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AZERBAIJAN - Socar's Gas Production

The marketed gas production of Socar currently averages about 5.9 BCM/year and this is consumed locally. The country's demand for natural gas exceeds 15 BCM/year and the government does not want to import the shortfall from neighbouring gas producing countries. Local demand for gas is expected to exceed 20 BCM/year by 2000.

Under a long-term plan announced in late 1997 by Socar, marketed production of gas should average 6.22 BCM in 1998, compared to 11.7 BCM in 1987. This should rise to gradually to reach almost 13.4 BCM/year by 2005 and over 15 BCM in 2006. By 2010, marketed production would have reached 16.5 BCM/year.

(In almost all the new PSAs signed since September 1994, non-associated gas found by the foreign operators belongs to Socar. One exception is the Shah Deniz PSA, which gives the partners the right to all gas found in that block. But the operator, BP, and its partners want to find oil and not gas. BP is to drill two very expensive wells, starting in October 1998, and its three-year exploration programme is expected to cost up to $350m. If it finds gas instead of oil, BP and its partners will suffer a severe blow, while Socar is hoping that Shah Deniz would become a major source of gas for the Azeri market.

(In the offshore Karabakh field - Pennzoil has found gas instead of oil in the two wells it has drilled. The negative gas result of the second well was reported in early July 1998, raising speculation about the JV's future).

Socar is to develop non-associated gas reserves found in early 1997 in a deep formation beneath an oil reservoir on the north-western flank of the Azeri field, which is operated by the BP-led AIOC. This was discovered with AIOC's delineation well at a depth of 3,450 metres. Socar has the right to all non- associated gas in AIOC's Guneshli, Chirag and Azeri field areas.

In January 1998, Socar and Conoco signed an MoU for joint exploration of Azeri gas resources, both onshore and offshore, and for other gas projects. These include the $150m project to expand Azerigaz's 4.5 BCM/year gas processing plant of Garadagskovo, south-west of Baku, and the production of compressed gas (CNG). Their joint study was to be ready in July.

Also in early 1998, Socar and Exxon agreed to begin a joint study of the country's gas resources, the domestic energy market and the potential for gas exports. An agreement for a similar study was signed by Socar and Shell in March 1998. In July 1997, Exxon signed a PSA for the offshore Nakhchivan block and later it got Blocks D-3, D-9 and D-38 in the Baku archipelago adjacent to Shah Deniz.

Azerigaz, a unit of Socar, is a monopoly in charge of the country's gas processing, transport, distribution and storage. With 99 subsidiaries, it has an extensive pipeline system. The group is being overhauled and modernised with the help of Sofregaz, of Gaz de France, under a contract mostly financed by the World Bank and a loan from the Japanese government. The number of Azerigaz subsidiaries will be cut to 15 or less. It might be privatised and for this the World Bank would provide $150m to help boost the group's profitability.

Azerigaz, hit financially due to low gas selling prices and large payment arrears, is trying to restore and use some 4,000 km of idle gas pipelines.

These were laid decades ago by the Soviets to carry Russian, Iranian and Turkmen gas to Armenia and Georgia. A joint venture is being set up with a Turkish company, Global Trade, which has expressed keen interest in reviving the idle lines. The aim is to restore the lines to withstand a pressure of 55 atmospheres. The JV would use most of the lines for export, eventually, and would rent a part to receive $1.5 to $2.5 per MCM for gas pumped through.
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Publication:APS Review Gas Market Trends
Article Type:Article
Geographic Code:9AZER
Date:Jul 13, 1998
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