Financial Times paper puts Azerbaijan in range of fastest-growing countries

American Financial Times newspaper has issued an article titled “Corporate watch: Azerbaijan`s SOCAR has European ambitions”.

The article says: “Azerbaijan is one of the world`s fastest-growing economies, transforming itself in a few years from a war-ravaged backwater into an increasingly assertive presence on the regional stage. Its emergence can largely be attributed to its hydrocarbon resources, marshaled by the government-owned State Oil Company of Azerbaijan Republic (SOCAR).
Now SOCAR aims to play a central role in the diversification of gas supplies to Europe.

SOCAR dates from 1992 and the merger of two Soviet-era companies, Azerneft and Azneftkimiya, formed in 1918 after the country was absorbed into the USSR and the oil industry nationalised. But SOCAR `s roots go deeper, perhaps back to the beginnings of what is one of the oldest oil industries in the world, with commercial operations dating to 1847. Azerbaijan`s reserves changed the course of World War II: Hitler`s attempt to grab its oil was halted at Stalingrad. After the war, Azerbaijan became the world`s first offshore oil producer; after independence and the founding of SOCAR, the industry was opened to foreign investment with the signing in 1994 of its first production sharing agreement with 11 companies from eight countries, including BP.

At the end of 2011 Azerbaijan had proven oil reserves of 7bn barrels, according to BP`s industry review, or about 0.4 per cent of the world total. Production was 931,000 barrels per day. In natural gas, it had reserves of 1.3tn cubic metres, or about 0.6 per cent of the world total, and output of 14.8bn cubic metres that year.

In an interview with beyondbrics, Murat Heydarov, advisor to Rovnag Abdullayev, SOCAR`s president, said helping channel new gas supplies to Europe was Socar`s foremost strategic priority. And SOCAR has found itself at the centre of a long-running and controversial battle between rival plans to carry gas from east to west.

On one side is South Stream, a proposal backed by Russia`s Gazprom, Eni of Italy, Wintershall of Germany, France`s EDF and others, which would carry gas from Russia under the Black Sea to Bulgaria and onwards to Italy.”

“On the other are two rival schemes: Nabucco, backed by state gas companies of Romania, Bulgaria and Turkey, Austria`s OMV amd Hungary`s Mol (although some of those partners have also backed South Stream); and the Trans Adriatic Pipeline, or Tap, backed by Axpo of Switzerland, Statoil of Norway and E.ON Ruhrgas of Germany. A decision is expected by June on which of the two will be chosen under the European Commission`s plan for a Southern Gas Corridor.

The Nabucco and Tap projects are vying for business from Azerbaijan`s Shah Deniz gas fields, run by a consortium in which SOCAR is a minority partner, with a 10 per cent stake, beside BP and Statoil with 25.5 per cent each. The consortium is expected to choose between Nabucco West – a shorter version of the original scheme – and Tap by the middle of this year.
SOCAR has been seen as a supporter of Nabucco but Heydarov said there was only a 50 per cent chance the company would back the project, which has been in planning for more than a decade. Whether it goes to Nabucoo or Tap, SOCAR wants the decision as soon as possible, so work can start on an important and long-awaited project.

“The fundamental principle is that Europe needs gas, and Europe needs to find it from non-traditional sources,” Heydarov told beyondbrics. “The clock is now ticking and we are taking final submissions. Both projects have upside and downsides, and it`s 50/50 which we will choose. There are three main criteria. Delivery – can it deliver this amount of gas in this time? Finance – there will be due diligence to see whether each pipeline is financially robust. And scalability – how quickly can it be upgraded?

“Nabucco has been the subject of so much conversation, but the expectations of those who stood behind the project 15 years ago didn`t materialise. If we choose Nabucco West instead of Tap, it doesn`t mean that Tap will die. But it will be on life support.”
What`s more, Heydarov says he does not necessarily see competition between Nabucco West and South Stream –launching a broadside against the latter project.

“I see no immediate risk to Nabucco West or Tap, even if South Stream is commissioned earlier,” he said. “There is no immediate relationship between South Stream and Nabucco. South Stream doesn`t provide extra volume, but avoids Ukraine. The Southern Gas Corridor will provide additional gas of 10bcm at first, then 20-25bcm. Over the longer term, Iraq, Iran, Turkmenistan and Kazakhstan could all supply it and capacity could rise to 100bcm.

Benjamin Gage, global gas analyst at PFC Energy, a consultancy, says it is not clear whether the amount of gas Azerbaijan can supply will be enough even to sustain diversification already underway in European supplies.

“Growth in gas exports from Azerbaijan will not revolutionize European gas balances,” he says. “But it will help to smooth out certain weaknesses. Azerbaijan ultimately has large and commercially viable reserves and Turkey and Europe remain the most realistic options for its exports. The greatest challenge for SOCAR and its upstream partners is extracting the highest value for the gas on an agreeable timeline.”

“The Shah Deniz II field, so central to Azerbaijan`s ambitions, is expected to come on stream in 2018, with production ramping up to supply whichever European pipeline is chosen.
Downstream, SOCAR has been upgrading its domestic refineries. It plans to invest $800m this year in the Star Refinery on Turkey`s Aegean Coast, part of the $1.9bn it has pledged to the $4bn project, a joint venture with Turkish energy holding company Turcas.

One of the less-publicized aspects of SOCAR`s expansion has been growth of its retail division. Heydarov says the company`s strategy is to build its presence in the former Soviet Union and Eastern Europe at first. Nevertheless, in 2011 it acquired Exxon Mobil`s retail-focused Swiss division, and has started rebranding Swiss petrol stations with its own less familiar name.
While SOCAR has formed strong relationships with a number of reputable international partners for many decades, as it grows in prominence and advances into the global gas market – more highly-politicized than that for oil – it will come under greater scrutiny.”


/AzerTAc/