The Outlook for Azerbaijani Gas Supplies to Europe: Challenges and Perspectives
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June 2015 The Outlook for Azerbaijani Gas Supplies to Europe: Challenges and Perspectives OIES PAPER: NG 97 Gulmira Rzayeva OIES Research Associate The contents of this paper are the authors’ sole responsibility. They do not necessarily represent the views of the Oxford Institute for Energy Studies or any of its members. Copyright © 2015 Oxford Institute for Energy Studies (Registered Charity, No. 286084) This publication may be reproduced in part for educational or non-profit purposes without special permission from the copyright holder, provided acknowledgment of the source is made. No use of this publication may be made for resale or for any other commercial purpose whatsoever without prior permission in writing from the Oxford Institute for Energy Studies. ISBN 978-1-78467-028-3 i April 2015: The Outlook for Azerbaijani Gas Supplies to Europe Contents Preface ................................................................................................................................................... v Acknowledgements ............................................................................................................................. vi Introduction ........................................................................................................................................... 1 1. Natural Gas in Azerbaijan – Historical Context .......................................................................... 4 The first stage of Azerbaijan’s oil and gas history (1846-1920)....................................................... 4 The second stage of Azerbaijan’s oil and gas history (1920-1949) ................................................. 5 The third stage of Azerbaijan’s oil and gas history (1950-1969) ..................................................... 6 The fourth stage of Azerbaijan’s oil and gas history (1969-1991) ................................................... 7 The fifth stage of Azerbaijan’s oil and gas history (from 1991)........................................................ 8 2. Outlook for Azerbaijan Gas production and Exports: Shah Deniz Phases 1 and 2 .............. 11 2.1 Shah Deniz Phase 1 ................................................................................................................... 11 Non-SD1 Gas export...................................................................................................................... 17 2.2 Shah Deniz Phase 2 ................................................................................................................... 19 2.2.1 South Caucasus Pipeline Expansion ............................................................................... 22 2.2.2 Trans-Anatolian Pipeline (TANAP) .................................................................................. 24 Gas supplies to Turkey .................................................................................................................. 25 2.2.3 Selection of the market .................................................................................................... 25 2.2.4 Trans-Adriatic pipeline ..................................................................................................... 26 2.2.5 Azerbaijan Gas Supply Company Limited ....................................................................... 29 2.2.6 EU Gas Sales Agreements .............................................................................................. 30 Gas sales to BOTAŞ ...................................................................................................................... 30 2.3 Summary ..................................................................................................................................... 31 3. SOCAR gas production portfolio: ACG Associated Gas and Shallow Water Guneshli, Gum Deniz-Bahar/Bahar2 and Bulla Deniz ................................................................................................ 32 3.1 ACG Associated Gas .................................................................................................................. 34 3.2 Gum Deniz – Bahar/Bahar 2 ....................................................................................................... 35 3.3 Bulla Deniz .................................................................................................................................. 37 3.4 Summary ..................................................................................................................................... 37 4. Drilling Rigs in Azerbaijan .......................................................................................................... 38 5. Commercial Natural Gas Reserves and Partially Appraised Discoveries: Absheron, ACG Non-Associated Gas, Umid and Babek ............................................................................................. 41 5.1 Absheron ..................................................................................................................................... 44 5.1.1 Challenges ....................................................................................................................... 45 5.2 The Umid-Babek field .................................................................................................................. 46 5.3 Azeri-Chirag-Guneshli non-associated natural gas (ACG-NAG) ................................................ 48 5.4 Summary ..................................................................................................................................... 49 6. Exploration Prospects: SD3, Nakhchivan, Shafag-Asiman, Zafar-Mashal, Garabagh, Inam, Alov-Araz-Sharg .................................................................................................................................. 51 6.1 Shah Deniz Phase 3 ................................................................................................................... 54 6.2 The Nakhchivan Block ................................................................................................................ 54 6.3 The Shafag-Asiman block ........................................................................................................... 55 6.4 The Araz -Alov- Sharg block ....................................................................................................... 55 6.5 The Zafar-Mashal block .............................................................................................................. 56 6.6 The Inam Block ........................................................................................................................... 57 6.7 The Garabagh block .................................................................................................................... 57 6.8 Summary ..................................................................................................................................... 58 7. Possible Marketing Arrangements for and Transportation of Un-contracted gas ............... 60 7.1 Marketing .................................................................................................................................... 60 7.2 Infrastructure capacity ................................................................................................................. 61 7.2.1 South Caucasus Pipeline ................................................................................................. 61 ii April 2015: The Outlook for Azerbaijani Gas Supplies to Europe 7.2.2 Trans-Anatolian Pipeline (TANAP) .................................................................................. 64 7.2.3 Trans-Adriatic pipeline (TAP) ........................................................................................... 65 7.3 Suitable market for the future volumes ....................................................................................... 66 7.3.1 The Turkish market .......................................................................................................... 67 7.3.2 The European market ...................................................................................................... 69 7.4 Summary ..................................................................................................................................... 72 8. Conclusions ................................................................................................................................. 73 Glossary ............................................................................................................................................... 75 Bibliography ........................................................................................................................................ 77 Figures Figure 1: Oil production in Azerbaijan 1870 – 1920 (Million tonnes) ...................................................... 5 Figure 2: Total natural gas produced between 1923 and 1932 .............................................................. 6 Figure 3: Natural gas production in Azerbaijan, 1950-1990 (bcm) ......................................................... 8 Figure 4: Shah Deniz Production Sharing Agreement: Shareholders and stakes (%) ......................... 13 Figure 5: Azerbaijan natural gas production and consumption 2003-2013 (bcm/a) ............................. 14 Figure 6: The natural gas volumes contracted under Shah Deniz Phase 1 (bcm/a) ............................ 14 Figure 7: The natural gas exports (delivered