CESD Oil Strategy Receives Official Support

CESD Oil Strategy Receives Official Support

Government of Azerbaijan started balancing oil outputs over years

Azerbaijan must keep oil output at the current level, Minister of Industry and Energy Natig Aliyev said at the CEIBS meeting. To him, Azerbaijan should not increase oil production in the upcoming period: “The country has reached the goal on development of oil industry, which was set in 1994. Increase of output may have some sedition. For example, in such case, currency flow to the country can soar and inflation may intensify”.

The Minister noted that Azerbaijani industry had sufficient base of raw materials, mineral resources and they had not been studied yet: “Relying upon it, we must direct the development of industrial sector. I think that oil and gas industry must be in hands of the state.

The international practice also confirms this. But other spheres of the industry must be given to entrepreneurs and develop. Currently, legal normative base is underway in this regard. It is important to make decision during 1-1.5 years and attract entrepreneurs to this sphere. I think that we must solve these issues until 2020”.

It said that Center for Economic and Social Development (CESD) recommended to Government of Azerbaijan (GoA) in 2010 to balance oil output due to scarcity of oil reserves in the country.  Government should keep this volume of output in order to balance between years and minimize risk of dramatic decreasing of budget revenues.

Reminded that Azerbaijan’s overall export of oil products dropped by 21.6% in 2011. SOCAR exported 155.663 thousand tons of crude oil through Novorossiysk port (Black sea, Russia), 161.697 thousand tons – through Supsa port (Black sea, Georgia), 1,645.230 thousand tons – Jeyhan port (Mediterranean sea, Turkey). Compared to December, 2010, oil export through Novorossiysk port dropped 6%, through Jeyhan port decreased by 49% last month.

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. 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.

© CESD, 2012


One Response to “CESD Oil Strategy Receives Official Support”
  1. Elchin Hasan says:

    For securing long term income, stable production indeed sounds like a sensible proposal particularly due to the scarcity of the discovered recoverable reserves and already decreasing production. However, i think it is worthy noting that “peak oil” itself is an uncertainty and there is extremely different predictions and projections on this theme. The subject embraces our country as well. if we consider that there have been noticeable underproduction and underestimation of oil reserves in former Soviet Union countries, we may hope for discoveries of new large oil reserves depending on the capital invested on Geology & Geophysics and Exploration & Production. But in any case we should have a care and not boost the production at least because the present is already favorable and the future is uncertain.

    The minister has stated “I think that oil and gas industry must be in hands of the state”. Should it be like that while local oil industry is still in terrible condition from almost all aspects – technological (e.g. HSE), legal (unprecedented pollution), social and economical – and there is still underproduction in almost all fields where production is conducted by local installations. And plus there is remarkable lack of Corporate Social Responsibility. Of course, in case of fairness and local technological enhancement, public owning can be preferable for social development.

    Thanks and Regards

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