Thus, in the 1990s where Azerbaijan faced serious difficulties in supplying the population and industry with the gas, Gazprom, despite the then political priorities, came to the aid of SOCAR, which received some billion cubic metres of Russian gas a year.
However, shortly after the situation at the market changed, SOCAR intensified extraction to meet domestic gas needs. In the mean time, Gazprom is carried away with exporting its gas to Europe and thus ignored its own southern regions. So, the parties concluded a new bargain: from then on SOCAR began delivering gas to Dagestan and other neighbouring regions in reverse manner. In 2009, Gazprom and SOCAR signed an Azerbaijani gas purchase/sale contract that started in 2010. In 2012, a supplement to the current contract was signed to ensure profits of the two parties. Thus, SOCAR delivered surplus of its gas to Russia and gained much from Gazprom. In turn, the latter gained much more from export of its gas.
However, the last years saw stagnation in the relations between the two companies, when SOCAR had no excessive gas for deliveries to Russia while Gazprom faced fall in gas export. So, the pipe intensively operating either in one or other directions found itself in dry dock. But not for long.
Since the beginning of this summer, the parties resumed talks. A couple of months ago heads of SOCAR and Gazprom – Rovnaq Abdullayev and Alexey Miller resumed after a long interval debates in St. Petersburg concerning deliveries of the Russian gas to Azerbaijan. It was talked of supplying a plant AzMeCo in Qaradag region. Soon after, AzMeCo managers concluded a contract with Gazprom on annual deliveries of 2 billion cubic metres of gas.
A little later mass media reported that SOCAR and Gazprom discussed mutually advantageous bilateral collaboration in energy sphere. The point was about resumption by Gazprom of exporting natural gas to Azerbaijan. It was noted that the export of gas will make it possible to ensure growing needs of Azerbaijan in the gas.
This time, Rovnaq Abdullayev, head of SOCAR, declared that the Russian gas giant would start since October pumping gas into underground gas holders (UGH) of Azerbaijan for storage and perspective use. Gazprom has allegedly natural gas surplus, so these volumes were decided to store in Azerbaijani UGHs. He called this operation as ‘a gas swap on temporary basis,’ for this gas may be used for supplying southern regions of the Russian Federation. Note that deliveries of the Russian gas will start next month in the volume of approx. 10 million cubic metres a day. As a whole, the point is about deliveries in the volume of additional 2 billion cubic metres of gas a year.
Touching upon broader prospects of UGH of Azerbaijan, the head of SOCAR pointed out that debates were underway concerning storage and return in winter of summer-accumulated technical gas of Iran at gasholders of Azerbaijan.
‘Opportunities of Azerbaijani gasholders are very broad. Since 2008 we have invested and expanded capacity of gasholders from 800 million cubic metres to 3.5 billion cubic metres. It should be noted that volumes of these gasholders reach even 5-6 billion cubic meters. We need not to exploit the full volume; however, Iran disposes of it. That’s why debates are in progress due to storing in the Azerbaijani gasholders and returning in winter of summer technical gas of Iran.’
It’d be appropriate to thank SOCAR for effective management activity in the crisis period. But there are some doubts, and readers are likely to agree with us. Why has AzMeCo 2 billion cubic meters of gas a year, if until recently the company stated that it needs 600-700 million cubic metres? The company is not going to build at the earliest possible date one more plant while it is in no position to pay off hundreds of millions worth credits for the current plant. Meantime, the company has no other enterprises.
The second question is purely arithmetic. How can one increase UGH capacities from 800 million cubic metres to 3.5 billion cubic metres and concurrently allege that their volumes reach even 5-6 billion cubic metres? Nearly twofold difference in the specific volume remains to be inexplicable. On the other hand, this manipulation makes it possible to allege that it may hold the Russian and Iranian gas to say nothing of the Azerbaijani gas. We also need a certain gas reserve (up to 1.5-2 billion cubic metres) for winter season to go through cold months.
Indeed, it is possible to provide 6 billion cubic metres only– this is active volume of UGH, not total. Passive volume of gas is the one, which cannot be pumped out of UGH. It is talked of full volume, it should be approx. 2 billion cubic metres with the deduction of which it makes up about 3.5 billion cubic metres. But in this case this volume can hardly hold the whole of Russian and Azerbaijani gas, but not the Iranian.
It is alleged that temporary swap operations of Russian gas deliveries to Azerbaijan will make it possible to increase oil extraction on Azeri-Chirag-Guneshli (ACG).
‘Over the past few years Azerbaijan is actively involved in gasification process, and today its level exceeds 90% which leads to rise in gas demand. For this reason we redirected gas volumes being delivered to Russia into the domestic market. Shahdeniz gas is contracted to be delivered to Georgia and Turkey, so no additional volumes for Gazprom are available. In this connection, a gas swap with Gazprom will enable us to ensure gas supply for southern regions of Russia, check up our gasholders, and in case of steadily high level of pumping, to reduce volumes of associated gas selection on ACG and pump it maximum into strata for raising oil output on the block,’ Rovnaq Abdullayev said.
Note that today just a quarter of gas from ACG is pumped back into stratum to keep pressure. The rest of associated gas is freely given to the Azerbaijani party, for instance, last year the ВР gave SOCAR 2.76 billion cubic metres of associated gas against 2.19 billion cubic metres in 2013. At present, SOCAR declines from the same volume of associated gas with a view of storing the Russian gas at its own UGH in the volumes making it possible to pump above 2 billion cubic meters back into the stratum. Is it expedient?
It transpires that ‘Gazprom’ as if leases UGH from SOCAR. However, rental payment earnings cannot be higher than gas price which needs leased volumes. In other words, SOCAR is losing at the gas swap. True, it remains unknown how effective is oil extracted by means of pumping the associated gas into the well instead of sea water and how much more oil can be extracted this way.
But at any rate, the difference cannot be essential to reconcile with such losses. Perhaps, SOCAR merely decided to avail itself of Gazprom’s difficulties and use a part of gas for Azerbaijan’s home needs, export its share? Then it is obvious why AzMeCo needed 2 billion cubic metres of gas instead of 700 million, especially as SOCAR proven reserves are strongly running out. Last year, it amounted to 54.96 billion cubic metres against 61.15 billion cubic metres in 2013. It is essential to help a colleague: manus manum lavat.
More about:
