In the first quarter of 2018, Azerbaijan’s oil output rose by 2.4%, compared with the figures for the corresponding period of 2017, amounting to 9.7Mt. Over the course of those same months, the country yielded 5.2% more natural gas in contrast to the antecedent year, equaling 7.3BCM. In line with the data provided by the Azeri state oil company SOCAR, March has witnessed major growth with a 5.8% and a 12% boost in oil and natural gas production, respectively. Crude exports have also followed an upward trend at a rate of 13%, representing some 5.7Mt. SOCAR’s increased equity share in the Azeri-Chirag-Gunashli (ACG) project (from 11.65% to 25%), as part of the new production sharing agreement (PSA), restated by the international partners in September 2017, constitutes one of the primary elements connected with the soaring export volumes. ACG, whose cumulative oil production since the commencement of its development, in November 1997, reached 453Mt in April 2018, depicts around 75% of Azerbaijan’s liquids output. Finally, exports of oil and oil products stood at 413kt, a meager change since the 1Q 2017 results on account of a 21% rise in domestic demand for diesel, that prodded SOCAR to up production by 6.4%.
The company’s positive momentum has been built in virtue of an intensified drilling program touching both new and old fields. In particular, 5 production wells have so far been drilled and put into operation in ACG, out of the totally 12 production wells and 4 injection wells which are to be commissioned later in 2018. Drilling of 2 wells under Shah Deniz (SD) Stage 1 project will have been completed by the end of the current year, while another 5 wells are now prepared for production within the second development phase of the field. Furthermore, according to SOCAR Vice President for Geology and Geophysics, Bahram Huseynov, Karabakh and Umid fields, located east and southeast of Baku, will soon reach their front-end engineering design (FEED) point, the first operational well of the Babek structure is going to be drilled in short order and the Absheron field is nearing Final Investment Decision (FID). All four of them are expected to pave the way for the so-called “next wave” of Azeri gas.
Despite the variations in the baseline figures used by different organizations to measure Azerbaijan’s adaptation to its 35,000bbl/d cut pledge in the context of the OPEC+ agreement, it is commonly known that the country has undertaken the obligation to keep its daily oil production below the 800,000bbl/d ceiling. However, as demonstrated by the numbers presented to the OPEC Joint Technical Committee, responsible for overseeing implementation of the Vienna deal, Baku pumped some 814,600bbl/d in January and 806,000bbl/d in February 2018, an increase most probably attributed to the ACG complex. It is reminded that production from ACG in 2017 decreased by 6.8%, compared to 2016, as a consequence of the fulfillment of the OPEC requirements. According to OPEC’s monthly report for March, Azerbaijan’s preliminary liquids output in the first quarter of 2018 proved stronger than estimated in the forecast. This is why it was revised up by 37,000bbl/d, leading to an upward revision by 0.01Mbbl/d in absolute annual supply to average 0.77Mbbl/d, representing a contraction of 0.03Mbbl/d, year-on-year.
Even though not an OPEC member, Azerbaijan has, notwithstanding transitory output fluctuations, generally boasted exemplary compliance with commitments in the context of the cartel’s efforts to rebalance crude market after the 2014 price slump. In March 2017, it marked its most significant progress, with an output level of 733,300bbl/d. Regardless of the 1Q18 ascending tendency and the motivators of more future growth, namely ACG and SD 2, the country remains positively positioned to perform under the OPEC/non-OPEC precepts, independently of when the Organization decides to relax the state-by-state quotas and allow some flexibility for typical and impermanent overproducers. With the country’s role in support of the OPEC pact recently highlighted by the Secretary General Mohammad Barkindo in Baku, it is no wonder that discussions between the two parties have now kicked off on chances for broader cooperation in the form of an Azerbaijani OPEC membership.
On the other hand, neighboring Kazakhstan has scaled up 1Q oil production by 6.1% against the comparable three-month season of 2017, at 22.4Mt, first Deputy Minister of Energy Mahambet Dosmukhambetov revealed last week. These volumes have exceeded the country’s output target by 2%, while, regarding the three largest national oilfields, Tengiz yielded 7.4Mt, Karachaganak 3.2Mt and Kashagan 2.9Mt, Mr. Dosmukhamedov added. During the period under review, crude exports stood at 18Mt and oil processing grew by 9.4%, at 3.9Mt. A few days earlier, KazMunaiGas and CNPC announced the scheduled shutdown of their 5.25-6Mt/a Shymkent refinery pertaining to the site’s open-ended modernization. Initiated back in 2014, Shymkent modernization aims at increasing production of light, high-quality fuels in response to the mounting indigenous demand, for the moment satisfied by foreign fuel imports. Lastly, natural gas production fell by 0.6% (5.972BCM) and gas condensate production by 2.3% (3.341Mt).
The country has had a hard time restraining a ramp-up in crude production and exports, mostly driven by Kashagan, which came online in late 2016 following 16 years of continuous development and over $50bn of investments. Since the beginning of 2018, the giant offshore field, with an estimated 13bnbbl of recoverable oil reserves, has been steadily pumping 300,000bbl/d, however production has been reduced to 210-215,000bbl/d in the past month due to maintenance work. The next step is now for the project to attain a plateau output rate of 370,000bbl/d, but this prospect is for the time being left out of discussion, as pressure from OPEC on laggards, including the likes of Iraq, Malaysia and the UAE, intensifies. After Kashagan work was completed, Kazakhstan’s oil output returned to the March level of 1.9Mbbl/d, over 150,000bbl/d above the country’s cut commitment. Kazakhstan has promised to trim production by 20,000bbl/d from the 1.7Mbbl/d it used to deliver in November 2016, under the OPEC/non-OPEC accord.
Although singled out by the Organization as the least compliant ally for 2017, when its production was augmented by 180,000bbl/d to 1.74Mbbl/d, surpassing even the previously biggest overproducer Iraq in the last months of the year, Kazakhstan hasn’t yet forged ahead with a pivotal decline, as reflected by its quarterly records. It shouldn’t be forgotten that the Kazakh Energy Minister Kanat Bozumbayev has called the 20,000bbl/d cut ‘’symbolic’’, assuring it would not affect output at the country’s biggest oilfields and would only lead to a stabilization of production at the mature ones. During his April 16 meeting with Total, Orano and Total EREN representatives in Paris, Mr. Bozumbayev underlined the importance of an increase in output from Kashagan and welcomed the companies’ intention to develop new Kazakh deposits. The priority of Kazakhstan’s offshore oil and gas business over its engagement with OPEC is once again made plain.
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