Baku News

01-18-2007 Regnum News - In 2006, Great Britain remained the leading foreign investor in the economy of Azerbaijan, a REGNUM correspondent informs. According to the Azerbaijani National Statistical Committee, with the amount of 3.229 bln manats (about $3.7 bln), the UK with investment worth over $1.7 bln secured 46.9% of the total foreign investment. The United States invested 560.414 mln manats (17.4% of foreign investments), Japan 312.657 mln manats (9.7%), Germany 213.402 mln manats (6.6%). The countries in the list are followed by Norway (6.4%) and Turkey (6.2%). The highest investment growth rate (+2.8 times) was demonstrated by Israel, but its investment was 1.35 of the total amount. Largest investments among international institutions were made by World Bank (0.7%), EBRD (0.3%) and the Islamic Development Bank (0.1%).

01-18-2007 Regnum News - Azerenergy (Azerbaijani) and RAO UES Russia signed a contract in Baku regulating energy exchange between Azerbaijan and Russia, a REGNUM correspondent reports. According to a statement made by Azerenergy’s press office, the parties agreed to continue effective partnership, in the frameworks of which, in particular, the Azeri side will receive 200-250 megawatt in peak hours. For the year Azerenergy will receive about the same amount of energy as last year under the last-year tariff – 3.636 cents per kwh. At the same time, the price for Azeri electricity exported to Russia increased from previous 1.58 to 1.8 cents per kwh. Last year, Azerbaijan exported from Russia over 0.7 billion kwh.

23 January 2007 - Upstream onLine - Azerbaijan's Shah Deniz gas field has halted output due to high pressure in the deposit's only producing well - the second stoppage since its launch last month, project leader BP said today. BP and the field's other operator, Norway's Statoil, launched the $4 billion project in the Caspian Sea on 15 December. However, they had to suspend production 10 days later, citing high pressure that Azeri state energy company Socar said had caused a leak. They resumed output last week. "Production at the only well of Shah Deniz has been suspended for the same reason as it was in December - rising pressure in the well," said a BP spokeswoman. She said a second well - with similar production capacity of 5.6 million cubic metres of gas and 2500 tonnes of gas condensate per day - would start production in March. The bulk of the gas from Shah Deniz is due to be exported to Turkey via Georgia along the $1 billion Baku-Tbilisi-Erzerum pipeline. Turkey has agreed to cede part of its Shah Deniz quota to Georgia, which is seeking alternative gas supplies after Russia's gas monopoly Gazprom doubled the gas price for Tbilisi for 2007 to $235 per 1000 cubic metres. Azerbaijan, Turkey and Georgia agreed in December that Tbilisi would get 1.05 billion cubic metres of the Shah Deniz gas this year and Azerbaijan would get 3.78 bcm. The Shah Deniz shareholders, which also include Russia's Lukoil, France's Total and Iranian and Turkish state companies, hope to launch three more wells in 2007 to raise output to 20 million cubic metres per day, Reuters reported.

24.01.2007 - [Neftegaz.ru] - A BP PLC-led consortium has again halted production of natural gas at a giant Caspian Sea field off the coast of Azerbaijan because of unspecified technical problems, BP said Tuesday. Gas from the Shah Deniz field - one of Azerbaijan's largest - has been keenly awaited by both Azerbaijan and neighboring Georgia, both of which have been affected by Russia's decision to increase prices sharply last year. The decision to cease production again was taken after checks on the effectiveness of that maintenance work, said a spokeswoman for BP's Azerbaijani subsidiary, Tamam Bayatli. The BP-led consortium, which also includes Norway's Statoil, France's Total, Russia's Lukoil and other companies has said it plans to produce at least 5.4 billion cubic meters of gas from Shah Deniz this year, with about 2.4 billion cubic meters earmarked for domestic consumption, 2.8 billion cubic meters for export to Turkey, and 270 million cubic meters for export to Georgia.

RBC, 09.01.2007, Tbilisi 11:48:44.Supplies of Azerbaijan's natural gas to Georgia will begin on January 10, 2007. The Georgian Fuel and Energy Ministry told RBC that instead of the anticipated 1m cubic meters of gas per day, the country would receive up to 3m cubic meters of fuel per day from Azerbaijan. According to reports from Azeri sources, Georgia will pay $120 per 1,000 cubic meters of gas. At the moment Georgia's main natural gas supplier is Russia's Gazprom. Russian gas is currently supplied to Georgia at $235 per 1,000 cubic meters.

Jan. 08, 2007 - Kommersant - According to unofficial information, the State Oil Company of Azerbaijan has stopped pumping oil through the Baku-Novorossiisk oil pipeline. According to one source, that action is linked to the fact that oil meant for the Baku-Novorossiisk pipeline will now be processed into heating oil to fuel electric plants in that country. Previously, Azerbaijan's electric generators operated mainly on natural gas imported from Russia. Several days before New Year, Azerbaijan refused to buy Russian natural gas for $230-235 per 1000 cubic meters. There was a lengthy decision-making process in Baku to choose between agreeing to Gazprom's conditions or shifting the energy balance in the country toward heating oil. Negotiations were lengthy and finally Azerbaijan announced that the price suggested by Moscow is at odds with “the spirit and substance of bilateral relations.” Potential losses by Transneft from transit on that the Baku-Novorossiisk pipeline are estimated at up to $25 million per year.

BAKU, January 8 (RIA Novosti) - An official in Azerbaijan's government said the State Oil Company suspended crude supplies to a Russian Black Sea terminal, saying it needed more oil to produce electricity domestically. The source in Azerbaijan's government said energy-rich Azerbaijan would refine the crude, destined for Russia's Novorossiisk, to produce fuel for thermo-power plants generating electricity. The State Oil Company of Azerbaijan, however, said it had no information about suspended supplies along the Baku-Novorossiisk pipeline from January 1. Tamam Bayatly, chief spokesman for the BP-Azerbaijan company, said Azerbaijan's International Operating Company, which is operated by BP-Azerbaijan and where the State Oil Company is a shareholder, had been pumping crude along the pipeline from the beginning of the year as scheduled proceeding from monthly applications. Azerbaijan's President Ilham Aliyev said late last year that his country was considering reducing oil exports via the pipeline to Russia due to higher prices for Russian natural gas. Russia is pushing for a gas price of $230 per 1,000 cubic meters for Azerbaijan, which paid $110 last year. Azerbaijani authorities said the price was too high. Aliyev said Azerbaijan had no other way to ensure its electricity security but to reduce the volume of oil exported via the Baku-Novorossiisk pipeline to Russia.

BBC News, Azerbaijan By Matthew Collin – The state oil company in Azerbaijan says it has stopped pumping oil to Russia amid a dispute between the two countries over energy prices.
Several former Soviet republics have been angered by the decision of Russian state-backed company Gazprom to sharply increase the cost of the gas it sells. Azerbaijan refused to pay and said it would cut oil exports to Russia. Officials said they would use the oil they used to supply to Russia to fuel Azerbaijan's power stations. The Azeri state oil company announced it had suspended supplies to Russia after Gazprom insisted on doubling the price of gas. Officials in Azerbaijan said the Russian price rise was unacceptable. However, an international company which uses the same Azeri pipeline is still pumping oil to Russia.
Western allies
Azerbaijan is rich in oil, has large gas reserves and supplies energy to Europe, although it still has to import some gas to satisfy its own needs. Gazprom has said it is simply halting subsidies to former Soviet republics. But the Azeri President Ilham Aliyev has accused the Russian company of commercial blackmail. Azerbaijan's neighbour, Georgia, also initially refused to pay Gazprom's increased price. It said it was being punished by Moscow for its pro-Western direction. But after failing to sign a deal to ensure supplies for the winter, Georgia gave in and made an agreement with Gazprom. Georgia and Azerbaijan are both allies of the US, although Azerbaijan has tried to maintain friendly links with Moscow. Both countries are actively seeking alternative sources of energy to reduce their dependence on Russia - and to make sure that in future, they are not as vulnerable to Gazprom's price increases.

01 January 2007 - The Associated Press - China, which is aggressively seeking overseas energy assets to fuel its booming economy, says one of its biggest conglomerates has bought the Kazakhstan oil assets of Calgary-based Nations Energy Company Ltd. for $1.91-billion (U.S.). China's CITIC Group bought the oil assets of Nations Energy and granted KazMunaiGas, Kazakhstan's state-owned oil company, an option to a 50-per-cent interest in Nations Energy, the official Xinhua Agency said. CITI's bid for Nations Energy's Karazhanbas oil field had been opposed by some in the former Soviet Central Asian republic, and the option for KMG may have been one way to win approval from Kazakhstan's regulatory authorities. China's economy has seen double-digit growth in recent years, accompanied by increased demand for energy assets to improve its energy security. Kazakhstan possesses the largest oil deposits in the Caspian Sea region and produces about 1.3 million barrels a day. In November, Kazakhstan's oil minister said he was against the CITIC Group deal. "We must take extreme measures to stop the agreement on the Karazhanbas," Baktykozha Izmukhambetov said in televised remarks, referring to an oil field that is the biggest asset of Nations Energy Co. in the Central Asian nation. But according to Xinhua, as part of the approval from Kazakhstan's regulatory authorities, KMG was given the option, exercisable within a year at a price based on CITIC's purchase price for Nations Energy. CITIC Group is one of China's biggest conglomerates. It was set up in Hong Kong in 1979 by former Vice President Rong Yiren as the government's main overseas investment arm. The Karazhanbas field in western Kazakhstan has proven reserves of more than 340 million barrels of oil, and current production exceeds 50,000 barrels a day. Nations Energy is a privately owned oil producer and explorer with operations in Kazakhstan, Azerbaijan and Indonesia. Its 4,000 employees are based mainly in Kazakhstan and Azerbaijan. CITIC, which has significant infrastructure investments in Central Asia, is planning to build a medium-sized refinery at Karazhanbas, Zhang Jijing, a CITIC Group director, said in October.

05 January 2007 - AFX News - BP PLC has shut the giant Shah Deniz gas field in the Caspian Sea indefinitely, due to technical problems. BP is the 25 pct owner and operator of Shah Deniz, which is believed to contain 1 trln cubic metres of gas, making it the largest gas discovery ever made by the group. The 4.5 bln usd Shah Deniz project went on stream last month and is expected to produce 8.6 bln cubic metres of gas per annum. 'It started production in mid-December and was shut down fairly soon after due to technical problems,' a BP spokesman said. He declined to say how long it will take for BP to repair the fault. 'These are teething problems and they are being fixed,' he added. Norway's Statoil owns 25 pct of the field, while France's Total, Russia's LukOil and Azerbaijan's state oil company SOCAR hold 10 pct each.

Fri, 05 Jan 2007 - Eurasia Daily Monitor - by Vladimir Socor - Azerbaijan has ceased importing gas from Russia as of January 1. Despite the anticipated shortage of gas in the country -- compounded by an unanticipated production delay at the international Shah Deniz gas project -- Azerbaijan has refused to pay $235 per 1,000 cubic meters of Gazprom-delivered gas in 2007. President Ilham Aliyev turned down such `commercial blackmail,' telling the Russian media, `I cannot allow that to happen. Azerbaijan is no longer the kind of state that can be forced into anything' (Ekho Moskvy, December 23).
Gazprom's final proposal to Azerbaijan in late December increased the volume offer from 1.5 billion cubic meters of gas to 2.5 billion cubic meters for 2007, though still far below last year's 4.5 billion cubic meters. And it raised the asking price to $235 per 1,000 cubic meters for 2007, compared with the $110 price charged to Azerbaijan, Armenia, and Georgia in 2006. Moscow left the price unchanged for Armenia in 2007 in return for property takeovers in that country; but it more than doubled the price to Azerbaijan and also to Georgia, which ruled out property transfers to Russia.
President Aliyev, Industry and Energy Minister Natig Aliyev, and State Oil Company president Rovnag Abdullayev all declared publicly in the closing days of the year that Azerbaijan would not accept arbitrary overpricing or a politically motivated price. Indeed, geopolitics largely motivates Moscow's decisions to raise the price and slash the volume of gas deliveries to Azerbaijan. The goal is to prevent the latter from helping Georgia to resist Moscow's twin threats of supply cuts and extortionate pricing.
Azerbaijan currently extracts some 5 billion cubic meters of gas annually and the international oil-producing consortium extracts some 2 billion cubic meters of associated gas. The country's annual requirement is 10 to 11 billion cubic meters. Azerbaijan will use some internally produced gas, as well as fuel oil, instead of Russian-delivered gas, to generate electricity. Almost all of Azerbaijan's electricity-generating capacities operate on gas, but a large part can also operate on the more expensive fuel oil.
To obtain that fuel oil, Azerbaijan must redirect some volume of crude oil from export to refining in the country. It will definitely not redirect any volume from the Baku-Tbilisi-Ceyhan pipeline, but rather from the line that runs to Russia's Novorossiysk Black Sea port. That pipeline handled some 4 to 4.5 million tons of oil from Azerbaijan per year in 2005 and 2006, some of it from the international consortium and some from Azerbaijan's state company. The international consortium's share in using that pipeline has grown in late 2006 due to technical problems on the BP-operated Baku-Supsa (Georgia) pipeline -- a situation that seems to persist. Azerbaijan can shift some of that volume into the pipeline to Ceyhan and another portion for in-country refining, producing fuel oil to generate electricity.
Technical problems are also causing a further delay of the start of commercial production at the BP-operated Shah Deniz giant gas field, the source of the Baku-Tbilisi-Erzurum (Turkey) pipeline. Planned for mid-2006 and postponed into December, that production start has again been postponed for `some weeks' due to a leak at the first well, deep under water. Three other wells are due on stream shortly. The delay has complicated the gas supply situation for 2007 in Azerbaijan and especially in Georgia. The first gas deliveries from Shah Deniz had been scheduled to reach Georgia in September 2006, then rescheduled for December 20. The postponement has been a factor in forcing Georgia at the end of December to sign a contract with Gazprom, buying gas at the extortionate price of $235 per 1,000 cubic meters, as a stop-gap solution to survive the winter.
Both Azerbaijan and Georgia have considered the possibility of emergency imports of Iranian gas in small volume to tide them over the winter. In Azerbaijan's case, Iran was willing at the end of December to supply 1.8 billion cubic meters of gas in 2007, but the talks on the price were inconclusive. In January-February 2006, Azerbaijan transited small but critical volumes of Iranian gas to Georgia through the Astara-Gazi Mahomed-Gazakh pipeline during the Russian energy blockade of Georgia. Recalling that situation recently, U.S. Deputy Assistant Secretary of State Matt Bryza declared in Tbilisi that no one can `tell Georgia to refuse buying Iranian gas and freeze in winter.'
The winter of 2006-2007 is almost certainly the final opportunity for Russia to exert leverage on Azerbaijan and Georgia through manipulation of energy supplies. Clearly, this form of leverage has lost its effectiveness thanks to the direct availability of Caspian supplies to Azerbaijan and Georgia. By next winter, both countries should have become completely immune to Moscow's use of the energy trade as a pressure tool.