Decline in Azeri Oil Export

Decline in Azeri Oil Export

BTC Oil export declined 13,0 %, Baku-Supsa Oil export fall by 20,0 % in the first half of 2012

The State Oil Company of Azerbaijan exported 10,4 million tons by Baku-Tbilisi- Ceyhan (BTC) pipeline in the first half of 2012. According to sources in SOCAR, export made 1,9 million tons in January, 1,4 million tons in February, 1,9 million tons in March, 1,9 million tons in April, 1,7 million tons in May, 1,6 million tons in June, 2012. Export by the pipeline has dropped by 1,562,000 tons over the same period of the last year. SOCAR exported 11,9 million tons oil by BTC in the first half of 2011 which means Azeri oil export by BTC fall by 13 % in the first half of 2012 compare with the same period in 2011

Meanwhile, SOCAR exports over 1.2 million tons of oil by Baku-Supsa in the first half of this year.  Oil export by the Baku-Supsa pipeline has dropped by 124,0 thousand  tons over the same period of the last year. Export by this route made 315,3 thousand  tonnes in January, 161,5 thousand tons in February, 411,9 thousand tons in March, 161,5 thousand  tons in April, 165,7 thousand tons in May, 80,8 thousand tons in June. Meanwhile, 1,5 million tons oil exported by  Baku-Supsa pipeline in the first half of 2011. 20 % decline was registered in exporting oil by Baku-Supsa pipeline in the first half of 2012 compare the same period last year.

One of reasons of dramatic decline in Azeri oil export is that SOCAR is trying  to apply production wall in order to keep production volume as the same level for up-coming years due to potential oil production fall starting 2013. Otherwise, dramatic decline in oil sector in up-coming years cannot be overcome. According to the CESD calculation oil production is expected to be dropped by 40 million tons in 2014. Since gas revenues are expected increasing from 2017 after using second platform of “Shahdeniz Field”, there will be dramatic fall in state revenues in Azerbaijan between 2014-2017 years. Gross Domestic Production (GDP) is expected to fall around 5 % annually starting 2014.

Production from the Azeri platforms — East Azeri, West Azeri, and Central Azeri will be suspended in a planned sequence in order to enable efficient maintenance work to be undertaken which is another reason of decline.

Decline in oil price in the world market in June, 2012 impacted on SOCAR production as well.

Reminded that CESD stated in its November 16, 2011 report that the latest forecasting confirm that oil boom in Azerbaijan is doomed to end in a few years. Azerbaijan’s high dependence on oil exports poses a potential threat to the economy given the potential volatility in the international oil market. Oil reserves, however, started decreasing in 2011 and last year was pick in oil production. In long term, decreasing of oil output will cause tax revenues decline and budget deficits increase, driving up interest rates.

CESD assessment model also include tendency of decreasing of oil production in Azerbaijan. State Oil Company of Azerbaijan (SOCAR) produced 50 million ton oil in 2010. SOCAR targets 46 million ton for 2011 which 4 million ton less than last year’s output. Meanwhile, the latest predictions confirm that oil production will be decreased to about 33 million ton in 2015. Even with current prices of crude oil in the world market, SOFAZ’s assets will be totally spent within the budget lines if current unbelievable transfers’ level kept. Keeping such fantastic transfers can result in negative consequences because of theatrical cutting of budget expenditure lines due to potential lack of financial resources.

According to Production Share Agreement (PSA) oil reserves are turned down starting 2011. Considering that Azeri-Chirag-Guneshli filed currently has 3 billion barrels (of the initial 5 billion) reserve and the end of Azeri-Chirag-Guneshli in the year 2019 (3 billion barrel /340 million barrel annual). Given that 2010 was the peak year of Azeri oil production, the descent begins as of 2011. Of course, the output will not stop immediately, but its reduction by 10 percent a year will be a severe blow.

The BTC pipeline extends to 1768 km including 443km in Azerbaijan, 248 km in Georgia and 1076 km in Turkey. The shareholders of the BTC Co pipeline company are BP (30.1%), SOCAR (25%), Chevron (8.9%), Statoil (8.71%), TPAO (6.53%), Itochu (3.4%), Amerada Hess (2.36%), ENI (5%), ConocoPhillips (2.5%), Inpex (2.5%), Total (5%).

© CESD, 2012

 

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