In Energy We Trust

What do you expect to be the impact of the Shah Deniz II final investment decision (FID) on Azerbaijan’s energy sector?

At the beginning of 2014, our President gave a speech saying that 2013 was very successful, especially in the energy sector, because the country signed some important agreements. Of course, I agree that the most important agreement we signed was the FID, and it was significant because it signaled the start of the southern gas corridor after two or three years of tough negotiations. Azerbaijan always worked hard to get the best deal on transit and delivery rights for gas headed to the European market. On December 17, 2013, the deal was concluded and nine companies signed documents with the state oil company on the sale of 10 billion cubic meters (bcm) of gas to the European market. A Memorandum of Understanding (MoU) was also signed between the ministers of energy in several Balkan countries, meaning that the southern gas corridor does not just concern Italy, but also Georgia, Turkey, Greece, and Albania. Furthermore, we are considering expanding this corridor, which is why we involved several countries in the December signing. Our desire is to have a very strong, large-scale southern corridor. To finally have a decision about the upstream was very important for Azerbaijan because the upstream portion of Shah Deniz II is a large investment of approximately $27 billion. If we factor in other costs, such as the expansion of the Sangachal Terminal and of the South Caucasus Pipeline, which are worth approximately $6.5 billion, and the construction of the Trans-Anatolian Pipeline (TANAP) on Turkish territory, which has an estimated cost of $13 billion, it brings the total cost of the investment to approximately $50 billion. Such a large investment must be handled responsibly, which is why our President established a state committee on the monitoring of all these projects and to support the companies that will implement this project in Azerbaijan and the region. In the future, Turkmenistan and Kazakhstan may use the infrastructure we are currently building to export their resources to the European market. As such, the Shah Deniz II FID will have a major positive impact on the economies of many countries, including Azerbaijan, Turkey, Georgia, Italy, Greece, and Albania.

To what extent do you believe this project is just the beginning of further gas projects from Azerbaijan to Europe?

In order to answer this question, we have to look at the Caspian region’s energy resources, which are tremendous. According to UN statistics, oil and gas production will double in the Caspian region by 2035. In recent years, Azerbaijan increased its oil production five times. Kazakhstan is going to increase its production because it has giant oil fields like Kashagan. Turkmenistan has tremendous gas reserves, as Yolotan is the biggest gas field in the world. I think this is just the beginning because many resources will be added to existing production. There are talks about adding Iranian and Iraqi gas reserves to this corridor. The third factor is that many countries need energy resources, such as natural gas. The demand opens up opportunities for us because the gas corridor can serve more and more markets. Recently, I met the Prime Minister of Bulgaria, who expressed his interest in the interconnection between Turkey and Bulgaria. Other neighboring countries, such as Montenegro and Serbia, are also very interested in having this corridor elongated. The people of these countries need natural gas for cooking, lighting, living, and generally improving their living conditions. That is why I think what we are doing now is only the beginning. In the next decade, all these ideas will be implemented.

Looking at the future of the upstream sector in Azerbaijan, to what extent do you expect SOCAR to play a role in this sector?

For the government of Azerbaijan, it is not so important to have large-scale production in the short term, but stable production in the long term. That is why I am very glad that in 2013 Azerbaijan produced 43.5 million tons of crude oil, similar to its 2012 levels of production. Stable production is good for the whole economy because it is the main source of cash flow. SOCAR’s oil production is slowly decreasing from year to year because it has very old oil fields and it is natural that we have seen some decline in production. SOCAR’s production goes to refineries and only its crude oil is refined at our refineries. As the population’s standard of living increases, so does the demand for fuel and energy. It is very important for us that SOCAR’s production remains stable. In the future, I don’t think SOCAR will need to export crude oil. Demand is growing, and that is why we want to refine more here. That is why I think this is our future vision. What about Baku-Tbilisi-Ceyhan (BTC)? Now, the BTC, for us, is a very important pipeline to deliver our oil for export to international markets. We also expanded its capacity. It was designed for 1 million barrels per day, and we expanded it up to 1.2 million. We have options to increase this capacity if needed. Before, we were very interested in Kazakhstani oil coming across the Caspian Sea to Azerbaijan and being delivered to the Mediterranean and so on. That is why the idea is so desirable. We very much believe that when the Kashagan field in Kazakhstan is fully implemented, production levels will be very high. We are glad because Kazakhstan promised that at the first stage it would produce 23 million tons per year and would grow in the second stage to upward of 50 million tons. In that case, some portion of this crude oil will be exported through Azerbaijan to markets in the West. That is why the BTC is very important for us.

How does the Ministry endorse the development of R&D locally in Azerbaijan?

In 2013, we implemented several projects on constructing an electric power station. Now, our generation capacity has increased and stands at more than 7,000 MW. And the development doesn’t stop with power stations, but includes grids, transformers, and stations—all were upgraded, renovated, and constructed and that is why we have a reliable energy system. While 15 years ago our power generation was unreliable, nowadays Azerbaijan has become an exporter of electricity to Russia, Georgia, and Iran. At the same time, we have interconnections between Azerbaijan and Georgia. That is why interconnecting Azerbaijan, Georgia, and Turkey is providing us the opportunity to establish a new electricity corridor. Azerbaijan will then have the opportunity to export electricity to Georgia, Turkey, and, maybe, in the future, the Black Sea Energy System Ring. There are many opportunities now. This is why I think the development or strengthening of the electricity matrix in Azerbaijan is very important for us.

What projects will the Ministry be working on in 2014?

The implementation of the Shah Deniz II project and the Southern Energy Corridor will be our main priority for the next five years. Some of the main tasks comprising it are the construction of two new platforms and the drilling of 26 subsea wells, expanding the Sangachal Terminal. The Ministry of Energy aims to strengthen energy efficiency in the country, for which we will implement new rules and laws in the coming years. We do not want to increase fuel prices, so we have to find a solution to offer incentives for energy efficiency at constant prices.