Azernews.Az

The halt in shipping oil and natural gas in pipelines running through Georgia and Turkey remains the focus of attention of the Azerbaijani government and the public. This comes as no surprise, since petroleum products are vital to the resource-rich South Caucasus republic's exports, and any suspension of their deliveries to world markets causes tremendous financial losses to Azerbaijan.
BP Azerbaijan, the operator of the Baku-Tbilisi-Ceyhan (BTC) oil export pipeline, suspended, on August 6, oil shipments through its pipeline due to a fire caused by an explosion that hit its Turkish section. It is unknown, at this point, when the pipeline will again be operating. Turkey says the oil flow will be resumed as early as this week, however, its owners are refraining from predictions, merely saying that repair operations have been launched.
Azerbaijan's state oil company, SOCAR, and the State Oil Fund (SOFAR), which manages revenues from the sale of oil, is losing $50-70 million of profits each day due to the transportation halt via BTC in Turkey, the oil consulting company, Caspian Energy Alliance, said in a statement. The approximate figure does not cover taxes, duties and additional payments, but takes into account the average daily pumping of 870,000 barrels a day of Azerbaijan's oil in July.
These calculations were based upon the short-term perspective and Azerbaijan's present share in the production sharing agreement (PSA) on the Azeri, Chirag and Deepwater Gunashli (ACG) fields in the Caspian Sea, which makes up 50% to 60% of total oil output.
The BP-operated consortium, Azerbaijan International Operating Company, which is involved in full-field development of the ACG oil fields, has scaled down production and halted exports due to the pipeline fire. AIOC did provide details about the reduced volume oil output.
Given that the total capacity of the two smaller oil pipelines - the northbound Baku-Novorossiysk pipeline and the westbound Baku-Supsa pipeline - does not exceed 15% of oil transported via BTC, while the total capacity of all the operating oil terminals of Azerbaijan and AIOC does not exceed a two-day export volume via BTC, it can be concluded that production at the strategic Azerbaijani oil fields has been slashed by over 80%.
The prospect of huge economic damages arose as a result of the lingering military-political situation caused by recent military clashes in Georgia, the halt of the Kazakh oil flow (up to 9 million tons a year) via the trans-Caspian system, as well as the uncertainty of the time that will be needed to overhaul the pipeline infrastructure. According to preliminary estimates, the economic damage incurred by Azerbaijan and foreign parties involved in the exploration and development of offshore Azerbaijani oil fields total about $500 million, to date.
By the end of 2008, Azerbaijan's share in oil profits from the consortium developing the ACG contract area will increase by 80%. SOFAR is expected to gain most of its revenues - over 90% - from the sale of oil in 2008.
It is of note that Russia has positively reacted to the requests by SOCAR and AIOC to increase the volume of Azerbaijan's oil pumped through the Baku-Novorossiysk northern pipeline. The Russian trade representative in Azerbaijan, Yuri Shedrin, said that Moscow, in principle, had no objections to the measure, although this comes at a time when repair work is underway on the pipeline.
"Transneft [Russian oil giant] is ready to double the pumping of Azerbaijani oil, which will allow it to export 240,000 to 250,000 tons a month, as opposed to the average level of 120,000 tons that was being pumped in previous months," he told a press conference in Baku last week.
Pumping oil through the Baku-Novorossiysk pipeline was halted from 6 p.m. on August 12 until 9.15 a.m. August 13. Due to the earlier suspension of exports through BTC and the western Baku-Supsa pipeline caused by the unrest in Georgia, transporting Azerbaijani oil was discontinued for the first time since exports began in 1997.
Azerbaijan had planned exporting 45-50 million tons of oil in 2008.
Russia is now planning to transport not only oil, but also natural gas, from Azerbaijan to world markets. Russian gas giant, Gazprom, has pledged to ensure access of Azerbaijani gas to Europe. The company is in talks with the country's government at the initiative of its Chief Executive, Alexei Miller, on purchasing all of Azerbaijan's exported gas, according to Shedrin.
Azerbaijan, which has estimated natural resources of 2 trillion cubic meters of gas, is weighing the most profitable plan for its exports. The country already has four gas export pipelines, which allows it to focus on either one, or several options. By 2012-2013, Azerbaijan will be able to produce and export up to 60 billion cubic meters, which amounts to between 30% and 50% of the European Union's future gas needs.
Gazprom's proposal to sign a long-term contract on gas supplies was made early in June during Miller's talks with President Ilham Aliyev in Baku. Azerbaijan extracts gas from its biggest offshore field in Shahdaniz.
As the situation in Georgia normalizes, BP Azerbaijan resumed gas exports through the South Caucasus Pipeline (SCP), the Azerbaijan-Georgia link of the Baku-Tbilisi-Erzurum (BTE) major gas pipeline that stretches to Turkey.
"We are pumping gas again into the pipeline," the company's spokesperson, Tamam Bayatly, said Thursday.
Two days earlier, BP had stopped pumping into SCP, as a precautionary measure due to the continuing fighting between Russian and Georgian troops.
Despite the halt, Georgia and Turkey were still receiving gas that had remained in the pipeline. Shahdaniz production was not suspended and the extracted gas was being transferred to Azerbaijan.
BP Azerbaijan also said production from the Shahdaniz field had been scaled down due to the accident in the Turkish section of the BTC pipeline where the gas was being pumped. The Baku-Supsa pipeline remains shut, the company said.
"We are assessing the situation in Georgia in order to resume the pumping of oil, which was halted for security considerations," it added.
The Shahdaniz field, discovered in June 1999, launched production in 2006. The field is being tapped by an international consortium under a BP-operated project. The resources are used both to meet domestic demand and exports.
Officials have said that 7.7bn cubic meters of gas are to be produced at Shahdaniz in 2008. About 2.9bn cubic meters will be transferred to Azerbaijan, while the rest will be exported to Georgia and Turkey. 8.6bn cubic meters will be extracted annually during the first stage of the Shahdaniz development and gas will be sold to all three countries. Shahdaniz output is expected to peak after 2012, reaching 20bn cubic meters.