By Vestnik Kavkaza
Azerbaijani President Ilham Aliyev has ordered the formation of a state commission for full-fledged development of the Shah Deniz Gas Field, expansion of the South Caucasus Pipeline (SCPX), as well as the realization of the Trans-Anatolia Pipeline (TANAP) and Trans-Adriatic Pipeline (TAP) projects.
Ilham Shaban, head of the Baku Center for Oil Studies, has commented on the formation of the commission and rumours about the petroleum industry of Azerbaijan in an interview with Vestnik Kavkaza.
- Azerbaijan has established the state commission for the Southern Gas Corridor project. What are the purposes of this decision?
- Azerbaijan has established a state commission of such level for the first time. It is attributed to the scale of the project. The point is that Azerbaijan needs to realize several high-scale projects to deliver gas to Europe. This concerns the development of the field itself and infrastructure projects. Where infrastructure projects are large and consist of several independent projects that will be realized on the territory of Azerbaijan, territory of Georgia, territory of Turkey and then on the territory of the European Union. The Azerbaijani company is taking part as a shareholder and an independent operator of the infrastructure projects for the first time. This is why all these projects should be realized and synchronized in order to deliver Azerbaijani gas. If one project is realized while another one is behind schedule, the whole project will be a failure, in other words, one project for Azerbaijani gas deliveries to Europe by 2019. Separately, these projects are different, one is not connected with the other. The state commission must control all this, connect it all. I think that the state leader made the decision definitely on time.
- What are the prospects of oil extraction in Azerbaijan? Can gas extraction compensate for the recession in the oil industry?
- This cannot be considered a compensation of, let’s say, income of zeri-Chirag-Guneshli (ACG). Income within the framework of ACG totaled $91 billion by October. This is income from ACG accumulated in the Oil Fund. Besides, they pay taxes that have been going straight to the state budget since 1995. The sum exceeded $100 billion Azerbaijan had as income within the framework of ACG. According to forecasts of the Oil Fund itself, Azerbaijani income within the framework of ACG will total $240 billion alone by late 2024.
Let’s take a look at the Shah Deniz project. In 2007, Azerbaijan started the first exports to Turkey. By October 1, 2013, the total income of Azerbaijan totaled only $1.5 billion. On the other hand, if we compare the gas and oil prices and remember that the price for gas is always connected with the oil price or the price for diesel fuel, or the price for heating oil, it is about a 40% equivalent of oil. In other words, even if Shah Deniz has twice as big reserves, they will not replace the income Azerbaijan is about to get from Azeri-Chirag-Guneshli.
Currently, the total expenses of Azerbaijan, together with capital and maintenance expenditures in ratio to Azeri-Chirag-Guneshli total about $35 billion. Bringing Azerbaijani gas to the European border, in other words, to extract it and build the basic infrastructure, will cost about $30 billion. The deepwater Shah Deniz gas will need enormous investments for extraction.
Looking at oil extraction, the source lies at an average depth of 3500m. In Shah Deniz it is about 7km, 6800-6900m deep. The biological conditions are very important here, even incomparable. The depth of the sea is 140-200m in one place, 550m in the other. We plan to export 10 billion cubic meters to Europe. We cannot ask for more within the framework of Stage-2. And only 6 billion cubic meters will be exported to Turkey. This is the first path we lay to Europe. We open way to other projects in the future. The future will be open for us, I believe, by 2024-2025.
This is a new age, new technologies, absolutely different projects, maybe even Shah Deniz 3. We are the opening pioneer of the deepwater Caspian. Not a single company in the worlds has made such risks before. Now, the first step has been made and it starts with this first step.
- But what if Shah Deniz 2 fails to bring in a big income?
- It will bring in a income, as it is commercially profitable. Otherwise, no one would be working on it and would not have spent $3 billion since 2010. The project is profitable, that is why it was approved.
- Can new fields be discovered in Azerbaijan?
- Starting in 1980, when the Guneshli Field was discovered, the shallow-water part, and then the deepwater one, and Azeri, and Chirag, everything has been drilled and explored in 30 years. In fact, only one oil field was discovered in the Caspian, the Kashagan. These are large fields. Other fields are small fields of LUKOIL in the Caspian. The southern and central parts have no fields, in fact.
The only hope is for condensate fields. There are big hopes because absolutely new layers of condensate have been found at a depth of about 6,000m at the killed well of SOCAR. It means that the depths of the Caspian, starting from 6km, have really big amounts of gas and condensate. There has always been condensate in gas fields discovered. Almost 1.5-2 million tons of condensate can be extracted from every field, this is a good result.
- How long will Azerbaijan extract oil?
- Azerbaijan can extract oil forever. It is such a thing where everything ends when the tap gets closed. In order to fulfill the needs for 6-8 million tons of oil via condensate, Azerbaijan can keep extracting oil at this level for 50 or 60 years.
