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Eurasianet

Eurasianet

Eurasianet is an independent news organization that covers news from and about the South Caucasus and Central Asia, providing on-the-ground reporting and critical perspectives on…

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New Gas Discovery Boosts Azerbaijan’s Energy Aspirations

  • BP has confirmed the discovery of new gas reservoirs in the Azeri–Chirag–Gunashli oil field and expects production to start as early as next year.
  • The newly found gas reserves are not covered by the current commercial agreement for the oil field, requiring a new deal with Baku and won't be re-injected into the oil field but piped onshore for use.
  • Despite the discovery, boosting exports further will require significant investments to install new compressors in the pipeline system.
Offshore

Azerbaijan's promise to double its annual gas exports to Europe by 2027 may be a step closer to realization with the news that BP has found new gas reservoirs beneath its existing Azeri–Chirag–Gunashli oil field (ACG) in the Caspian Sea.

BP has confirmed to Eurasianet that the appraisal well it drilled to a depth of 4,500 meters below the ACG field has identified "deep-lying gas reservoirs" and that production could start as early as next year.

The company did not state the size of the reserves it had identified or how much gas it expected to be produced but said that it had installed gauges to collect pressure data and is analyzing this information with the aim of elaborating an "optimum development concept."

BP's vice president for the Caspian region, communications, and external affairs, Bakhtiyar Aslanbeyli, told Azerbaijani media that the company was in talks with Azerbaijan's state oil company, SOCAR, over technical and commercial issues.

"I think we will have a clear view of the issue by the end of the year," he said.

Separately, the company confirmed that the new gas reserves it has found are not covered by the existing commercial agreement it has for the ACG oil field and that producing the gas will require a new agreement with Baku.

The company also confirmed that gas produced from the new reserves will not be re-injected into the ACG oil field in order to boost production of crude oil.

The ACG oil field already produces "associated gas" along with crude oil, and with oil production from the field declining, currently much of this gas is re-injected to help force out more oil with the rest of the gas piped onshore where it is used to supply Azerbaijan's growing domestic demand. 

BP's confirmation that gas from the new reserves won't be re-injected means that the new gas will also be piped onshore and so could be used to boost Azerbaijan's exports to Europe.

Despite long-standing interest in Azerbaijan becoming a major source of gas for Europe, progress in delivering that gas has been slow.

Azerbaijani began exporting gas to Turkey in 2006 with exports to Europe only beginning in November 2020 following the completion of the Trans Adriatic Pipeline (TAP), the final section of the "Southern Gas Corridor".

Russia's invasion of Ukraine last year followed by the halting of the bulk of Russia's gas exports to Europe, has again boosted interest in Azerbaijani gas.

In July 2022 Azerbaijani president Ilham Aliyev and European Commission President Ursula von der Leyen signed a landmark memorandum of understanding under which Azerbaijan undertook to boost gas exports to Europe to "at least 20 billion cubic meters a year" by 2027.

(However, the political intent of this deal - to reduce European dependence on Russian gas - was undermined by Azerbaijan's import of Russian gas to meet its own domestic needs.)

President Aliyev announced in January that he expected Azerbaijan's gas exports to Europe to reach 11.6 billion cubic meters this year. This figure is believed to be the current physical capacity of the pipeline system.

Boosting exports further will require considerable investment to install new compressors, and this has yet to be agreed by the members of the three consortia which operate the three pipelines that comprise the "Southern Gas Corridor".

The delay in securing the investment is due in part to questions over whether enough gas will be available to make the expansion commercially viable, doubts that BP's newly announced discovery should help allay.  

Other new sources of gas may also be available.

BP is currently installing a new oil production platform on the ACG oil field and has confirmed that this will also produce gas some of which could be piped onshore.

Separately, in January, the company began drilling a new "deep well" in its Shah Deniz gas field.

This well is targeting a deep gas reservoir believed to lie at a depth of around 7,000 meters, below the existing Shah Deniz gas field and is expected to be completed around the end of this year.

As yet no results have been announced and it is unclear whether commercial reserves will be found, and if so when production could start. 

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New gas production starts

Azerbaijan does have some new gas production already starting elsewhere.

On July 10 Azerbaijan's state oil company SOCAR announced that gas production had started from the Absheron gas field that it has been developing in partnership with France's TotalEnergies.

Initial production of 1.5 billion cubic meters a year has already been earmarked for Azerbaijan's domestic gas market and won't be available for export.

However the field is believed to be capable of producing up to 5 billion cubic meters a year, if the partners agree to a second phase of investment, with the extra production likely to be available for export. 

By David O’Byrne via Eurasianet.org 

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