Azerbaijan energy potential Dr. Ingilab Ahmadov Khazar University 2008/2009.

Azerbaijan energy potential

Dr. Ingilab Ahmadov

Khazar University2008/2009

Dr.İngilab Ahmadov 2


Azerbaijan: country profile

Independence re-gained: 18 October 1991 Location: South Caucasus Total area: 86,600 km²86,600 km² Population: (January 1, 2008): 8,6 mln.(January 1, 2008): 8,6 mln. Official language: AzerbaijaniAzerbaijani Currency: Manat (AZN)Manat (AZN) GDP per capita: 5550 USD5550 USD FDI: FDI: $3790.7 mln.


Main economic indicators related to oil wealth

Years 2002 2003 2004 2005 2006 2007 2008

GDP growth (%) 10.6 11.2 10.2 26.4 34.5 25.4 10.8

Inflation rate (%) 3.3 2.2 6.7 9.7 8.3 16.7 20.8

Budget income (mln.AZN) 910.2 1225.5 1481.2 2055.2 3881.2 6006.6 10763

Budget expenses (mln.AZN) 931.7 1234.0 1501.0 2140.7 3789.7 6086.2 10680

SOFAZ budget income (mln.AZN) 176 244 185.8 215.6 986 1886.2 11867.4

SOFAZ budget expenses (mln.AZN) 30.8 243.6 168.7 214.6 981.4 1061.2 4291.8

Transfers from SOFAZ to state budget (mln.AZN)

- 100 130 150 585 585 3800

SOFAZ assets (bln.$) - - - - 2.97 5.36 11.2

Poverty rate (%) 46.7 44.7 40.2 29.3 20.8 18 - 20 13.2


Inflation dynamics


Economic growth (2008)

Robust economic growth in recent years, supported by high oil production and export and higher oil prices

Oil sector’s share in GDP (52.8%) (2007)

Oil sector’s share in Budget revenues (64%)

Oil sector’s share in Investment (51%)

Oil sector’s share in Export (97%)

Oil & gas sector


Proven oil reserves: 7 billion bbl (2005) Oil production: 44.5 mln. tons (329 mln.bbl) (2008) Oil exports: 35 mln. tons (259 mln.bbl) (2008)

Proven natural gas reserves: 2 trillion cu m (2008) Natural gas production: 16.3 billion cu m (2008) Natural gas export: 1.7 billion cu m (2007)

Total active of the State Oil Fund- 11.2 bln.USD (January 2009)


Azeri oil history

• First oil well in the world was drilled in 1846 in Baku near “Bibi Heybat”

• First wagon cistern for oil transportation in the world was exploited in 1872 in Baku

• First tanker in the world was built in 1871 in Baku by Royal Dutch Shell company

• First (wooden) pipeline in the world –Baku-Batum was built in 1905


Crude oil proven reserves in CIS


Regional distribution of proven oil reserves

Azerbaijan15%

Turkmeni-stan1%

Uzbekistan1%

Kazakhstan83%


Global distribution of proven oil reserves

Middle East61.8%

Europe&EurasiawithoutCaspian

7.8% Caspian3.9%

S.&CentralAmerica

8.6%North America

5%

Asia Pacific3.4%

Africa9.5%


Crude oil Production in CIS


0.0

0.5

1.0

1.5

2.0

2.5

3.0

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Other Caspian

Turkmenistan

Azerbaijan

Kazakhstan

mbpd CGES estimates

Oil production growth

Oil production in the Caspian Sea region

533,000

210,000

870,000

1,400,000

113,000

235,000

+163%

+270%

+86%


Azerbaijan outlook

Oil production outlook for Azerbaijan

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

Deep water prospects

Shakh Deniz

AIOC

Socar offshore

JV/PSA onshore

Socar onshore

mbpd


Natural Gas reserves in CIS


Natural Gas reserves in CIS


Regional distribution of proven gas reserves

Kazakhistan33%

Turkmenistan32%

Uzbekistan20%

Azerbaijan15%


Global distribution of proven gas reserves

Total Middle East40.1%

Total Africa8%

Total Asia Pacif ic8.3%

Total North America

4.1% Total S. & Cent. America

3.9%

Total Europe & Eurasia35.6%


Azerbaijan energy sector.Oil production, consumption and reserves

1991 2000 2007 2007, share of world total, %

Oil production, million tonnes

12.5 14.1 42.8 1.1

Domestic oil consumption, million tonnes

8.5 6.3 4.5 0.1

Proven reserves, billion tonnes

1.0 0.6

Source: BP (2008 June)


Azerbaijan energy sector.

Gas production, consumption and reserves

1991 2000 2007 2007,share of total, %

Gas production, bcm

9.2 5.3 10.3 0.2

Domestic gas consumption, bcm

15.8 5.4 8.3 0.3

Proven reserves, trillion cubic metres

- - 1.28 0.7

Source: BP (2008 June)


Ownership, liberalization, key players Oil sector The State Oil Company of Azerbaijan Republic (SOCAR) is the state-owned oil and natural

gas corporation in Azerbaijan. It produces oil and natural gas, operates two oil refineries and the running of oil and gas pipelines through out the country.

SOCAR was established in September 1992 upon the merger of Azerbaijan's two state oil companies, Azerneft and Azneftkimiya. Azerneft was created after the Socialist Revolution through the nationalization of the Azerbaijani oil industry.

Gas sector Azerigas is one of three state-run companies concerned with the maintenance of

Azerbaijan's energy sector. It has 100% Government ownership.

Electricity AzerEnerjy – state electric company – the monopolist on power generation, the country's

national electricity network is divided into five regional grids: Baku, Nakhchivan, North (Sumqayit), South (Ali Bayramli), and West (Ganja). Each of these has been opened to foreign investors via joint stock companies.

Regulation: Ministry of Industry and Energy


Azerbaijan energy sector. Key players

Oil and gas extraction and export: State Oil Company of the Azerbaijan Republic (SOCAR); British Petroleum (BP) and other foreign oil companies (Statoil,

ExxonMobil, TotalFinaElf, Lukoil, Itochu and others) that are contractors in PSAs signed by the government;

Oil and gas processing: State Oil Company of the Azerbaijan Republic (SOCAR);

The sale of oil products on the domestic market: State Oil Company of the Azerbaijan Republic (SOCAR); Azpetrol (private company); ABU Petrol (private company)


Azerbaijan energy sector. Key players

Power generation and distribution: Azerenergy JSC – a producer and distributor of electricity

(100 per cent of shares belong to the state)

Natural gas distribution: Azerigas JSC – a gas distributing company (100 per cent of

shares belong to the state)


Oil factor

short time oil boom

huge revenues

cash flow absorbing

capture incomes


Azerbaijan energy sector.

SWOT Analysis

Strengths:

Existence of oil and gas reserves (availability for at least 25 years within current development of reserves)

Common border with countries that possess considerable energy reserves: Russia, Iran, Kazakhstan and Turkmenistan

Location as a transit country Availability of regional oil and gas pipeline Established gas transmission network Refining capacity


Azerbaijan energy sector.SWOT Analysis

Weaknesses:

• Physical obsolescence of electricity and gas transmission networks

• Limited gas storage

• A weak legislative and regulatory framework

• The unresolved status of the Caspian Sea with Iran and Turkmenistan



Opportunities:

• Increased production of domestic resources (oil and gas)

• Expansion of the transit infrastructure

• Increasing volumes of the transit of Central Asian hydrocarbon reserves



Threats:

• Pressures on fiscal revenue streams as a result of explicit and implicit subsidies

• The country’s transformation from an exporter of energy resources into an importer (in 25-30 years)

• Proximity to conflict zones and terrorist threats

• Dutch disease – potential problems of non-energy sectors of

the economy


PSA Contracts

Operating Company Fields Signing Operator Status

1) AIOC "Azeri-Chirag-Guneshli"

On 20 September 1994

BP

PRODUCTION

2) BP Exploration (Shah-Deniz) Ltd.

"Shah-Deniz", On 4 June 1996 BP

PRODUCTION

3) Salyan Oil Ltd "Kursengi" and "Garabaghly"

On 15 December 1998

CNPC

PRODUCTION

4) Karasu Operating Company

"Kelameddin" and "Mishovdag"

On 12 September 2000

Nations Energy

PRODUCTION

5) Gobustan Operating Company

"Southwest Gobustan"

On 2 June 1998 CNPC

PRODUCTION


PSA Contracts

6) AzShengli Operating Company

"Pirsaat" On 4 June 2003 Shengli Oil

PRODUCTION

7) Binagadioil "Binagadi" On 18 June 2004 AZEN Oil

PRODUCTION

8) Garachukhuroil "Garachukhur" On 29 September 2004

Noble Sky

PRODUCTION

9) Surakhanioil "Surakhany" August 2004 RAFI Oil

PRODUCTION

10) Kura Valley Company (KVC)

"Padar" On 27 April 1999 Nations Energy

PRODUCTION

11) Absheron Operating Company

"Zykh" & "Hovsan" On 3 November 2005

“РуссНефть”

PRODUCTION


PSA Contracts

1) BP Exploration (Alov) Ltd.

Araz, Alov and Sharq

On 21 July 1998 ВРDELAYED

2) BP Exploration (INAM) Ltd.

"Inam"

21 July 1998 ВР

DELAYED

3)LUKARCO Operating Company

"D-222"

On 4 July 1997 LUKoil

DELAYED

1) UT Lokbatan Ltd "Umbaki", "North Karadag", "Korgoz"

On 10 August 1994 BMB Oil

CANCEL

2) CASPIAN INTERNATIONAL PETROLEUM COMPANY (CIPCO)

("Garabakh")

On 10 November 1995

Pennzoil

CANCEL

3) North Absheron Operating Company (NAOC)

("Ashrafi" and "Dan Ulduzu")

On 14 December 1996

Amoco

CANCEL


PSA Contracts

4) Elf Petroleum Lenkoran/Talysh B.V.

"Lenkoran-deniz“ and "Talysh deniz"

On 13 January 1997 Elf Petroleum

CANCEL

5) Agip Azerbaijan B.V.

"Kurdashy", "Araz-deniz" and "Gurgan"

On 2 June 1998 Agip

CANCEL

6) Muradkhanly Operating Company (MOC)

"Muradkhanly" On 21 July 1998 Ramco Energy

CANCEL

7) Oguz Operating Company

"Oguz" On 1 August 1997 ExxonMobil

CANCEL

8) Chevron Overseas Petroleum Azerbaijan Ltd.

"Absheron" On 1 August 1997 Chevron

CANCEL

9) Japan Azerbaijan Operating Company

"Ateshgah", "Yanan Tava" and "Mugan-deniz"

On 5 December 1998

Japex

CANCEL


PSA Contracts

10) ExxonMobil Azerbaijan Operating Company

"Nakhchivan"

On 1 August 1997 ExxonMobil

CANCEL

11) Exxon Azerbaijan Operating Company

"Zafar" and "Mashal"

On 27 April 1999 ExxonMobil

CANCEL

12) LUKoil Overseas Azerbaijan Company

"Zykh" and "Hovsan"

On 9 January 2001 LUKoil

CANCEL

13) Shirvan oil Operating Company

"Kurovdag"

On 5 November 2004

Caspian Energy Group

CANCEL

1) OFFSHORE STRUCTURES

"Lerik Deniz", "Dalga", "Savalan" and "Janub"

On 27 April 1999 ExxonMobil

UNVALIDATED

Thanks for your attention!

Azerbaijan energy potential Dr. Ingilab Ahmadov Khazar University 2008/2009.

Documents

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