August 21, 2017 / 1:35 PM / 3 months ago

INTERVIEW-Azerbaijan's SOCAR banks on gas output boom as production sags

BAKU, Aug 21 (Reuters) - SOCAR, the state-controlled energy firm of ex-Soviet Azerbaijan, is looking to increase production of natural gas in coming years, the company’s head Rovnag Abdullayev told Reuters, in an effort to reverse a decline in output.

Azerbaijan’s gas industry is crucial for Europe’s plans to secure additional energy sourcing and reduce its dependence on Russia, which covers about a third of the European Union’s gas needs and has frosty relations with the West.

The country is importing some gas volumes, including for storage, to mitigate economic hardship that prompted protests last year. It has historically bought gas from a number of countries, such as Russia, Iran and Turkmenistan.

“Domestic gas needs are fully covered by domestic production, yet we think it’s reasonable to buy it during summer months to benefit from our underground gas storage capacities, as gas prices are low at this time of the year,” Abdullayev said in written replies to Reuters questions.

“Thus, in order to maximize the profits of our country, we are buying Turkmen gas in the summer, storing it and selling in winter at higher prices.”

In coming years, he said, the country expected to put on stream several gas fields that would provide much-needed output growth.

According to the statistics service, gas output in Azerbaijan is seen falling to 28.4 billion cubic metres (bcm) this year from 29.4 bcm in 2016.

“We aim to get 1.5 billion cubic metres of gas from Absheron gas field’s first stage in 2019 and an additional 5 bcm in 2022-2023 from the second stage,” he said.

SOCAR itself produces around a fifth of Azerbaijan’s gas. It also is part of several energy consortiums in the country.

“In the next three to five years, SOCAR plans to build two offshore platforms at the Umid (gas) field to drill a minimum eight high-marginal wells ... SOCAR plans to start (exploration) drilling at the Babek (gas) field in the second half of 2018.”

Abdullayev added that the company plans to start oil and gas production at the Karabakh offshore field in the second part of 2021.

“Development of these projects would allow us to increase gas sales domestically and abroad,” he said. Abdullayev did not give an estimate of total gas production in 2021.

The Azeri energy ministry expects gas production in the country to rise to 41.4 bcm in 2021.

Abdullayev added that Azerbaijan, which is not a member of the Organization of the Petroleum Exporting Countries, remains committed to its obligations under a global deal among OPEC and some non-OPEC nations to cut oil production.

“We are still committed to our obligations. Our oil production has decreased slightly, but revenues from oil sales have increased thanks to a rise in the oil price,” he said.

“Azerbaijan’s key goal is to avoid selling oil cheaply. So, even though oil output in Azerbaijan has been slightly reduced (due to the OPEC/non-OPEC deal), revenues have grown, which shows we are on the right track.” (Reporting by Nailia Bagirova; Writing by Vladimir Soldatkin; Editing by Dale Hudson)

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