Azerbaijan Oil & Gas Report Q3 2013 - New Study Released

Boston, MA -- (SBWire) -- 06/07/2013 --Azerbaijan's oil industry remains hampered by problematic output at the ACG fields, which accounts for the majority of production. Although there is some upside from planned and potential new projects, we continue to forecast a peak in output in 2020, following which a slow downward trend for oil production will take hold. However, we maintain our bullish view on gas production volumes, which we predict will rise to 17.6bcm in 2013 and continue to rise throughout our 10-year forecast period, reaching 33bcm in 2022. However, reports of weaker than expected interest in gas from Azerbaijan could delay development of the future offshore fields that while posing upside to our outlook, are unlikely to materialise within our current 10-year forecast period.

The key developments in Azerbaijan's oil & gas sector are:

- Although stabilised, on the back of problematic output at the Azeri-Chirag-Guneshli (ACG) fields, we maintain our bearish near-term view for Azeri oil production.
- Our data indicate that ACG accounts for nearly 80% of the country's total production, and after peaking at 823,000b/d in 2010, output has struggled. We forecast oil production in 2013 will reach 842,00b/d, down from an estimated 870,000b/d in 2012. First oil from the Chirag Oil Project (COP), part of the ACG complex, should help to offset problems at other fields in the BP-led development as production ramps up from 2014 onwards.
- However by 2020, we expected falling production elsewhere to fail to offset the inclusion of new volumes from the COP, leading output to enter a downward trend over the remainder of our forecast period to 2022. .
- Continued progress on developments at Shad Deniz II (SDII), the country's leading gas project that should see 10bn cubic metres (bcm) to Europe from 2019 and 6bcm to remains on track despite cost overruns and slight pushbacks in timelines.
- The Shah Denis Consortium (SDC) has narrowed its pipeline options to Nabucco West and Trans Adriatic Pipeline (TAP), with the backers of each of the pipelines making steady progress in securing necessary commitments from the government and SDC
- Rising costs could impact events at the SDII to the downside, with the development now expected to cost an additional US$5bn, according to a statement made by SOCAR officials, and further delays may come from a decision to delay FID on the SDII project from mid-2013 to end-2013.
- Interest in the Southern Corridor may also be waning - BP officials warned there was a 25% reduction in long-term European demand from Azerbaijan. This could slow plans to develop recent offshore discoveries such as Absheron and the potentially 300bcm Zafar-Mashal structure for which Statoil recently signed a MoU. Further, it may reduce interest in an expansion of the Southern Corridor beyond Azerbaijan to Turkmenistan or Iraq.

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