2013-02-28 12:16:28 - Recently published research from Business Monitor International, "Azerbaijan Oil & Gas Report Q2 2013", is now available at Fast Market Research

BMI View: Azerbaijan's oil industry remains hampered by problematic output at the ACG fields, which account for the majority of production. We forecast that 2013 production will fall to 835,400 barrels per day (b/d) from an estimated 870,000b/d in 2012. Although improvement at the BP-led ACG superfield could see some increase to this number, we do not expect significant recovery in Azeri volumes until the COP project comes online from 2015. We are holding on to our bullish on gas production volumes, which we predict will rise to 18.1bcm in 2013 and continue to rise throughout our 10-year forecast period, arriving at 35.8bcm in 2022. However, reports of rapidly rising costs could impact developments at Shah Deniz II - a

project which underlies our growth in gas production. We continue to see further upside risks to gas output, particularly given statements from Azeri officials that offshore gas discoveries would be quickly developed, although an absence of clear details prevents their inclusion from our forecast.


Full Report Details at
- www.fastmr.com/prod/541144_azerbaijan_oil_gas_report_q2_2013.asp ..


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

* In the wake of the row between Azerbaijan and BP over faltering volumes from the key Azeri-Chirag- Guneshli (ACG) fields, we maintain our bearish near-term view for Azeri oil production.
* Our data indicates 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 835,400b/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 late 2014 onwards.
* We continue to expect production to peak in 2019 at a revised figure of 1.07mn b/d and gradually decline from that date onward. Worse than expected output from mature fields or the failure of volumes from COP or other projects to meet targets pose downside risk to our forecast, and bring forward the date or increase the rate of decline.
* ONGC's acquisition of Hess's stake at the ACG fields, is set to be finalised in 2013, which adds another cash rich foreign player to Azerbaijan's upstream sector.
* Continued progress on developments at Shad Deniz II (SDII), the country's leading gas project that should see 10bn cubic metres (bcm) to Europe and 6bcm to Turkey by 2018, continues its steady advance. 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 completing financing agreements.
* Rising costs could impact events at the SDII to the downside, with the development now expected to cost an additional US$5bn, according to 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.
* We maintain a bullish outlook for gas production in Azerbaijan, with continued discoveries holding the potential of an upward revision as the country moves forward with outlining plans to develop gas finds. SOCAR head Rovnag Abdullayev told a December 2012 conference in Istanbul that the country would work to double gas production by 2025 by tapping discovered fields at Absheron, Umid, and Babak, as well as recovering deep gas deposits from the ACG fields.

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 ensure there will be no shortage of demand for Azeri resources. Although the oil market has moved away from the cycle of tight supply we saw in 2011 and the first half of 2012, we have now arrived at marked by volatility demand on the back of an uncertain global macroeconomic performance and a more comfortable supply picture. With supply now comfortably meeting demand, we believe OPEC basket oil prices will hold steady, from US$104.40 per barrel (bbl) in 2013 - a slight decrease from an estimated US $109.45 in 2012.

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