Azerbaijan's oil production to stabilize at 0.58 million barrels per day until 2027, S&P reports

Azerbaijan's oil production, including gas condensate, is expected to average around 0.58 million barrels per day (bpd) until 2027, Report informs, citing S&P Global Ratings.

The country's oil output has been steadily declining in recent years, falling from 0.79 million bpd in 2019 to 0.65 million bpd in 2023, primarily due to the aging of key oil fields such as Azeri-Chirag-Guneshli (ACG).

S&P anticipates that foreign oil companies operating in Azerbaijan will likely undertake additional investments to slow the production decline. However, the agency believes that output will continue to fall in the long term. Despite this, S&P expects some stabilization in production over the next few years, as the ongoing decline in some fields will be offset by small additional capacities in others.

On the gas front, S&P forecasts that Azerbaijan's commodity gas production will stabilize at 36-37 billion cubic meters (bcm) per year. The country's gas output has significantly increased since 2018, when the second stage of the Shah Deniz gas field development began, reaching a plateau of 16 bcm. The agency considers Azerbaijan to be close to its peak gas production and expects it to maintain this level for several years.

Several projects could potentially increase Azerbaijan's gas production in the long term, including the second phase of the Absheron field (increasing output from 1.5 bcm to 5 bcm per year), production from deep-lying layers at the ACG block, and the development of the Umid, Babek, and Karabakh fields. However, these projects are still in the planning stages and will require several years to commence production, subject to the decision to proceed in each case.

S&P believes that increasing Azerbaijan's gas exports to Europe will require further expansion of pipeline infrastructure, which will depend on agreements between Azerbaijan and European buyers regarding long-term volumes and prices for the supplied gas.

The agency notes that the Azerbaijani authorities are actively promoting the development of renewable energy sources, with plans to harness the country's potential in solar, wind, and hydropower. Additionally, work is ongoing on a project to lay an electric cable along the bottom of the Black Sea, which would allow the export of green electricity from the Caspian region to Hungary and Romania. The additional renewable generation capacity in Azerbaijan could also replace some of the domestic electricity currently generated by gas, potentially leading to the supply of additional gas volumes to Europe, provided that export pipeline capacities are expanded.