BRICS expansion and energy markets: Azerbaijan’s weekly review

This week’s developments have been marked by significant progress in Azerbaijan’s energy sector, with a focus on gas production growth, advancements in oil extraction technology, and shifts in global geopolitics through the upcoming BRICS summit. Below is a detailed review of the latest events:

Gas production surges ahead

Since 2018, Azerbaijan has sustained consistent increases in gas output, and this trend continues into 2024, driven by new field developments. In the first nine months of this year, commercial gas production surpassed 28.2 billion cubic metres, reflecting a 5.2% rise. According to analysts, Azerbaijani gas production is projected to increase by 51% compared to 2020 levels, reaching 40 billion cubic metres by the decade’s end.

While these forecasts highlight Azerbaijan’s growing focus on gas, they also suggest a notable shift in energy dynamics, with gas production poised to exceed oil output. The energy equivalent of gas produced so far this year is 25.4 million tons in oil terms, outstripping oil and condensate production by 3.8 million tons. However, revenue parity between gas and oil has not yet been achieved due to market price disparities.

When will gas production surpass oil in income?

Though gas production overtook oil in volume last year, oil’s higher global market prices mean it remains the primary revenue source. The gap is narrowing, but it’s uncertain when gas revenues will surpass oil. Current trends suggest this shift is imminent, especially as energy markets evolve.

Technological Innovation at the ACG Field

In a milestone for oil extraction, bp has introduced pressure rock sampling technology at the Azeri-Chirag-Guneshli (ACG) field—the first deployment of this technology worldwide. This innovation enables bp to collect rock samples under formation pressure, informing strategies for maximising reservoir recovery.

The application of new technology aligns with broader efforts to stabilise declining oil output. The first signs of success are already visible, with production rates improving. According to OPEC, Azerbaijan’s daily crude production in September 2024 reached 488,000 barrels, up by 6,000 barrels from August.

Technological Advances in Oil Production

The decline in oil output reached 7.82% in 2023 and slowed to 3.95% for the first nine months of 2024. The launch of the Azeri Central East platform earlier this year has contributed to this stabilisation, adding an estimated 24,000 barrels of daily production by year-end. On the Absheron project, condensate production is also rising, with output already reaching 400,000 tons, potentially surpassing half a million tons by year-end.

These positive trends suggest that Azerbaijan's energy companies are meeting government targets for production stabilisation and technological integration.

BRICS Summit gears up for the push for a new order: How could this be the most important one yet?

In the geopolitical arena, Russia will host the first expanded BRICS summit on October 22, a significant event following the group’s recent enlargement. Russia aims to counter perceptions of international isolation, promoting alternatives to Western-dominated financial systems. Discussions at the summit will likely include creating a BRICS currency, enhancing intra-bloc trade, and developing a grain-trading exchange independent of Western markets.

Financial coordination is a top issue for the group as leaders look to lessen the dominance of the U.S. dollar in global trade, with Brazil and Russia even suggesting the creation of a BRICS currency. BRICS nations have also looked to develop more trade links within the bloc, closer coordination between their banks, and better harmonisation of their tax and customs procedures. While talks about creating a global reserve currency have so far not progressed, BRICS members have focused on facilitating trade in their local currencies, something that has proved helpful for Russia as it has looked to weather the bite of Western sanctions over its war in Ukraine with expanded trade links to China and India. 16th annual summit could be the most important one yet, considering among the countries interested in this bloc are Turkiye, Egypt, Azerbaijan, Iran, and the United Arab Emirates. This inclusion highlights a shift towards a more balanced geopolitical stance. Despite their traditional alignment with the United States, their participation in BRICS suggests a more nuanced position rather than a complete departure from their historical alliances. China actively seeks to integrate BRICS transport projects with its global "One Belt, One Road" initiative, although not all BRICS members' interests fully align with this vision. Meanwhile, Russia is focused on developing its transport corridors in the east-west and north-south directions. So, this could be a great chance to guide the global transport corridors under one bloc.

With the expansion of BRICS, the organization is expected to enhance its economic influence and role in the global economy, contributing to a new global economic order. While the West may perceive this expansion as a challenge to the existing international framework dominated by Europe and the United States, the more constructive approach would be to reform the global governance system to accommodate evolving economic models.