The year 2021 was rich in events in the oil and gas and energy sectors both in Azerbaijan and beyond. Global oil prices have risen compared to 2020, when the coronavirus pandemic was raging around the world, and gas prices rose sharply. More people in the world began to think about getting energy from alternative sources. Report once again reminds its readers of the most memorable events of the current year in the oil, gas and energy sector.
Azerbaijani gas in Europe
The outset of 2021 was marked by the commencement of transportation of Azerbaijani commercial gas via the Trans-Adriatic Gas Pipeline (TAP), the last segment of the Southern Gas Corridor. Thus, for the first time in history, Azerbaijani natural gas entered the European market directly. Following the successful connection of TAP to the Italian gas distribution network, commercial natural gas was delivered from Melendugno station via the SNAM Rete Gas (SRG) gas distribution network to Italy, and via a connection point in Nea Mesimvria via the DESFA network to Greece and Bulgaria. Azerbaijan, which gained direct access to the European gas market, where most of the natural gas in the world is imported, has diversified its export opportunities.
According to the latest data, about 6.3 billion cubic meters of natural gas were pumped through TAP to Europe. Gas market participants hope that up to 8 billion cubic meters of Azerbaijani gas will be transported by the end of the year.
Since the beginning of 2021, natural gas has been supplied from Azerbaijan to Bulgaria in the amount of 1 billion cubic meters per year on the basis of a contract between the State Oil Company of Azerbaijan (SOCAR) and the Bulgarian company Bulgargaz. In the same year, Hungary announced the start of negotiations on the purchase of Azerbaijani gas, stating that it would complete the construction of a section of the pipeline that would transport Azerbaijani gas to the country.
Gas strengthens brotherhood
At the outset of 2021, the Turkish parliament ratified the Nakhchivan-Igdir gas pipeline project. Nakhchivan will be able to fully meet the growing energy needs with support from both Iran and Turkey. The pipeline with a throughput capacity of 500 million cubic meters of natural gas will transport gas to Nakhchivan with a population of 500 thousand people, which will fully satisfy Nakhchivan's gas needs.
On December 15, 2020, in Ankara, the Ministry of Energy of Azerbaijan and the Ministry of Energy and Natural Resources of Turkey signed a Memorandum of Understanding on the supply of natural gas to the Nakhchivan Autonomous Republic.
Moreover, this year Turkey and Azerbaijan signed a trade agreement on the supply of an additional 11 billion cubic meters of gas via the Baku-Tbilisi-Erzurum pipeline. The agreement is valid until the end of 2024. According to the contract, which expired in April 2021, Turkey annually supplied 6.6 billion cubic meters of gas from the Shah Deniz gas field in the Azerbaijani sector of the Caspian Sea via the Baku-Tbilisi-Erzurum pipeline.
This year, the issue of joint development of the Dostlug field, which Azerbaijan calls "Kapaz" and Turkmenistan calls "Sardar", was also raised. In January, in Ashgabat, the capital of Turkmenistan, a Memorandum of Understanding was signed between the Government of the Republic of Azerbaijan and the Government of Turkmenistan on joint exploration, development and development of hydrocarbon resources of the Dostlug field in the Caspian Sea. This field which is located in the Caspian Sea on the border between the two Turkic speaking states was discovered by Azerbaijani oilmen during the Soviet era at a depth of 4 kilometers, and the first exploratory well was drilled there in 1989. The hydrocarbon resources of the Dostlug field will be distributed between the parties in a ratio of 30% (Azerbaijan) and 70% (Turkmenistan). The transportation of hydrocarbon resources extracted from the Dostlug field, intended for export to international markets, will be carried out on the basis of competitive conditions using the existing transport and transit systems of Azerbaijan.
The "gas year" continued with the signing in Ashgabat of a trilateral agreement on swap gas supplies between Iran, Turkmenistan and Azerbaijan. The signing ceremony was attended by President of Azerbaijan Ilham Aliyev and President of Iran Seyid Ebrahim Raisi. According to the agreement, up to 1.5-2 billion cubic meters of gas per year will be supplied from Turkmenistan through Iran to Azerbaijan.
Last year, the price of natural gas on the world market broke a new record, exceeding $2,000. Considering record gas prices in Europe and the fact that the European Union buys gas from Russia, all this was regarded as a good opportunity for Azerbaijani gas and Azerbaijan in general.
Renewed SOCAR and new successes
One of the most memorable events of the outgoing year was the signing by President Ilham Aliyev of a decree on improving the management of SOCAR, which was transferred to the Azerbaijani investment holding. SOCAR's Supervisory Board was established to provide general guidance and control over the company's activities. Some vice presidents have been replaced in SOCAR, and the creation of a new structure has been launched. By order of the President, Minister of Economy Mikail Jabbarov was appointed Chairman of the Supervisory Board of SOCAR.
Earlier this year, SOCAR Trading, a subsidiary of SOCAR, entered into a long-term contract with the Belarusian Oil Company to supply Azerbaijani oil, as well as potentially other oil grades, to Belarusian refineries. In 2021, SOCAR Trading supplied about one million tons of oil to Belarus.
In 2021, SOCAR increased its participation in the Shah Deniz and South Caucasus Pipeline projects. The company decided to exercise its preemptive buyout option after the Malaysian company Petronas decided to sell its stake in the project. SOCAR bought out 4.35% of the project's shares from Petronas in accordance with the terms of the agreement. The remaining 11.15% of Petronas shares were acquired by Lukoil (the company's share will be 14.35%) and the project operator BP. The changes will take effect in January 2022.
Changes in partner companies' shares in the Shah Deniz project also affected the distribution of shares of companies in the South Caucasus Pipeline, which is one of the segments of the Southern Gas Corridor.
In addition, the outgoing year was marked by the completed transfer of the operatorship in the South Caucasus Pipeline (SCP) from BP Exploration (Shah Deniz) Limited to SOCAR Midstream Operations Limited.
The transfer of technical operatorship was envisaged in the updated version of the agreement between the owners of SCP, signed in December 2013. The agreement grants SOCAR the right to take over the technical operatorship of the gas pipeline one year after the completion of its expansion project. Construction work for the expansion of the pipeline was completed in March 2019. In March 2020, SOCAR Midstream Operations Limited officially became the technical operator of SCP during the agreed transition period. The transition process, which began in March last year, was successfully completed in July 2021.
Distribution of companies' shares in Caspian Sea
It is not only SOCAR that has increased its share in energy projects in Azerbaijan in 2021. BP has agreed to purchase a 1.16% stake in Petronas in the Shah Deniz field for $168 million. As a result, BP's total stake in Shah Deniz will amount to 29.99%, and BP will remain the operator of the field. The rest of Petronas' stake - 9.99%, is bought by the Russian Lukoil. Thus, the company's share in the project will increase from 10% to 19.99%.
BP agreed to sell to Lukoil 25% of its stake in the Shallow Water Part of the Absheron Peninsula (SWAP) exploration project in the Azerbaijani sector of the Caspian Sea. After the closing of the deal, BP will remain the operator of the project with a 25% participation interest. Upon completion of the transaction, the shares in the SWAP project will be distributed as follows: SOCAR - 50%, BP and Lukoil - 25% each, respectively.
ACG and Shah Deniz - drivers of economic growth again
The drivers of Azerbaijan's oil and gas sector - the Azeri-Chirag-Guneshli (ACG) and Shah Deniz projects, carried out jointly with foreign partners, moved forward and brought profit to all participants, despite the protracted pandemic and, as a result, the complexity of logistics and the need for increased measures of epidemic safety.
The major oil project in Azerbaijan remained the most significant oil producer in the country in 2021.
To date, almost 545 million tons of oil have been produced within the framework of the project, that is, almost the entire volume in which the total recoverable reserves of the field were estimated when the contract was signed in 1994. Nevertheless, there are still many years ahead - until the middle of the century - of the activity of a foreign consortium and SOCAR at ACG. This means that the estimate of the reserves was more than conservative.
Within the framework of the project, the construction of a new platform, Azeri Central-Eastern (ACE), continues, which will allow to extend the production plateau and prevent a sharp drop in production at the fields that have already entered the maturity period. 2022 will be a very important year for the ACE project, as the operator of the BP project plans to start production from a new offshore platform in a year.
The Shah Deniz gas project also makes a significant contribution to the production of liquid hydrocarbons. Gas condensate, a high quality product, from the field gave additional volumes - about 34 million tons of liquid hydrocarbons (data as of early December).
Thanks to this, the total production at the ACG and Shah Deniz offshore fields amounted to almost 580 million tons of oil (together with condensate).
Nobody disputes the importance of the Shah Deniz project and the Southern Gas Corridor (SKG) in general, of which the development of this field is an integral part. At the very end of 2020, the first volumes of fuel from it began to flow to Europe, implementing a project supported in the region, in Europe and the United States to supply gas to the EU via a new route and from a new source. Moreover, the recipients of Azerbaijani gas in Europe "took" the volume in excess of those contracted against the background of the gas shock in the EU.
BP-operated Shah Deniz is gradually increasing production through the commissioning of new wells at subsea development centers. According to the information, the daily capacity of the first and second stages of development of the field already exceeds 25 billion cubic meters of gas per year, next year a plateau of 26 billion will be reached. An important milestone was the equation of production levels with Shah Deniz-1 and Shah Deniz-2 in July this year. Over the entire period of operation of the gas condensate field, more than 155.3 billion cubic meters of gas were produced here (until December 1), 106 billion of which were exported.
Flourishing, free Karabakh
After a 44-day war, crowned with a victory for Azerbaijan, the creation of a "green energy zone" began in the territories liberated from occupation on the instructions of the head of state. To this end, negotiations have started with investors on the use of renewable energy sources.
Along with this, work continues to attract private investment in the production of traditional energy resources.
In short, in Karabakh and East Zangazur, the development of the concept of "green space" has begun, taking into account international experience in this area. Negotiations are underway with the International Renewable Energy Agency. According to preliminary estimates, the potential here is to generate more than 4,000 megawatts of energy from the sun, and up to 500 megawatts from wind. An inventory of small hydropower plants has begun.
Pilot projects are being implemented. On December 29, 2020, contracts were signed with ACWA Power (Saudi Arabia) for the construction of a 240 MW wind farm. In total, it is planned to invest $300 million in the implementation of the project. As a result, 200 million cubic meters of gas per year will be saved, the volume of emissions into the environment will be reduced to 400,000 tons per year.
In April 2021, an agreement was signed on the implementation of a project for the construction of a solar power plant in Azerbaijan. The Azerbaijani government and the Masdar company (UAE) signed a contract for the construction of a solar power plant with a capacity of 230 megawatts in the vicinity of the village of Alat. The total investment value of the project is about $200 million.
Azerbaijan aims to increase the share of renewable energy sources in the country's total production capacity from the current 17.3% to 24% in 2025 and to 30% in 2030.
Post-victory construction work
The Great Victory in Karabakh was followed by the commencement of construction in the regions liberated from occupation. In order to ensure flawless supply of vehicles with fuel, SOCAR Petroleum is opening new filling stations in the areas liberated from the occupation. First it set up modular-type filling stations in Shusha, and then in the Agdam district. The third filling station was opened in the territory of the Eyvazli village of the Gubadli district. A new gas station under the SOCAR brand has been commissioned in Gubadli, on the Goris-Gafan road.
In Karabakh and East Zangazur, “Azerenerji” built and put into operation nine substations, all of them connected to Azerbaijan's power grid and fully digitized. Small hydroelectric power stations “Gulabird”, “Sugovushan-1” and “Sugovushan-2” were reconstructed and put into operation. Reconstruction works have been completed at the Kalbajar-1 small hydroelectric power station.
In 2021, nine digital substations were built in Karabakh and East Zangazur - Shusha, Fuzuli, Shukurbeyli, Kalbajar, Jabrail, Zangilan, Gubadli, the opening of which took place with the participation of the head of state, and construction of substations "Agdam-1", "Agdam-2", built in the Agdam region, and the regional control center "Karabakh".
A new 110-kV line has been laid at the Shukurbayli substation, 51 km from Beylagan. A 110 kV line was laid 19 km from the Gubadly substation to the Gulabird HPP. In addition, a 110 kV power transmission line has been connected from the Dashkesan substation through Murovdag to the new Kalbajar substation. A double-circuit 110 kV power transmission line has been laid from substation "Khindiristan" to substations "Aghdam-1" and "Aghdam-2".
With high hopes for the coming year
2022 promises great hopes for Azerbaijan. In the liberated from occupation Karabakh, creative work is underway, projects in the energy sector are being implemented. Azerbaijan is a reliable energy partner not only in the region, but also in the world. We build up our potential day in and day out.