Official projections show an increase in gas demand in Azerbaijan of more than 35% from 2015 to 2024, with nothing to suggest that this rising trend will not continue beyond 2024, according to the Asian Development Bank’s (ADB) Shah Deniz Gas Field Expansion Project Completion Report.
The ADB issued a partial credit guarantee (PCG) to cover up to 95% in commercial loans of up to $526 million for the Shah Deniz Gas Field Expansion Project, Report informs.
Gas production in Azerbaijan will increase by 67%, from 29 billion cubic meters per year in 2015 to more than 48 billion cubic meters per year in 2024.
ADB believes that the Shah Deniz project helped increase the country’s total gas production by 27.6% to 37 billion cubic meters per year in 2020.
“The project was expected to contribute to more than 50% of Azerbaijan’s gas production beginning in 2021; and increased exports of gas in the region and beyond. Improving regional cooperation and trade was a core area of operations in Strategy 2020 and is among the seven operational priorities in Strategy 2030.
The recovery of the country’s GDP from a 3.1% contraction in 2016 to 2.2% growth in 2019 came on the back of the start of production at SD2, as well as expansion of the non-oil economy,” reads the report.
Gas demand levels are projected to rise (within Azerbaijan) or at least remain steady (as in Europe) until the end of the economic life of the field, according to the ADB.
“In Europe, however, where gas is coming to be seen as a transition fuel to carbon neutrality, it is likely that gas demand will plateau sometime over the next 10 or 20 years, or even begin declining closer to 2050 as biomethane or hydrogen gas begin to replace fossil gas.”
“Hence, it is reasonable to assume that Shah Deniz gas sales will continue to fetch a reasonable price. The same holds true for condensate. In addition, as Shah Deniz gas enhances energy security for Europe, it will continue to feed the European energy market in the foreseeable future,” reads the report.
Increasing natural gas supplies to Europe will contribute to the European Union’s efforts to combat climate change, as natural gas (along with renewables) is anticipated to displace coal-fired power generation. “This phasing out of coal-fired power plants is in line with the European Green Deal, which seeks to transform the European Union to a climate-neutral economy by 2050 and which builds on European Union commitment under the Paris Agreement to reduce greenhouse gas emissions by at least 40% by 2030 compared with 1990,” the bank noted.
According to the forecasts of the Azerbaijani government, gas production in the country in 2023 is expected to reach 46.761 billion cubic meters, in 2024 it is expected to reach 49.352 billion cubic meters (an increase of 5.54%), in 2025 it may fall to 49.107 billion cubic meters (a decrease of 0.5%) and in 2026 to 48.035 billion cubic meters (a decrease of 2.2%).
Shah Deniz gas field is one of the largest in the world with reserves of more than 1 trillion cubic meters of gas and 2 billion barrels of condensate. The development of the gas field is carried out on the basis of a public-private partnership between the state, SOCAR, Southern Gas Corridor CJSC and four international companies led by BP.
Exploration, development and production at the field is carried out on the basis of a production sharing agreement (PSA) signed in 1996. In accordance with the documents signed on December 17, 2013 in Baku, the contract for the development of Shah Deniz was extended from 2036 to 2048.
Share distribution among the parties to the agreement is as follows: BP - operator (29.99%), AzSD (14.35%), SGC Upstream (6.67%), Lukoil (19.99%), NICO (10%) and TPAO (19 %).