Greater Caspian Weekly Overview - December 4th 2015
The greater Caspian region had a busy but productive week for gas with details of new fields offered by Iran to foreigners released, increased production from figures from both Iran and Azerbaijan, and a host of talks and deals negotiated across the Caspian's biggest gas-producing countries.
IRAN
Iran eyes 380 mcm/d more gas output from new designed contract model
Last month, Tehran hosted 137 companies from 45 countries for a two-day conference, during which the legal generalities of Iran’s new model of oil and gas contract (Iran Petroleum Contract, or IPC) were introduced. More details about the contracts will be unveiled at a conference likely to be held in London in February 2016.
According the IPC presentation documents, obtained by Natural Gas Europe, Iran has offered 50 hydrocarbon fields, including 21 gas fields.
The total reserves of the offered gas fields are 226 trillion cubic standard feet (6.4 trillion cubic metres), which accounts for about 19.1% of the country's total gas reserves.
Developing the gas reserves would add about 13.4 billion cubic feet per day (or about 380 million cubic metres per day) to the country's gas production.
“The country’s daily gas production is planned to rise to 1.4 billion cubic metres (bcm) from currently 750 million cubic metres by the end of the fifth five-year development plan (2021)," he said.
Iran’s Oil Minister Bijan Namdar Zanganeh said during a conference to unveil the IPC on November 28th that “The model which is being introduced today is not certainly flawless, but it can meet the Iranian oil industry’s developmental needs.
“However, I think if we are able to attract $25 billion within the framework of the new contract, we will be successful.”
Despite the minister's confidence, Homayoun Falakshahi, Upstream Research Analyst for Wood Mackenzie told Natural Gas Europe that attracting $25-$30 billion investment within the framework of IPC is a very optimistic view.
“Iran has to compete with other investment opportunities globally for constrained company capital budgets," he said. "Political concerns regarding a possible snapback of sanctions, and the fate of the Iran Sanctions Act which is set to expire on 31 December 2016, may also slow down negotiations. Even if the IPC is attractive enough, we think many companies will be cautious when making deals”.
Russia, Iran intensify gas-related negotiations
Russia is interested in implementing gas storage projects in Iran, said Hamid-Reza Araqi, the managing director of the National Iranian Gas Company (NIGC).
“We have suggested them to participate in gas storage projects in Iran and implement the full chain of storage (exploration and storage),” Araqi said on November 27.
“Negotiations have been made with Russia, but we have signed no deal yet,” he added. “Russia will buy gas from us in summer and will store it. We will buy the gas from them in winter.”
Russia has also put in requests for participating in the establishment of gas pipelines, he said, adding that Russia’s Gazprom has signed a memorandum of understanding, based on which it will cooperate with Iran in different fields of the gas industry.
Russia’s Energy Minister Alexander Novak said on November 2 that Russia’s state-owned energy giant Zarubezhneft would take up several projects worth a total of $6 billion in Iran’s oil industry.
He said Tehran and Moscow had devised a package of projects that are collectively worth $35 billion to $40 billion.
On the other hand, Russia’s gas giant Gazprom announced on November 30 that it is ready to invest in Iran’s gas exploration and production projects.
“Gazprom’s cooperation with Iran will be mostly in exploration and production sectors," IRNA news agency quoted an official who did not want to be named as saying. "We are hoping to transfer new technologies to Iran in this field."
He continued, "Although Iran could be a rival for Russia in the gas sector in the future, this issue will not hinder us from cooperating with Iran.”
At the same time, Reza Padidar, head of the Society of Iranian Petroleum Industries Equipment Manufacturers (SIPIEM) told TASS, “We have held many meetings with Gazprom and its subsidiaries in the past year. They are interested in Iranian equipment.” Mr. Padidar made the comments at a conference in Tehran on Iran’s new model of oil contracts.
He added that Gazprom is interested, first of all, in buying pressure and temperature control valves on pipelines as well as automatic control systems.
Iran petrochemical production surpasses 30 MT in 8 months
Iran's petrochemical production increased by 3% to 30.7 million metric tons in 8 months of current fiscal year, which started on March 21.
Ali Mohammad Basaqzadeh, a senior official of the National Petrochemical Company (NIPC), on November 26th said that during this period some 12.5 million tons of petrochemicals have been exported. He didn't mention the value of petrochemical exports, but according to a brief record released by Custom Administration, Iran exported about $29.6 billion of non-oil goods, of which 35% belongs to petrochemical products. That brings total export of petrochemicals to more than $10 billion during those 8 months.
Iran’s housing gas consumption triples in a month
Residential, commercial, and small industrial units, as well as power plants in Iran consumed more than 590 million cubic metres of gas on November 29.
Majid Boujarzadeh, spokesman of the National Iranian Gas Company, said the figure was 550 million cubic metres on the same day last year.
Residential, commercial, and small industrial units consumed 361 million cubic metres of gas on November 29, compared with 385 mcm last year, he added.
This figure for October was about 120 mcm/d, three times less than late November.
Tehran says Iraq eyes importing LNG from Iran
Iraq has put in a request to import LNG from Iran, Hamid-Reza Araqi managing director of the National Iranian Gas Company (NIGC) said on November 30.
“Transferring LNG to Basra is possible through sea routes. So, gas exports to Iraq will be possible both through pipeline and LNG,” He said.
Exporting natural gas to Iraq’s capital, Baghdad, will start from the beginning of the next Iranian fiscal year (March 21), he said.
In 2013, Iran and Iraq signed an agreement for the export of 25 mcm/d of natural gas from Iran's South Pars gas field to Baghdad.
Moreover, Tehran and Baghdad signed a 6-year agreement on November 11, aimed at exporting 25 mcm/d of Iranian gas to Iraq's Basra.
It's expected that Iranian gas delivery to Basra will start in 2017.
AZERBAIJAN
Azerbaijan's energy minister explains energy efficiency plans to NGE
In an exclusive interview with Natural Gas Europe, Azerbaijan's Energy Minister Natig Aliyev said that the most important priority for Azerbaijan is improving energy efficiency.
Responding to Natural Gas Europe's questions in a briefing meeting on November 27th dedicated to Azerbaijan's joining of the Gas Exporting Countries Forum (GECF) as an observer member, Minister Aliyev said, "We will pay special attention to the energy efficiency issue from now on, in addition to energy consumption optimizing projects we started several years ago.
"Improving energy efficiency gives Azerbaijan more strength to boost gas export and increase revenues," he added.
During the first ten months of 2015, Azerbaijan produced 24.073 bcm of gas, of which 6.76 bcm was exported.
Azerbaijan plans to export a further 16 bcm of gas to Turkey and the EU in the next five years by commencing the second stage of the Shah Deniz project as well as the Southern Gas Corridor.
Minister Aliyev also added that while the amount of gas losses in the country is very high, the State Oil Company of Azerbaijan Republic (SOCAR) has been replacing the low-pressure pipelines, constructed when Azerbaijan was still part of the Soviet Union, with sophisticated pipelines since 2012. "It's important, because Azerbaijan's gas network shares a huge amount in total gas losses," he said.
He didn't mention the exact amount of gas losses, but according to the State Statistical Committee of the Republic of Azerbaijan, some 830 million cubic metres of gas is lost annually in the national gas network.
Responding to another question from Natural Gas Europe about the country's gas transit projects, the minister said the country's gas transit projects are far ahead of schedule.
"I have had consultations with SOCAR President Rovnag Abdullayev and BP's Regional President for Azerbaijan, Georgia, and Turkey, Gordon Birrell. Based on President Ilham Aliyev's initiative, the second meeting of the Advisory Board of the Southern Gas Corridor will be held in early 2016 to discuss the realisation of this project."
The Southern Gas Corridor (SGC) is a term used to describe planned infrastructure projects aimed at improving the security and diversity of the EU’s energy supply by bringing natural gas from the Caspian region to Europe.
Natiq Aliyev said that progress in Azerbajian and the Georgian part of the Southern Gas Corridor is far ahead of plans and a new meeting of the Advisory Board may be held in Baku.
Official: Shah Deniz output may be higher than 2014
A BP official has said that the gas production capacity from Shah Deniz Stage 1 (SD1) will not decrease during the current year despite the fact that current figures indicate a lower production level in the first nine months of the year compared to the same period last year.
BP and its partners produced 7.2 bcm of gas from SD1 in the period of January-September 2015, some 50 mcm less than the same nine months of last year, BP reported on November 30.
However, Company Public Relations Manager for BP Azerbaijan Tamam Bayatli told Natural Gas Europe that, “In fact, performance of our production exceeds our plan for this year and we achieved very good results for the current year."
According to Ms. Bayatli, despite suspending gas production for three weeks in August dues to modernisation works, the suspension didn’t really affect the field's production level significantly. "Closer to the end of the year, better results are being expected," she said.
“We do not expect that SD1 production level in 2015 to be less than last year’s--maybe a bit more," Ms. Bayatli said.
Production capacity of the existing facilities at Shah Deniz is currently 29.5 mcm/d or about 10 bcm per year. A total of 9.8 bcm of gas was produced last year.
Over 50% of planned work has been completed within the second stage of development of the giant Shah Deniz gas and condensate field in the Caspian Sea, offshore Azerbaijan. The project is on target for production of first gas in late 2018, operator BP has said.
Statoil to sell its share in TAP to Snam SpA
Following the divestment of its share in the Shah Deniz gas field in Azerbaijan, Statoil has agreed to sell its 20% interest in Trans Adriatic Pipeline AG to the Italian gas infrastructure company Snam SpA for a total consideration of EUR 208 million.
This amount is for both Statoil’s shares in TAP and its pro-quota portion of the loans currently granted to TAP by its shareholders.
The total consideration will be adjusted at closing.
“We are pleased to announce this agreement with Snam, which will realise value from our stake in TAP, of which we have been a part-owner since 2008. This divestment increases our financial flexibility and is in line with our strategy of portfolio optimisation and capital prioritisation”, says Jens Økland, executive vice president for Marketing, Midstream and Processing.
Statoil and Snam have agreed to undertake the transaction provided certain conditions are met. The transaction is expected to close by end 2015.
New contract in the works for massive Azerbaijan fields--but deep gas is not covered
A new production sharing agreement that will enable expansion of the Azeri-Chirag-Guneshli (ACG) mega-structure in the Caspian Sea, offshore Azerbaijan, is due to be signed. The deal will be signed by SOCAR and the BP-led international consortium currently participating in ACG project and will cover a period beyond the expiration of the current contract in 2024.
According to State Oil Company of Azerbaijan Republic (SOCAR) officials, the new deal will cover a period of another 35 years until 2060. SOCAR says that, after 2024, a significant amount of extractable oil and gas will remain in ACG to extract but more time and huge investment will be required to recover those resources.
Additionally, the new deal will not include development of deep-gas resources laid under oil reservoirs in Azeri-Chirag-Guneshli .
ACG deep-gas development has been under separate discussion between SOCAR and the BP-led ACG partners for several years.
“If deep-gas production were to be included into the new ACG contract, it would delay its start up and put it sometime after 2026-2027. However we need more gas sooner," sources involved in talks said.
CENTRAL ASIA
Line C of Kazakhstan-China gas pipeline inaugurated
The third line or Line C of the Kazakhstan-China main gas pipeline was officially inaugurated on Monday in Almaty, Kazakhstan.
Governor of Almaty region Amandyk Batalov, CEO of KazTransGas Kairat Sharipbayev, Vice President of PetroChina Lv Gongxun, Vice Minister of Energy Magzum Mirzagaliyev and other officials attended the ceremony, reported Kazakh news agency Kazinform.
The main gas pipeline is a part of the Turkmenistan-Uzbekistan-Kazakhstan-China trans-border gas pipeline, which is 7,500 kilometres in length. The capacity of all three lines (A, B, C) of the Kazakhstan-China main gas pipeline will be 55 bcm.
The length of Line C is 1,303 km. The first line was put into operation in December 2009 while the second line was commissioned in October 2010. The capacity of the A and B lines reached 30 bcm after five gas-compressor stations were commissioned in 2012, Kazinform said.
Kyrgyzstan, Russia to use rubles in settlements for gas deal
Kyrgyz Prime Minister Temir Sariyev said at the 18th meeting of the Kyrgyz-Russian intergovernmental commission for trade, economic, scientific, technical and humanitarian cooperation on December 3 in Bishkek that “We achieved consensus and instructed our central banks to switch to settlements in rubles in supplies of oil products, gas
“We have signed the agreements on supply of oil products, including supply of duty-free crude oil. The governments should consider these issues in the next few days,” the Prime Minister stressed.
Kyrgyzstan’s cooperation with Gazprom is covered by the long-term Agreement of Cooperation in the gas industry signed in May 2003 for a 25 year-period.
Kyrgyzstan's proven natural gas reserves are estimated at 6 billion cubic metres. Domestic gas production averages 30 million cubic metres per annum. Gas consumption makes up some 300 million cubic metres per annum, 90% of which is imported from Uzbekistan and Kazakhstan.
Gazprom plans to develop gas infrastructure in Kyrgyzstan and increase domestic gasification from 22% to 60% by 2030.
To implement the plan the Russian firm is looking to invest approximately 34 billion roubles ($495 million) during 2015-2017, Gazprom said in a statement in February.
Kazakhstan signed $1.5 billion gas-related MoU
Kazakhstan hosted the International Investment Forum “AKTOBE INVEST 2015”, during which 13 memorandums worth $ 1.5 billion were signed.
In the near future a mini-plant for processing of associated gas into hydrocarbon liquid, nickel and cement production is planned to be built, the Central Communications Service said.
The theme of the plenary session was the implementation of the “New Silk Road” and the importance of private investment in the current external economic situation.
LUKOIL increases gas investments in Uzbekistan
The Lukoil Russian oil company increased investments in exploration and production of gas in Uzbekistan by 38.3% in January-September 2015 compared to the same period in 2014, namely from $549 million to $759 million, said the company.
In the third quarter of 2015, investments of the Russian company in Uzbekistan amounted to $263 million against $248 million during the third quarter of 2014.
LUKOIL in Uzbekistan operates under a production sharing agreement for Kandym-Khauzak-Shady block, which provides natural gas production in the Bukhara-Khiva region in southwest Uzbekistan. In autumn 2007, production at the Hauzak site started.