would take place in the first week of July, but, due to Turkey’s snap parliamentary and presidential elections planned for June 24, 2018, it was decided to change the ceremony date [Turan, 2018]. Despite the fact that the date for the first gas supply is still not fixed, the parties express confidence that it will be earlier than expected. After putting into operation, the 1,850-kilometer-long pipeline will allow bringing Azerbaijan’s natural gas from the Shah Deniz 2 field in the Caspian Sea directly to Europe within the Southern Gas Corridor (SGC)[1], which is intended to diversify energy options of the European Union (EU). However, being the largest section of the 3,500-kilometer-long SGC (Fig. 1), the TANAP pipeline is able to transport only 16 billion cubic meters of gas annually, which is far short of what is needed to reduce the EU’s energy dependence on Russia, given that six out of 16 billion cubic meters of transported gas would be delivered to Turkey. It is not a secret that the TANAP project jointly developed by Azerbaijan and Turkey was approved as an alternative to the NABUCCO project, which was hampered by a lack of both natural gas and funding. However, the situation could change in case Azerbaijan could find new sources of natural gas.
Figure 1. Southern Gas Corridor
Source: ABB
Taking into account the fact that the probability of discovering another giant gas field like Shah Deniz is not high, a new resource base could be formed of the medium-sized deposits located in the Azerbaijani sector of the Caspian Sea. Moreover, further geological exploration of the Caspian seabed is of high priority for Azerbaijan since exploration activities could contribute to the SGC by enabling Baku and Ankara to increase the throughput capacity of the TANAP, as well as to the network of the Europe-oriented oil pipelines, given that the production of oil at the Azerbaijani largest deposit, the Azeri, Chirag and Deepwater Gunashli (ACG) field, has been constantly declining.
It has recently become known that Azerbaijan’s state-owned energy company SOCAR registered two companies established jointly with its foreign partners for the development of two new fields in the Caspian Sea, namely, SOCAR Absheron, established jointly with France’s Total to develop the Absheron gas field, and SOCAR Karabakh, established jointly with Norway’s Statoil to develop the Karabakh gas field [Trend, 2018]. In fact, SOCAR and Total signed an agreement on the main contractor and commercial principles regulating the program of the first phase development of the Absheron field in 2016. The drilling phase of the Absheron gas field, reserves of which are estimated at 326 billion cubic meters of gas and 108 million tons of condensate, is scheduled for the May 2018-March 2019 period. It is assumed that first gas from the field will be extracted in early 2020 in the amount of 4.3 billion cubic meters of gas per year, 1.5 billion cubic meters of which will be used in Azerbaijan’s domestic market [O&G Links, 2018].
In fact, Azerbaijan continues to develop strong working relationships with the British multinational oil and gas company BP. On the sidelines of the working visit of Azerbaijan’s President Ilham Aliyev to London held on April 26, 2018, a new production sharing agreement (PSA) for the joint exploration and development of the North Absheron basin in the Caspian Sea was signed between SOCAR and BP. The PSA was signed by SOCAR President Rovnag Abdullayev and BP Group Chief Executive Bob Dudley in the presence of the heads of Azerbaijan and the United Kingdom.
The agreement envisages the exploration and development of Block D230 in the Azerbaijani sector of the Caspian Sea. The block covers an area of 3,200 square kilometers lying 135 kilometers north-east of Baku. It has the water depths of 400-600 meters, while the anticipated depth of the hydrocarbon reservoir is about 3,500 meters. Block D230 has not previously been explored. Under the PSA, during the exploration phase, SOCAR and BP will hold a 50% interest each [Azernews, 2018]. Similar to the case with Total, the parties inked the memorandum of understanding for exploration of Block D230 in May 2016, and it took two more years to reach an agreement on all the essential terms of the new PSA. Indeed, since the early 2000s, BP signed two more exploration PSAs with SOCAR, namely, the 2010 PSA for the exploration of the Shafag-Asiman offshore block and the 2014 PSA for the development of the shallow water area around the Absheron peninsula [BP, 2018].
In conclusion, the signing of the aforementioned agreements between Azerbaijan and the Western energy companies shows that after operating in the region for more than 25 years SOCAR’s partners still believe there is a significant unexplored oil and gas potential in the Azerbaijani sector of the Caspian Sea. It is obvious that new energy contracts create a solid foundation for the further development of Azerbaijan’s extractive industry, in general, and offshore mining, in particular. BP, Total and other companies continue to support the long-term energy production in the country with the focus on the joint development of the offshore hydrocarbon resources. However, it should be highlighted that it will take 10-15 more years before the oil and gas production at the new fields could reach its peak. Therefore, it appears that the recently achieved energy agreements lay the ground for both shaping the future exploration activity in the Caspian Sea basin for decades to come and enlarging the SGC without launching trans-Caspian pipeline projects.
References:
Azernews. (2018). SOCAR, BP ink PSA for Azerbaijan exploration. Retrieved from https://www.azernews.az/oil_and_gas/131119.html. Accessed on 14.05.2018 ..
BP. (2018). SOCAR and BPsign new production sharingagreement for Azerbaijan exploration. Retrieved from chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/https://www.bp.com/content/dam/bp/en/corporate/pdf/media/press-releases/socar-and-bp-sign-new-production-sharing-agreement-for-azerbaijan-exploration.pdf. Accessed on. 10.05.2018..
O&G Links. (2018). Total talks gas extraction at Azerbaijani Absheron field. Retrieved from https://oglinks.news/article/609986/total-talks-gas-extraction-at-azerbaijani-absheron-field. Accessed on. 18.05.2018..
Trend. (2018). SOCAR registers two companies to develop new fields in Caspian Sea. Retrieved from https://www.azernews.az/oil_and_gas/132018.html. Accessed on. 15.05.2018..
Turan. (2018). SOCAR announces date of commissioning ceremony of TANAP gas pipeline. Retrieved from http://www.turan.az/ext/news/2018/5/subsc/energy%20news/en/71154.htm. Accessed on. 20.05.2018..
[1] The SGC is running through Azerbaijan, Georgia, Turkey, Greece and Albania, joining the European network in Italy. The $11 billion TANAP pipeline will connect the South Caucasus Pipeline and the Trans Adriatic Pipeline (TAP) at Turkey’s border with Greece.
Note: The views expressed in this blog are the author’s own and do not necessarily reflect the Institute’s editorial policy.