2013-12-04 12:06:48 - Recently published research from Business Monitor International, "Azerbaijan Oil & Gas Report Q1 2014", is now available at Fast Market Research
While stabilisation of the ACG field and new volumes from the Chirag Oil Project should support production that has proven disappointing over recent years, the long term outlook for the liquids is bearish. Although there is upside from liquids volumes extracted alongside gas, with a number of sizable potentially condensate rich deposits identified in the Caspian, we have not yet priced such developments into our current forecast. This stems from a slow and uncertain development schedule, with a shortage of rigs for example and a lack of firm operator timeline among the factors preventing us from including first gas from discoveries in our current forecast.
Full Report Details at
- www.fastmr.com/prod/723420_azerbaijan_oil_gas_report_q1_2014.asp ..
The key developments in Azerbaijan's oil & gas sector are:
* While BP has reportedly stabilised output at the key Azeri-Chirag-Guneshli (ACG) field, we maintain a largely bearish outlook for oil production given challenges encountered at the field to date.
* From 2014 onwards, first oil from the Chirag Oil Project (COP), part of the ACG complex, will help to offset some but not all of the lower-targeted volumes from other production sites. We retain our long-term view that on the back of production challenges at ACG and a failure to bring online major new liquids discovery, oil production is set to decline gradually from 2017. While we see upside from liquids volumes captured alongside major offshore gas discoveries, we are not currently pricing these in, given that development efforts remain in their infancy.
* A recent study from the EIA highlighted the country's untapped potential with 2P gas reserves placed at 1.43trn cubic meters and 2P liquids reserves estimated at 8.5bn bbl. However, the overwhelming majority of remaining resources is thought to be offshore, where territorial disagreements with Turkmenistan have prevented exploration in certain areas.
* Data from the EIA indicates production continues to disappoint and we expect production to average around 898,000b/d for 2013, before recovering in 2014 to 922,000b/d as stabilisation efforts at ACG and the start of the Chirag Oil Project support a recovery in output. SOCAR chief Rovnag Abduallayev reported in September that the period of production decline was over and from late 2013 a gain in production were possible. Abduallayev reported that the COP was on-track to come online from year end.
* We retain our long-term view that on the back of production challenges at ACG and a failure to bring online major new liquids discovery, oil production is set to decline gradually from 2017. While we see upside from liquids volumes captured alongside major offshore gas discoveries, we are not currently pricing these in, given that development efforts remain in their infancy.
* The outlook for gas projects remains promising, with the steady advance of Shah Deniz II (SDII), the country's leading gas project, which should see 10bn cubic metres (bcm) exported to Europe from 2019 and 6bcm to Turkey. In June, commenting on the selection of TAP, Abdullayev expressed confidence that Azeri 'gas exports will increase dramatically as fields like ACG Deep, Absheron, Umid and Shafag-Asiamn are developed and we see the pipeline route towards Austria as a natural market for this gas'.
* The Shah Denis Consortium (SDC) has selected the Trans Adriatic Pipeline, leaving the final investment decision (FID) on the SDII field itself as the last major commercial hurdle. FID was due at the end of 2013 however 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.
* An additional obstacle to further development of the Caspian's gas potential is a shortage of available rigs. This has slowed appraisal of Total's Absheron field, for example, and has potential to lead to delays in developing additional prospects that could support gains in Azerbaijan's gas output.
* Yet over the medium term, we expect gas output to experience only incremental growth or possibly be subject to small annual declines. This stems from a lack of major projects in the pipeline due to come online before SDII toward the tail end of the decade, and we also see risks to gas output as greater volumes of associated gas output from the ACG fields may be reinjected to support liquids recovery, thus reducing marketable gas supplies.
Azerbaijan's dependence on energy prices leads to high volatility in the country's export revenues. However, continued demand from emerging markets and persistent efforts from Europe to secure access to gas from the Caspian Sea suggests a robust outlook for Azeri resources. With supply now comfortably meeting demand, we believe OPEC basket oil prices will hold steady, at US$105 per barrel in 2013 - a decrease from US$109.45 in 2012.
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