Energy in Azerbaijan

[Mher]

Re: Energy in Azerbaijan

Some very good analysis
___________________________________________

Azerbaijan Runs Out of Oil, Then What?

By Garen Yegparian

War. With the Republics of Mountainous Karabagh and Armenia. That’s what!
art Azerbaijan Runs Out of Oil Then What graph Az oil prod consumption Azerbaijan Runs Out of Oil, Then What?

Azerbaijan Runs Out of Oil, Then What?

Here’s how and why.

By all accounts, Azerbaijan’s oil will run out, practically speaking, in a little more than a decade (most comprehensively explained in Alec Rasizadeh’s “Azerbaijan’s Chances in the Karabakh Conflict,” http://hir.harvard.edu/azerbaijans-c...flict?page=0,1). This doesn’t mean there won’t be any oil left underground. It means that given how much oil remains, where it is, the equipment installed to extract it, and the expense of upgrading that equipment to be able to retrieve it, it will not be cost effective to get what remains.

Of course, new finds might be made, possibly some that are retrievable through fracking. Newer, better technology might come on line. The price of oil could go up, making it economical to invest more and go for hard-to-reach deposits. Regardless, the end of Azerbaijani oil is near. And the decline in production (which peaked in 2010) has begun. Take a look at the accompanying graph and table, which is not comprehensive, but shows various indicators of reduced oil production.

Azerbaijan also has natural gas reserves. Baku is now negotiating with the big, international companies to determine which one(s) will get the contracts. As part of these upcoming deals, the Azeris will also try to wangle improvements to the oil infrastructure they now have in place so that more of the remaining oil can be extracted. In all this Aliyev might overplay his hand (explained in an Oct. 12, 2012 Forbes article titled, “Is BP On Borrowed Time In Azerbaijan? Yes, But So Is Baku,” https://www.forbes.com/sites/matthew...ut-so-is-baku/). This will buy the thieving leaders of the country a few more years.

Eventually, though, the fossil fuels will run out. The billions of dollars pouring into the country will stop. So will the crooked leadership’s ability to pacify the populace through money. Then what will they do?

Of course, like all petty tyrants, forceful repression will ensue. Riots, beatings, civilian deaths will ratchet up the tension. What do leaders anywhere do in such cases? They will find or create a distraction. War with an external enemy tends to mute internal dissent. So Aliyev will attack Armenian positions, or try to provoke an Armenian assault so he has an excuse to “retaliate” and start the war he desperately needs.

There’s another reason that Azerbaijan would start a war at such a point in its oil/gas history. Already, the country’s budget deficit is set to increase from $880 million in 2012 to $2140 million in 2013. With the flood of money drying up, its ability to continue its weaponry-purchasing binge will end. Arms and munitions get old, replaced by better technology. So, Azerbaijan would have an incentive to use what it already has before obsolescence takes its toll.

The trick for Armenians will be to prevent that war from starting for a decade beyond when Aliyev would want to start it. By then, Azerbaijan will be in shambles and Aliyev booted out, or in such dire straits that he cannot afford to use his military resources against Armenians, because they’ll be tied up protecting the crooks in Baku and repressing the population at large.

How this can be achieved, through what diplomatic tricks or military muscle flexing, what carrot-and-stick inducements from the international community, I know not. But I do know that it behooves the appropriate government ministries in Yerevan, and Armenian advocacy groups in the diaspora, to start figuring it out. Otherwise, we’ll be paying in blood for our lack of foresight in preparation and planning.

http://www.armenianweekly.com/2013/12/23/azerbaijan-runs-out-of-oil-then-what/

[Mher]

Re: Energy in Azerbaijan

Is BP On Borrowed Time In Azerbaijan? Yes, But So Is Baku
Bay in Baku, Azerbaijan

These are worrying times for BP. Still dogged by the 2010 Macondo spill in the Gulf of Mexico, and trying to secure its long term position in Russia, Azerbaijan has launched a scathing attack on the British company for letting output drop on its key Azeri-Chirag-Gunashli (ACG) field. What’s worrying for BP, is not just that the attack comes directly from President Aliyev, but that it’s a very deliberate ‘smoking gun’ against the London major when you consider that everyone has long known that ACG figures were unrealistic. In effect, Aliyev is setting BP up for a fall. But the question he hasn’t asked, is whether he’ll end up doing himself far more damage in the process?

On the face of it President Aliyev has a point on ACG. The past three years have seen a noticeable gap between BP forecasts and actual production. 2009 was supposed to churn out 46.8 million tonnes rather than 40.3mt. 2010 was pushing for 42.1mt, not the 40.6mt delivered, while in 2011, output was forecast for 40/2mt against a disappointing 36mt. Into 2012, we were supposed to get 35.6mt, but Baku now thinks 33mt is the best that can be hoped for. The ‘monetary gap’ according to the Azeris, is $8.1bn lost revenue. What’s more, Aliyev has made clear that ‘serious action’ will be taken for these ‘grave errors’.

Step back from the hyperbole and put this into proper numbers and proper context: ACG has never produced the 1mb/d that its third phase completion was supposed to yield in 2008. Output has basically been in decline from ACG’s inception, and now produces a mere 684,000b/d. The entire country is only forecast to produce 940,000b/d by the end of 2012. Obviously maintenance outages are a fact of life for any upstream plays, but it’s geology that sits at the core of the problem here – at least relative to the original ACG designs that were put together in the 1990s. Oil was trading for around $10 a barrel in those days, which meant expensive ‘over-engineering’ to allow for potential production upgrades wasn’t the name of the game. You pumped what you had. Not what you might eventually get.

The upshot is that while it’s entirely true that ACG might be able to squeeze production back up towards 800,000, it’s going to require major CAPEX to do so. The ACG consortium is already spending around $2bn a year to keep production at current levels, a figure that will get far higher if platform extensions are built over the next two or three years. But the problem is that contractual terms run out in 2024 for ACG players, they’d be very unlikely to recoup their costs over that kind of time frame. Whether BP could have done far more far earlier to stop the rot can be argued all day long, but what we’re actually looking at here (and Aliyev is implicitly driving), isn’t just contract extensions for ACG beyond 2024, but entirely new contractual terms for all concerned. Like any good petrocrat, Mr. Aliyev is well aware that oil receipts are the only glue holding his country together and keeping his coterie in power. Baku will want a larger rent from ACG beyond the 75% it currently holds to offset reduced volumes – and right now, BP, the original oil company that put Azerbaijan on the energy map in the 1990s, is the whipping boy of choice.

Strategic Shift

But the plot actually goes far beyond ACG, and to the core of where Aliyev wants to position Azerbaijan as the leading Caspian energy player. While it’s true that Azerbaijan might become increasingly ‘oil poor’ over the next few years, it’s also becoming increasingly ‘gas rich’ through Umid, Absheron, and most vitally, the Shah Deniz II field that’s approaching final investment decision. No prizes for guessing that BP also happens to be the key player on Shah Deniz II, or that the British company is in a fierce battle with Baku as to where the gas should go in Europe, and what kind of pricing formulas should be used. Relations have turned so sour that SOCAR, Azerbaijan’s state based oil major, has been openly briefing media that it expects Exxon Mobil and Conoco to come into pre-existing and potentially new plays in the Caspian. And to do so on the ‘largest possible fields’.

Whether that means the likes of BP are going to be kicked out to make room for others remains to be seen. But at the very least, Baku is lining up as many international companies as they can to divide, rule and cash in decent returns on its oil and gas plays across the board. Using BP as the cannon fodder for contractual shotgun isn’t just designed for London’s consumption, but to keep all IOCs and aspiring NOCs entering Azerbaijan on their toes. FIDs have to go ahead, and they have to do so on Baku’s terms. Fail to play the game, and go looking for upstream concessions elsewhere.

What’s more, Azerbaijan expects significant help in pushing its ‘vertical integration’ interests beyond Caspian shores, across Turkey and deep into European markets, not to mention drawing on Kazakh oil and eventually Turkmen gas (albeit with others paying the infrastructure bills) to become the energy hub of choice in the Caspian. ‘Hydrocarbon bit player’ becomes ‘lynchpin energy hub’ standing up to Turkey and even Russia, all while cashing in on lucrative arbitrage potential across the Eurasian landmass.

Baku Blues

Epic stuff, other than Mr. Aliyev runs the risk of catastrophically over playing his hand. Although it’s open season bashing BP these days, if he thinks he can start playing off IOCs to Baku’s gain, he could be in for a nasty shock. Azeri oil reserves are significant, but by no means elephant fields – especially when you consider unconventional gains cropping up elsewhere in far easier to reach places. Exxon certainly won’t be signing up to whatever terms they’re offered in Baku, and especially when it comes to gas. Condensates aside, Shah Deniz II looks an increasingly expensive field to take forward, with SOCAR putting eventual costs (including pipeline construction) up to $50bn for a mere 16bcm of gas. What’s more, it only has European markets to realistically sell gas into due to the geographical confines of the Caspian Sea choking off Asia. And as BP has inconveniently pointed out to SOCAR, the only way they’ll be able to do that is by linking Azeri gas to European spot market prices: forget developing expensive fields and oil indexed pipelines into the European mainland by the 2020s. Spot based benchmarks and LNG cargoes will be continental norm by then.

That might mean Azerbaijan has to try and bring other fields online alongside Shah Deniz II to offset larger volumes against cheaper prices. But whichever way Baku goes, all of it requires international assistance and international investment, not to mention navigating the enormous contractual and transit risks involved in bringing gas from the Caspian to Europe. If the Azeris are smart they’ll get the Georgians to develop LNG options for them to hedge against Turkish pipeline options, but once again, SOCAR isn’t exactly known for its LNG credentials.

So as much as BP might be on borrowed time in Azerbaijan with all IOCs expecting a harder contractual time ahead, President Aliyev needs to firmly keep in mind who he is and where Azerbaijan sits on the world energy map. IOCs can ultimately live without Azerbaijan if they decide he’s crossed the line, but Mr. Aliyev can’t live without them, or indeed the revenue they provide. BP might well fall in Baku, but it wouldn’t be that long before Aliyev goes with them if he gets too big for his limited energy boots. After all, what has SOFAZ (the State Oil Fund of Azerbaijan) done with all the money from when times were good? I’d say that still reads IOCs 1: Baku 0.

http://www.forbes.com/sites/matthewhulbert/2012/10/12/is-bp-on-borrowed-time-in-azerbaijan-yes-but-so-is-baku/

[Eddo211]

Re: Energy in Azerbaijan

Hey Eddo, thanks
I had to break apart my commentary because the response was too long with the article included

Above you see a an article that you might have seen on this forum before that holds some clues. Its a bit dated at 3 years old, but seeing how its from Harvard International Review and that all of its predictions have come true, I think it still holds a lot of water:


It really doesn't seem like there is any more oil in Azerbaijan. It's something the state has sort of come to realize and gently admit publicly. They have come to realize the oil is done, and they need to find something else. All the attempts made by multiple all powerful oil companies has come up empty. So it really looks like its end of the line, when it comes to oil.

In terms of natural gas, though things are a bit different, they still look fairly bleak for our enemy. I'll get into details in the following posts, but the overarching point is that natural gas is not nearly as valuable or stable in pricing to ever come even remotely close to replacing the golden age they had 2009-2012 they had in oil.

Yes Mehr, I remember reading that report in this forum.....good to know they have hit a dead end because the last thing we need is to get surprised with new reserves while we are waiting/graphing the decline of their energy production/transfer.

[Mher]

Re: Energy in Azerbaijan

State Oil Fund of Azerbaijan

The State Oil Fund of Azerbaijan is the third leg of the Azeri Energy situation that must be explained before one can fully comprehend the nature and future of Azerbaijan's Oil. The Azeri oil fund was created in 1999 by Heydar Aliyev as a place to store all of the extra Azeri oil revenue that the government couldn't spend and to provide a cushion for the day that revenue was done, as to prevent destability. According to that first article I posted “Over half of the revenue that Azerbaijan has accumulated from its oil exports has been saved in the national oil fund". I'll fully explain what that means.

Here is some introductory info to the State Oil Fund:

SOFAZ resources grew from roughly US$ 1.2 billion in 2006 to over US$ 19 billion by 2008. In 2012, SOFAZ funds rose to $32.6 billion 2012, reaching US $34.129 billion by 2013. However in 2013 the Fund will post a deficit of US $2.2 billion, as a result of increasing transfers to the State budget in the run-up to the year's Presidential elections, according the Baku think tank the Center for Economic and Social Development

http://wiki.openoil.net/index.php?title=State_Oil_Fund_of_Azerbaijan_%28SOFAZ%29

State Oil Company of Azerbaijan (SOCAR) produced 51 million ton oil in 2010. 46 million ton was produced in 2011 which 5 million ton less than 2010’s output. Oil output was the lowest in 2012 since 2009: 42,3 million ton oil produced last year. Meanwhile, the latest predictions confirm that oil production will be decreased to about 35 million ton in 2015. Even with current prices of crude oil in the world market, SOFAZ’s assets will be totally spent within the budget lines in 2017 if current unbelievable transfers’ level kept.

http://cesd.az/new/2013/01/azerbaijan-state-budget%E2%80%99s-sofaz-dependency/

So Overall, we're looking at about 32 Billion Dollars left in the State Oil Fund of Azerbaijan. This is the third factor that we will be dealing with in the next few years. This fund is more or less expected to run out by 2017.

[Mher]

Re: Energy in Azerbaijan

Overall Analysis of the Energy Future of the State of Azerbaijan

Factors Involved:
*Oil Reserves
*Natural Gas Reserves
*State Oil Fund of Azerbaijan

Oil Reserves
Originally Predicted: at About 7 billion barrels
Amount Used: about 4 billion barrels (very conservative estimate, likely more)
Amount Left: about 3 billion barrels
Production: 2010 (450 million barrels/year); 2011 (420 mb/y); 2012 (390 mb/y); 2013 (350 mb/y)
Predicted Production: 2015 (260 mb/y); 2017 (200 mb/y); 2019 (150 mb/y); [Source: Carnegie Foundation]
Current Oil Price: Roughly $100/barrel
2010 Oil Revenue: 450mb/y at $100=45 Billion Dollars
Current Overall Oil Revenue: 350 mb/y at $100 barrel= $35 Billion Dollars
2015 Predicted Oil Revenue (At $100/ barrel): $26 Billion Dollars
2017 Predicted Oil Revenue (At $100/ barrel): $20 Billion Dollars
Overall Decline In Annual Revenue 2010 v. 2017: 25 Billion Dollars

*Last Time the Azerbaijan annual oil production was at the level its going to be in 2015 was 2007. Their GDP then was a mere $33 Billion Dollars, less than half of what it is today.



Natural Gas Reserves
Total Proven Reserves: 2.6 Trillion Cubic Meters (Official figure given by Azerbaijan)
Current Annual Production: 27 Billion Cubic Meters (Official figure given by Azerbaijan, real figure likely lower) [Reuters(1)]
Predicted Annual Production in 2020: 40 Billion Cubic Meters (Official figure given by Azerbaijan, real figure very likely lower) [Reuters]
Note: Even if these numbers are to be taken seriously, that jump is only to occur in 2018-19
Natural Gas Price: $50 per thousand cubic meters (Carnegie Foundation goo.gl/2040QM)
Current Revenue: 27 bcm at $50/tcb would equal=1.35 billion dollars
Expected 2020 Revenue: 40 bcm at $50/tcb would equal=2 billion dolars
Overall Growth: 650 million Dollars
Now despite the fact that its from a reputable source I question the $50 figure, so let's say its wrong, lets say the real number in $200.
That would mean the expected growth would still only be 2.6 Billion Dollars. This would still be nothing compared to the 25 billion dollar decline in Oil Revenue

State Oil Fund
Current Budget:31.93 Billion Dollars
2013 Change: Decreased by 2.2 Billion Dollars
Future Expected Changes: The Fund will essentially decrease by 5-6 billion dollars per year in the 5 years as Azerbaijan tries to maintain its GDP while oil revenues are dropping more and more each year. It will be bankrupt and empty by the end 2017



Overall Analysis:
Azeri oil is in its last days with repeated efforts resulting in no additional new oil reserves. Gas production is to increase moderately, but the increase will be meaningless in comparison to the decrease in oil. Additional gas finds will not mean much, as the gap between having reserves and turning that into production is not small. Even if eventually put into production, it will most likely never be enough to bridge the gap in oil revenue.

In the next few years we should see a steady decline in Azerbaijan. There will either have to be significant increase in prices and taxes as already seen or stagnation or moderate decrease in state revenue. Beyond 2017-18, with their state oil fund running dry, there should be serious decrease in state GDP. During this stage it will be critical to prevent war, and be ready for that worst case scenario. Azerbaijan's increase in oil revenue is bound to be meaningless and make very little difference in their inevitable decline.

We as a state are almost at the end of the dark tunnel and into the light. We've braced through the worst of their golden age, which was wasted on their many white elephants instead of economy, infrastructure, and education. The dangerous aspect though is that they know their decline is coming, and while they're at their peak military capability they might take their chance at war, especially knowing it will silence the internal dissent to come with deteriorating conditions. So it is crucial to make it through the next decade without war, and be ready if it occurs. If we can do that, the state of Azebaijan might not be around much beyond 2020.

uk.reuters.com/article/2013/09/04/azerbaijan-gas-idUKL6N0H02VL20130904

[Vrej1915]

Re: Energy in Azerbaijan

Overall Analysis of the Energy Future of the State of Azerbaijan

Factors Involved:
*Oil Reserves
*Natural Gas Reserves
*State Oil Fund of Azerbaijan

Oil Reserves
Originally Predicted: at About 7 billion barrels
Amount Used: about 4 billion barrels (very conservative estimate, likely more)
Amount Left: about 3 billion barrels
Production: 2010 (450 million barrels/year); 2011 (420 mb/y); 2012 (390 mb/y); 2013 (350 mb/y)
Predicted Production: 2015 (260 mb/y); 2017 (200 mb/y); 2019 (150 mb/y); [Source: Carnegie Foundation]
Current Oil Price: Roughly $100/barrel
Current Overall Oil Revenue: 350 mb/y at $100 barrel= $35 Billion Dollars
2015 Predicted Oil Revenue (At $100/ barrel): $26 Billion Dollars
2017 Predicted Oil Revenue (At $100/ barrel): $20 Billion Dollars

*Last Time the Azerbaijan annual oil production was at the level its going to be in 2015 was 2007. Their GDP then was a mere $33 Billion Dollars, less than half of what it is today.



Natural Gas Reserves
Total Proven Reserves: 2.6 Trillion Cubic Meters (Official figure given by Azerbaijan)
Current Annual Production: 27 Billion Cubic Meters (Official figure given by Azerbaijan, real figure likely lower) [Reuters]
Predicted Annual Production in 2020: 40 Billion Cubic Meters (Official figure given by Azerbaijan, real figure very likely lower) [Reuters]



to be edited.....

First, for all those who underestimate the enemy, let us remind, that the azaris, whit no history or culture, are much more state minded as a massa, than we are: they did not privatize their oil or gas fields, contrary to us, or even Russia (even if Putin took most of it back) who offered for less than a semester of turn over Kajaran and Sotk... (sure, with the oriental khanate they built in Baku, state pocket often coincide with khan's, nevertheless, in theory, they are different).
They did create a state reserve fund, rich in billions, at least in theory, while we even did not spare a kopek for our future generations, not even enough to clean the mess we will let behind... (I know, oil and gas are not same as Gold, Copper, or Molybdenium, nevertheless, for their 32 billion, we might have spared a 3, 2 million...)

This being said, I bet, there is not, at best half those 32 billions left, in that state reserve fund, knowing the nature of that regime...

[Mher]

Re: Energy in Azerbaijan

First, for all those who underestimate the enemy, let us remind, that the azaris, whit no history or culture, are much more state minded as a massa, than we are: they did not privatize their oil or gas fields, contrary to us, or even Russia (even if Putin took most of it back) who offered for less than a semester of turn over Kajaran and Sotk... (sure, with the oriental khanate they built in Baku, state pocket often coincide with khan's, nevertheless, in theory, they are different).
They did create a state reserve fund, rich in billions, at least in theory, while we even did not spare a kopek for our future generations, not even enough to clean the mess we will let behind... (I know, oil and gas are not same as Gold, Copper, or Molybdenium, nevertheless, for their 32 billion, we might have spared a 3, 2 million...)

This being said, I bet, there is not, at best half those 32 billions left, in that state reserve fund, knowing the nature of that regime...

Let's be fair, its a lot easier to have a savings fund when you have more money than you know what do with. When unearned money is springing out of the ground. And also, the reason Azerbaijan doesn't have privatized companies is because the Aliyev clan owns the entire country. In Armenia it is said that 40-50 families control most of the industries. In Azerbaijan, everything is owned by one clan. You don't need to privatize if, you own every public position.

[Mher]

Re: Energy in Azerbaijan

Azerbaijan to supply gas to Europe after BP-led consortium’s deal

High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email [email protected] to buy additional rights. http://www.ft.com/cms/s/0/8bd77bf8-6...#ixzz2oZ583Hmy

A BP-led consortium has signed a $28bn deal to develop a massive Azeri natural gasfield, paving the way for Caspian gas to be delivered directly to European markets for the first time.

The group said they had taken a final investment decision on the second phase of Shah Deniz, a huge gas deposit in the Azeri sector of the Caspian Sea. Pipelines will ship the gas 3,500km across Turkey, Greece and Albania into Italy.


However, the consortium also made the surprise announcement that Statoil, the Norwegian oil major, was selling 10 per cent of its stake in the project to partners BP and Socar, the Azeri national oil company, for $1.45bn. The divestment showed the project has “lower returns than others in Statoil’s portfolio”, analysts at RBC Capital Markets said.

The decision to press ahead with Shah Deniz 2 marks the fulfilment of a long-held dream of Brussels policy makers, who have pushed for years for a southern energy corridor to bring gas into Europe from the Caspian and so reduce the continent’s dependence on Russian gas.

William Hague, UK foreign secretary, who was in the Azeri capital Baku to witness the signing, said it “adds to Europe’s energy security and competitiveness by opening up a new source of gas for southern Europe”.

But some analysts have questioned how much difference the project will make. Shah Deniz 2 will provide Europe with 10bn cubic metres a year of gas – a small fraction of total European demand, Privately, managers of Gazprom, the Russian state-owned group that provides about a quarter of Europe’s gas, have said the Azeri exports were “just about enough for a barbecue”.

The project also comes with a huge price tag. The cost of developing Shah Deniz 2 and expanding export infrastructure in Azerbaijan and Georgia will come to $28bn while the pipelines bringing the gas to Europe – one through Turkey, known as Tanap, and the other into Italy, called TAP – are expected to cost $15-$17bn.

The plan is to ship some 16bn cubic metres of gas a year (bcm/y) from Shah Deniz 2, with some of that going into the Turkish market and the rest into Europe. First gas is to start flowing into Turkey in late 2018, and into Europe about a year later.

Bob Dudley, BP’s chief executive, said gas production from Shah Deniz would immediately be expanded by 1.4 bcm/y. The partners also agreed terms for extending the production-sharing agreement for the field to 2048.

Under another deal signed on Thursday, Norway’s Statoil reduced its stake in the Shah Deniz consortium by 10 per cent from 25.5 per cent, selling 6.7 per cent to Socar and 3.3 per cent to BP.

Statoil’s Knut Rostad said the company thought 15.5 per cent was the “right exposure”. The decision to reduce the stake had come as part of a process of “prioritising the portfolio”, which had begun in 2011, he said.

http://www.ft.com/cms/s/0/8bd77bf8-66ff-11e3-8d3e-00144feabdc0.html#axzz2oYFlDjX2

[Vrej1915]

Re: Energy in Azerbaijan

°°°°

[londontsi]

Re: Energy in Azerbaijan

Azerbaijan to supply gas to Europe after BP-led consortium’s deal


..... Pipelines will ship the gas 3,500km across Turkey, Greece and Albania into Italy.

I heard on an Armenian channel (news) that Greece had opted out.
To be supplied by Gasprom

Have not found confirming sources on the internet.

.