Aliyev Announces Major Energy Discovery On State TV

The last several months have been full of good news for the national oil company of Azerbaijan. As the country prepares to celebrate the anniversary of the “Contract of the Century” (the main oil contract signed in 1994 between Azerbaijan and a consortium of western oil companies), the headlines have been filled with the new discovery of a large gas field outside Baku’s Caspian shore. In early September, President Ilham Aliyev met with the representatives of the French company Total, who informed the head of state that the exploratory work in the Absheron field (signed in February 2009) had produced positive results. It is estimated that the energy deposits in this field reach 350 billion cubic meters (bcm) of gas and 45 million tons of condensate (www.trend.az). Total shares this field with the state oil company of Azerbaijan (SOCAR) and Gaz de France Suez.

The news was so significant that President Aliyev personally addressed the nation on state television. It is also very timely, just prior to the visit by the French President Sarkozy to the South Caucasus. And Azerbaijan expects to reap some political benefits, as France is one of the three co-chairs of the OSCE’s Minsk group, mediating the Armenian-Azerbaijani conflict. The newly discovered field increases the gas capacity of the country up to 2.55 trillion cubic meters (tcm). Previously, the state oil company of Azerbaijan had concluded exploratory work in Umid field and discovered 200 bcm of gas and 40,000 tons of condensate (www.1news.az, September 19).

In his interview on the website of the ruling party, SOCAR’s President Rovnag Abdullayev explained that future exploratory works are planned in the field “Shafag Asiman,” in partnership with BP, and in the field “Nakhchivan,” in partnership with the German company RWE. The latter is estimated to hold 30 bcm of gas and 40 million tons of condensate. Moreover, the Azeri-Chirag-Guneshli field has proven reserves of 300 bcm of gas (www.yap.org.az, September 19).

These latest discoveries seriously weaken the position of those who oppose the proposed Nabucco pipeline (capacity of 30 bcm) for the transportation of Caspian gas to European markets, alleging that there is just not enough Azeri gas to fill it in the early stages of the project. Abdullayev noted that his company plans to increase the output of gas to 30 bcm annually by 2015. As Europe will depend on energy exports by 70 percent in 2020, the importance of Azeri gas for this market will become even more vital. Thus, the great rivalry over the transport routes of the Caspian is likely to resume again.

On September 19, the Ukrainian Energy Minister Yuriy Boyko visited Baku in order to hold talks on the issue of transporting Azeri gas through the territory of Ukraine (www.day.az, September 19). Initial estimates show that Ukraine is interested in purchasing up to 5 bcm of Azeri gas starting in 2014. As a proposed transportation route, the Ukrainian side is proposing to build gas compression stations on the Ukrainian and Georgian shores of the Black sea and transport Azeri gas in compressed form.

Meanwhile, Azerbaijan’s Energy and Industry Minister Natig Aliyev informed journalists on the same day that seven companies are bidding for the preparation of a technical-economic feasibility study for the proposed pipeline AGRI (Azerbaijan, Georgia, Romania Interconnector). The winner is expected to be chosen during the next meeting of the intergovernmental working group (www.1news.az, September 19).

Nevertheless, the major question still remains over the final fate of the Azerbaijani-Turkish agreement on the transport of Azeri gas from the major Shah Deniz field to European markets. Without this agreement, the fate of Nabucco will be bleak. On September 16, Reuters quoted Natig Aliyev as saying that the final package of agreements might be signed in early October. The document, which until now has been a thorny issue in bilateral discussions, envisions an agreement between Azerbaijan and Turkey on the sale of 6 bcm of Azeri gas to the domestic Turkish market and the additional transit of 10 bcm of gas to European markets.