Gas Consumers Become Hostages of SOCAR's External Obligations

Baku / 16.05.18 / Turan: Azerbaijan's growing obligations on the Southern Gas Corridor (SGC) may exacerbate problems with gas supply to the population in the future, as already today the decline in the level of production of blue fuel against the background of increased exports to Georgia and Turkey has caused savings on ordinary customers, the economist Natig Jafarli told Turan.

From his words, such a prospect is possible if the growing obligations do not keep up with the extraction. True, the government hopes to secure export commitments by increasing production in the second stage of development of the Shah Deniz gas condensate field, but the time will show whether it will be possible to do so. But for now the missing volumes of gas are covered by savings on domestic consumption.

At the moment, production is not keeping up with exports, and this reason is the basis for fanning out gas to the public, including deviations from the supply rate below 15-20 ml / bar. The Azerbaijanis also face the absence of heat in their homes due to a lot of greenhouse farms and other businesses, which serve large, sometimes unaccounted volumes of gas intended for domestic consumption, but this circumstance does not diminish the fact of economy due to growing obligations.

"But the main reason for the growing deficit is a clear correlation: production is falling, and increased sources of blue fuel are required for increased exports of gas and electricity (gas power plants - Ed.). It is logical to assume that the economy is at the expense of the population," Jafarli said, noting that SOCAR does not have enough fuel due to growing domestic consumption and external obligations to Georgia (1.866 billion cubic meters (bcm) from SOCAR and 813 mcm of gas produced in the development of Shah Deniz ) and Turkey (6.5 bcm).

Ilham Shaban, the director of the Oil Studies Center, said in an interview with Turan that the economy in the domestic market is caused by a shortage of gas. According to him, for the first time the problem became relevant in 2016 - with the beginning of the export of our gas to Georgia. Following the results of negotiations successfully concluded in March 2017 with the signing of a new gas supply contract until 2028, Azerbaijan pledged to fully provide the Georgian market.

"The uninitiated reader may ask: why do we need this? At that time, Gazprom negotiated with Georgia and could fully provide its own commercial gas in the amount of 2 bcm at a price lower than the previously announced 185 US dollars. We had to fight for this market of the neighboring country, since Georgia is a window for our gas to Europe." According to Shaban, if Azerbaijan lost the Georgian market, the subsequent step of the Russian side would be to control the Georgian gas mains, as it was in Belarus: "Such prospects are not good for our gas exporting country, so Azerbaijan had to take on this burden in the name of future dividends."

According to the country"s natural gas balance for 2018, approved by the Ministry of Economic Development of Georgia, almost all this volume - 2,680 mcm is to be received from Azerbaijan, which is 12.2% more than in 2017. The expert is sure it will be much easier. With the launch of SGC and the second stage of Shah Deniz, it is expected that Georgia will receive 700 mcm more transit gas, and SOCAR might send these volumes to the domestic market of Azerbaijan. However, the main thing in this context is the word "might", since it may not be sent.

In any case, in the opinion of the head of the Oil Studies Center, the Georgian cause of gas deficit in the domestic market of Azerbaijan will be eliminated. In addition, within the framework of the agreement between the French Total and SOCAR on the development of the Shah Deniz field, 1.5 bcm of gas per year will fully flow to the domestic market of Azerbaijan. At the first stage, development of the field includes drilling one well, and at the second stage it is planned to produce up to 4 bcm of gas per year.

Meanwhile, gas production in the current year is expected to be about 30 bcm, but this is the total amount: the volume of the commodity gas we are interested in has slightly exceeded 18 bcm, and about 10 bcm is used to maintain reservoir pressure during oil production. According to the plans, in exactly five years the volume of commodity gas will amount to 40 bcm, but the time will show the results. But for now up to 10 bcm of blue fuel is supplied to the domestic market, and the lion's share is consumed by power engineering, and less - by industry. As it turned out, the share of the population, 2 million gas customers, accounts for up to 3 bcm of gas. These volumes are not enough for everyone. The so-called "losses of the gas industry" are officially indicated at a rate of 700 mcm.

It is noteworthy that according to the terms of the contract concerning the development of the Azeri-Chirag-Guneshli fields, all produced associated gas is transferred to Azerbaijan free of charge. According to economists and industry experts, these volumes are almost equal to the annual consumption by the population of the country and could be given to ordinary citizens at reduced rates and even free of charge. -0-