The Oxford Institute for Energy Studies | June 2015
Gulmira Rzayeva, OIES Research Associate
The Outlook for Azerbaijani Gas Supplies to Europe:
Challenges and Perspectives
Azerbaijan’s gas sector and gas production is dominated by one giant field, Shah Deniz, which is currently producing around 9 bcm/a at its plateau level. The next phase of development of the field will increase the plateau by some 17 bcm/a, to a total of more than 26 bcm/a from both phases from late 2018.
This major gas upstream project required new export infrastructure. The South Caucasus Pipeline (SCP), currently has up to 8 bcm/a capacity, and transports gas from Azerbaijan through Georgia to Turkey. This pipeline will be expanded to 26 bcm/a to accommodate natural gas from the next phase of Shah Deniz and from future fields in Azerbaijan that are under different stages of development.
The natural gas sector has rapidly expanded since independence through inward investment by several large oil and gas companies. BP along with SOCAR is the main operating company and has a significant share in the main producing field, Shah Deniz, and related transportation infrastructure.
The national oil company, SOCAR1 , has stakes in the entire value chain from the well head to the market – Shah Deniz, SCP, TANAP2 , TAP3 as well as many other offshore fields and structures in Azerbaijan. It operates some fields on its own, including the Guneshli (Shallow Water) field, and other smaller onshore and offshore fields. Other onshore fields are operated by foreign investors jointly with SOCAR, which retains a minority interest.
Azerbaijan does not routinely conduct competitive open licensing rounds for exploration and development opportunities offered to foreign investors. All contracts have been concluded through direct negotiations with the national oil company, SOCAR. Licence awards were at a peak in 1997, when seven blocks were awarded (six PSAs and one Joint Venture). Since 1997, the number of awards has diminished.
Azerbaijan’s onshore has been producing hydrocarbons from the mid-19th century and many fields have passed their peak production phase. Exploration is now focused on the offshore sector where large prospects are located. There are a number of promising fields and prospective structures in the Azerbaijani sector of the Caspian Sea, such as Absheron, Umid/Babek, ACG Deep layer gas etc. that can add significant amounts of gas for export in the future…
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