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Azerbaijan Oil and Gas Report Q4 2011
Business Monitor International, Oct 2011, Pages: 89
The latest Azerbaijan Oil & Gas Report from BMI is published at a time when Azerbaijan’s oil production growth appears to have stalled after a period of strong expansion from 2004-2010. However, a return to rapid growth now seems imminent and BMI forecasts that oil production will rise from 1.05mn barrels per day (b/d) in 2010 to 1.36mn b/d by 2015. At the same time, oil consumption should grow quickly, albeit from a low base, rising from 104,000b/d in 2010 to 146,000b/d by 2015. This should nevertheless allow the country to boost exports from 944,000b/d in 2010 to 1.22mn by in 2015.
Over the next five years gas production is set to enjoy a steady increase largely due to rising production from existing fields. Output of 16.7bn cubic metres (bcm) in 2010 looks set to rise to 19.7bcm by 2015, while even more rapid consumption growth looks set to shrink the volumes available for export from 4.96bcm in 2010 to 3.85bcm by 2015. Consumption growth of 35% over the five-year period to 2015 should result in the country consuming 15.86bcm by 2015, largely due to growing demand from the power sector.
Over the longer term, oil production growth looks set to slow again, with output expansion falling from 30% growth over the period 2010-2015 to an average of only 4% over 2015-2020, due partly to base effects but mainly to a lack of major new development projects. Consumption is, however, likely to continue its relentless expansion, with Azerbaijan using 205,000b/d by 2020, 40% more than in 2015.
The start up of the second phase of the giant Shah Deniz field dominates long-term Azeri gas supply, with BMI currently expecting the field to come onstream in 2016. This will allow the country to significantly boost output, which could rise from 19.7bcm in 2015 to 34.7bcm by 2020. Consumption will also increase, albeit at a slower rate, rising from 15.9bcm in 2015 to 20.2bcm by 2020, which should allow gas exports of 14.5bcm by the latter date.
Although Russia will continue to dominate oil supply in the region, backed by huge and under-exploited reserves, the Caspian states have an important role to play, with Azerbaijan and Kazakhstan an increasingly significant factor. The growth rate in Russian oil supply has slowed appreciably since the early-2000s but the acceleration of Caspian expansion means that the region will make a growing contribution to world oil production.
Global GDP growth in 2011 is forecast at 3.2%, down from 4.3% in 2010. Growth in the eurozone should be marginally higher than 2010, while US and Chinese economic expansion will slow and Japan’s growth will be negative, reflecting the devastating earthquake and tsunami which crippled the country in March 2011. Our oil price assumption for 2011 is US$101.90/bbl for the OPEC basket, falling to US$97.50/bbl in 2012.
Azerbaijan holds fifth place in BMI’s composite Business Environment Ratings (BER) table, which combines upstream and downstream scores. Although the country continues to occupy second place in BMI’s updated upstream Business Environment ratings, its bottom-place in the downstream outlook counts against it, bringing down its overall score. In Azerbaijan’s oil and gas production growth outlook, asset immaturity, high reserves-to-production ratios (RPR) and a competitive landscape work in the country’s favour, but are undermined by a relatively unappealing risk environment.
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