**AZERBAIJAN'S POTENTIAL FOR NATURAL GAS EXPORTS ANDINTERNAL UTILIZATION**

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Adapted from U.S. Commercial Office Report of August 1999

 

AZERBAIJAN'S NATURAL GAS PRODUCTION IS NOT CURRENTLYSUFFICIENT FOR ITS FULL RANGE OF DOMESTIC NEEDS.  MOREOVER, THE SIZE OF THE NATURAL GAS RESERVES AND THETIMING OF THEIR DEVELOPMENT IS UNCERTAIN. NOR IS AZERBAIJAN AS OF YET A SIGNIFICANT EXPORTER OF NATURAL GAS. 

 

THE COUNTRY'S POTENTIAL SOURCES OF NEW NATURAL GAS IN THEFORESEEABLE FUTURE ARE AS FOLLOWS:

 

-- A PROBABLE WORLD-CLASS GAS DISCOVERY AT SHAHDENIZ,THAT MAY REQUIRE SEVERAL

YEARS OF EXPLORATION AND PRE-PRODUCTION ACTIVITIES BEFOREITS POTENTIAL FOR DOMESTIC USE AND EXPORT CAN BE EVALUATED, AND SEVERAL MOREYEARS FOR

THE SHAHDENIZ CONSORTIUM TO RAMP UP PRODUCTION.

 

-- ADDITIONAL OFFSHORE NATURAL GAS PROSPECTS WITHPOTENTIAL COMMERCIALLY VIABLE VOLUMES OF GAS THAT ARE LONGER-TERMPROSPECTS.  SOCAR, AZERBAIJAN'SNATIONAL OIL AND GAS COMPANY, COULD ADD A COUPLE OF YEARS TO THEIR DEVELOPMENTTIMES BY INSISTING ON AN UPGRADE OF THE SHELF-3 SEMISUBMERSIBLE DRILLING RIGTHAT WOULD BE USED FOR NATURAL GAS PRODUCTION.

 

-- A CONTRACT FOR THE GUNESHLI FIELD IS PENDING DUE TOLEGAL ISSUES, AND WHEN RESOLVED, WOULD REQUIRE AN ESTIMATED 3 YEARS TO BRINGADDITIONAL GAS ONLINE,

GUNESHLI VOLUMES COULD BE A CATALYST FOR EARLY EXPORTS OFAZERBAIJAN NATURAL GAS; HOWEVER THE PRODUCTION SHARING AGREEMENT HAS NOT BEENLET AND GUNESHLI'S POTENTIAL IS STILL UNPROVEN.

 

-- PRODUCTION OF ASSOCIATED GAS FROM CURRENT OIL PROJECTSIS CONSTRAINED UNTIL OIL EXPORT ROUTES ARE RESOLVED, AND THE CONTRIBUTION OFASSOCIATED GAS TO THE NET GAS SUPPLY COULD REMAIN RELATIVELY MINOR.

 

AZERBAIJAN HAS EXPRESSED AN INTENTION TO ENHANCE ANDRATIONALIZE GAS USAGE INTERNALLY. GAS IS HARDER THAN OIL TO EXPORT, AND ITS INTERNAL CONSUMPTION WOULDFREE UP A MAXIMUM AMOUNT OF CRUDE FOR EXPORT TO WORLD MARKETS.  INDEED, THERE ARE ALREADY PROJECTSUNDERWAY IN AZERBAIJAN TO CONVERT MAZUT-FIRED PLANTS TO NATURAL GAS. 

 

IN OCTOBER OF 1999, THE U.S. TRADE DEVELOPMENT AGENCY SIGNEDAN AGREEMENT WITH SOCAR TO PARTIALLY FUND ($425 MILLIONL) A MASTER STUDY ONAZERBAIJAN'S NATURAL GAS.  THESTUDY WILL ASSESS:

 

- NATURAL GAS AND NATURAL LIQUIDS (NGL) PRODUCTIONPOTENTIAL AS WELL AS CURRENT ANDFUTURE NATURAL GAS AND NGL USAGE

 

- GAS PROCESSING AND STORAGE REQUIREMENTS IN ORDER TODETERMINE THE OPTIMUM  PROCESSINGAND STORAGE STRATEGIES 

 

- ABILITY TO SUPPLY NATURAL GAS FOR EXPORT, WHICH WILLASSIST THE COUNTRY IN EVALUATING THE FULL RANGE OF EXPORTOPPORTUNITIES ANDSTRATEGIES AVAILABLE.  

 

- POTENTIAL TO SUPPLY TURKEY WITH NATURAL GAS INCLUDINGAZERBAIJAN'S OPTIONS FOR EXPORTING NATURAL GAS THROUGH THE TRANS-CASPIANPIPELINE (TCP)  

 

THE STUDY IS EXPECTED TO PLAY AN IMPORTANT ROLE INAZERBAIJAN'S EVALUATION OF ITS CHOICES FOR MEETING DOMESTIC GAS NEEDS ANDMAXIMIZING THE OPPORTUNITIES PRESENTED BY THE DEVELOPMENT OF REGIONAL GASPIPELINE PROJECTS.

 

ARGUMENTS FOR A TRANS-CASPIAN GAS PIPELINE FROM GAS-RICHTURKMENISTAN THROUGH AZERBAIJAN TO TURKEY ARE AS FOLLOWS:

 

--WITH SO MANY UNKNOWNS ABOUT THE AMOUNT AND TIMING OFAZERBAIJAN'S EVENTUAL NATURAL GAS EXPORTS, TURKMENISTAN'S PROVEN GAS FLOWINGTHROUGH A TRANSIT PIPELINE ACROSS AZERBAIJAN COULD BRING FINANCIAL BENEFIT TOAZERBAIJAN, WHILE PROVIDING A ROUTE FOR EVENTUAL AZERBAIJANI EXPORTS ASPRODUCTION COMES ONSTREAM. 

 

-- AZERBAIJAN COULD PROBABLY TAP THE TURKISH MARKET FORNATURAL GAS IN OUT-YEARS WHEN AZERBAIJAN'S GAS VOLUMES, MINUS DOMESTICCONSUMPTION, ARE SUFFICIENT FOR EXPORT.