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National Energy Security Fund
Critical Decisions for the
Pipelines
Konstantin Simonov
Nicosia
November, 14
National Energy Security Fund
Gas Reserves
Proved Gas Reserves in Caspain Area and Central Asia
42,3
26,0
2,6 3,1 1,7 1,8 1,2
44,8
29,6
8,0
3,2 1,6 1,8 1,3
0,0
5,0
10,0
15,0
20,0
25,0
30,0
35,0
40,0
45,0
50,0
Russia Iran Turkmenistan Iraq Uzbekistan Kazakhstan Azerbaijan
2000y
2010y
Source: BP World Energy Outlook 2011
National Energy Security Fund
Gas Reserves
• It is impossible to evaluate the structure and quality of gas resources in the Caspian region due to insufficient data
• Lifting cost on South Yolotan will be higher then on Dauletabad
• It requires deep and expensive processing to prepare Caspian gas for transportation. Capacities for waste utilization are needed. Moreover, substantial part of reserves is hard to recover and thus economically unprofitable
National Energy Security Fund
Shakh Deniz Case
• The project of developing the Shakh Deniz deposit was launched in 1996 when the Azerbaijan parliament ratified a product sharing agreement with a consortium of foreign investors led by BP
• After three-year long geological prospecting the sides proceeded to the first phase of the deposit development with anticipated peak production of some 8.6bn to 9bn cu m per year. The deposit was launched with a two year delay. Gas deliveries started in 2007. Production has not reached the designed capacity yet. Last year some 6.9bn cu m of gas was produced
• The sides originally planned to launch the second phase of Shakh Deniz in 2012 but postponed it until 2017 with the designed output level of 16bn cu m and capital expenses above $20bn. However, neither a technical model of development nor commercial conditions of future supplies has been approved
• The second phase is technically more complicated as it envisages a greater sea depth at the place of production and much further gas horizon compared to the first phase, which makes the second phase more expensive
National Energy Security Fund
Problematic Solutions
• Iran – problem of sanctions• Iraq – problem of reconstruction of
economy • Turkmenistan – problem of Trans-
Caspian pipeline• Kazakhstan – gas is mainly producing at
oil deposits and pumped back into reservoirs to maintain pressure
• Turkey and Azerbaijan will be the winning party
National Energy Security Fund
More Politics then Economics
•Everyone wants to buy Azeri gas
•You can not avoid Turkey
•Political demands: membership in EU; solving of Karabakh Problem
National Energy Security Fund
Russian Benchmark Pricefor Azeri Gas
Expenses on transporting Azeri gas from the Shakh Deniz deposit
(€/ 1,000 cu m)
77
90
104
0
20
40
60
80
100
120
Nabucco ITGI TAP
Cheap Gas?
345 360
0
50
100
150
200
250
300
350
400
Gaprom's gas average price in Europe ($/1,000 cu m), six
months ended June 30, 2011
Estimated price of gas from the Shakh Deniz transporting to
Europe through Nabucco ($/1,000 cu m)
Source: Gazprom, RWE, NESF calculation
Source: RWE
National Energy Security Fund
Summary
•Gas from Caspian greenfields will not be cheap
•Growing of political ambitious of Turkey and Azerbaijan
•Growing influence of China in the region
•Rejection of Russia as gas supplier
