Getting more oil

By: Gulgiz Dadashova

Azerbaijan, located within the South Caspian Sea basin, enjoys the potential of extending its “oil-country” reputation for decades, largely by developing a new approach to boosting production.

The country, being one of the oldest oil-producing nations in the world, has proven crude oil reserves at 7 billion barrels and natural gas reserves at roughly 35 trillion cubic feet as of January 2014.

However, the bulk of the recently discovered deposits in Azerbaijan is gas condensate, and the timing of opening the country’s new oilfields is uncertain. This once again confirms the need for the efficient use of natural resources, particularly oil.

The country’s largest hydrocarbon basins are located offshore in the Caspian Sea, particularly the Azeri-Chirag-Guneshli (ACG) bloc of fields, with oil reserves of nearly one million tons, and in the gas condensate field Shah Deniz, with proven gas reserves of 1.2 trillion cubic meters. In other words, if the country’s annual production is approximately 40 million tons of oil, more than 30 million tons of it will come from the ACG bloc and Shah Deniz. The rest of the oil produced in Azerbaijan comes from the fields developed independently by SOCAR.

Oil production in Azerbaijan increased from 315,000 bbl/d in 2002 to 1 million bbl/d in 2010. However, production has declined since then, falling to 932,000 bbl/d in 2012 and 881,300 bbl/d in 2013.

Azerbaijan’s oil production reached its peak performance (approximately 51 million tons) in 2010, and then began to slow. Azerbaijan produced 41.9 million tons of oil and gas condensate in 2014, compared to 43.1 million tons in 2013.

In the medium term, the Energy Ministry expects oil production to fluctuate in the range of 40 million tons per year. The country’s government seeks to maintain oil production in the years 2016-2019 at the level of 40 million tons per year, according to official reports.

Although prospects to discover major new fields like the ACG in the country are not high, this does not mean that there is no scope to increase the production volumes of “black gold”.

The country does not intend to accept a decrease in the level of production and will instead work to constantly maintain and stabilize the oil output. Indeed, SOCAR continually works on the program to stabilize and increase oil production. To this end, the company has drilled wells in the onshore and offshore fields of Azerbaijan. A striking example of SOCAR’s ongoing efforts to increase production is the fact that the company recently obtained a loan of 1.86 billion manats (US$1.78 billion) from the International Bank, 600 million manats (over $573 million) of which will be spent on new drilling in old fields that are already under development.

In principle, the drilling of new wells to increase production is a normal process. But other measures should also be taken. In particular, it would be good to increase the recovery factor through the use of modern technology as well as nanotechnology. The company has already established a special commission to increase oil recovery.

Also, Azerbaijan has great potential for the development of Mesozoic sediments. Such projects were developed during the rule of the Soviet Union, but the level of technology that existed at the time did not provide adequate results. Advanced technology, however, may have better results for this industry. In this regard, SOCAR is already working with oil companies Total, ConocoPhillips, and Statoil and is in talks with the National Academy of Sciences.

SOCAR President Rovnag Abdullayev recently announced that the company was planning to sign a contract with Canada’s Zenith Energy Company to develop the Muradkhanli-Jafarli-Zardab onshore oil fields, which, incidentally, offer Mesozoic sediments.

The bloc covers a total area of 642.4 square kilometers, while its daily production nears 315 barrels of oil. Moreover, a small volume of natural gas is produced at the bloc. Zenith’s technical personnel have already been allowed access to the fields to inspect the current operations and evaluate the existing infrastructure.

The Muradkhanli-Jafarli-Zardab bloc is located in the oil and gas area of the Yevlakh-Agjabedi-Imishli region of Azerbaijan. The remaining recoverable reserve of the bloc is estimated at 1.8 million tons of oil and 36 million cubic meters of gas.

In addition to the development of Mesozoic sediments, it is also possible to accelerate the production of shale oil (fossil fuels of organic origin), for which, according to experts at SOCAR, Azerbaijan has every opportunity at its disposal.

“In this regard (shale oil and gas production), there is some disagreement, but we believe that Azerbaijan has the ability to extract oil and gas from shale, whatever the results may be,” said Khoshbakht Yusifzade, the first vice-president of Azerbaijan’s energy giant SOCAR.

Shale gas fields are located in Gobustan, Shemakhi, and other regions. Earlier, ConocoPhilips conducted a geological survey in the Azerbaijani foothills in accordance with an agreement with SOCAR.

Finally, to improve the production level of “black gold,” the country can further expand its cooperation with foreign partners that have long been represented in the oil and gas market of the republic. In 2014, SOCAR and BP signed a PSA to conduct joint exploration work on potentially promising structures. The contract was ratified and approved this spring. This agreement is part of the government’s plan to fully explore all the coastal areas of the Azerbaijani sector of the Caspian Sea.

BP will begin the seismic survey at the potentially promising structures located in the shallow waters around the Absheron Peninsula in the Azerbaijani part of the Caspian Sea in January 2016, stated Gordon Birrell, BP president for Azerbaijan, Georgia, and Turkey.

The area of water covered by the PSA agreement extends along the southern part of the Absheron Peninsula. The sea is up to 40 meters deep in this territory, but the depth of the potentially productive strata is 3,000-5,000 meters.

In Azerbaijan, BP operates under several production-sharing agreements and host government agreements (HGAs) signed with the country’s government. The projects operated by BP Azerbaijan are the ACG oil field, the Shah Deniz gas condensate field, and three export pipelines: Baku-Tbilisi-Ceyhan, the South Caucasus Pipeline, and the Western Route Export Pipeline.

The country produces three grades of crude oil—the SOCAR-produced barrels, Azeri BTC, and Azeri Light, and Urals.

The prime cost of oil extracted by SOCAR amounted to 91.63 manats ($87.58) per ton, less by 1.4 percent compared to the figure in 2013, according to the company report. The total expenditure of the company on oil exploration exceeded 658.35 million manats ($629.25 million) compared to 665.73 million manats ($636.3) in 2013.


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