Boston, MA -- (SBWIRE) -- 07/21/2012 -- BMI View: Project delays remain the key threat to an Azeri energy sector capable of delivering much greater volumes and revenues. Gas export issues involving pipeline routes and other quasi-political decisions are critical if there is to be sustained field development and increased shipments. Meanwhile, liquids volumes have been falling short of expectations, and there are doubts over the scale and timing of medium-term output growth.

Key developments in Azerbaijan's Oil & Gas sector include:

- UK oil major BP is expected to make an investment decision on the second development phase of the Shah Deniz field by 2013, according to the Vice President of Azerbaijan's state-controlled State Oil Company of Azerbaijan Republic (SOCAR), Elshad Nasirov. The Shah Deniz II project requires total investment of US$20bn. The project is expected to allow exports of 10bcm of gas to Europe and 6bcm to Turkey by 2018.
- The Shah Deniz Consortium (SDC) was expected to reach a decision on which export pipeline it favoured for the transportation of Azeri gas to southern Europe by the end of Q112; however, this deadline was missed and a new one has been set for mid-2013. SDC includes BP (25.5%), Norway's Statoil (25.5%), Iran's NIOC (10%), SOCAR (10%), France's Total (10%), Russia's Lukoil (10%) and Turkey's TPAO (9%). Options include the EU-backed Nabucco, the Italy-Turkey-Greece Interconnector (ITGI), the Azerbaijan-Georgia-Romania Interconnector (AGRI), the Trans Adriatic Pipeline (TAP), the South East Europe Pipeline (SEEP), the Trans Anatolian Pipeline (TANAP) and White Stream. BMI initially believed that SEEP and TAP were the most likely contenders for the title, but the March 2012 revision of the Nabucco project has disturbed the status quo.
- On October 25 2011, Azerbaijan and Turkey signed a number of key gas export-related agreements that enable Turkey to buy gas from Azerbaijan and to transit Azeri gas to Europe. These agreements will allow Shah Deniz to proceed with its European pipeline selection process and to confirm gas sales agreements with potential customers.
- Azerbaijan's oil production is estimated to have declined by 10.5% y-o-y to 45.37mn tonnes (equivalent to 911,000 barrels-a-day) in 2011, according to the State Statistics Committee. This was largely due to maintenance-related output drops at the BP-operated Azeri-Chirag-Guneshli (ACG) oil fields. BMI had already reduced its estimate for 2011 production to around 937,000b/d (-10% yearon- year), including gas liquids. According to an April 2012 Interfax report, the government expects oil production to be in excess of 1mn b/d in 2012, in line with BMI forecasts. The further development of the Azeri-Chirag-Gunashi (ACG) complex and liquids from the second phase of the Shah Deniz gas field could deliver a surprise on the upside in terms of volumes but, equally, project delays could undermine progress.

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