- Oil and Natural Gas Prices
According to the Oil and Gas Journal (OGJ), Chile had 150 million barrels of proven crude oil reserves in 2005. As a result, the countrys oil production is limited, reaching 18,400 barrels per day (bbl/d) in 2004. In contrast, Chile consumed 225,000 bbl/d of oil in 2004. The countrys main source of oil imports is Argentina, followed by Brazil, Angola, and Nigeria. State-owned Empresa Nacional del Petroleo (ENAP) controls Chiles oil sector. The company is the sole producer and refiner in the country. In 1990, ENAP formed an international subsidiary, Sipetrol, to seek foreign production that could offset declining domestic fields. Sipetrol has pursued investments in places such as Argentina, Colombia, Ecuador, and Egypt. The Comision Nacional de Energia (CNE) has principle regulatory oversight of the oil sector.
Chile has limited indigenous energy resources for Oil Reserves and Production. Its relies on imports to meet its rapidly growing energy demand and depends upon imports for almost all of its natural gas needs. Most of Chiles coal consumption is for electricity generation. Chiles exports, trade of other non-traditional products, such as forestry products, fresh fruit and seafood, have grown considerably over the past two decades. Chile has limited indigenous energy resources, with the exception of hydropower.
Natural gas represents a large portion of total energy consumption in both Armenia and Georgia, accounting for 50% and 24% respectively. Neither country produces significant quantities of natural gas, making both countries heavily dependent on imports to keep their economies running. Georgian state-controlled oil and gas company Saknaftobi plans to build a $50 -$60 million natural gas storage facility, the first in Georgia and plans to invite foreign investors to take part in the project. Natural gas stored in the facility is expected to meet Georgias consumption for two months. Georgia is also trying to boost output at its own natural gas deposits, some of which are developed by CanArgo, a Guernsey-based oil and gas company that operates mainly in the Commonwealth of Independent States (CIS).
In 2005, Georgia increased natural gas imports from Russia by 14 percent to 50 Bcf. During 2006, the countrys gas consumption is expected to rise to almost 80 Bcf. Almost all (70 Bcf) of Georgias natural gas will be provided under a supply agreement with Kazakhstan via Gazprom pipelines. During 2005 Armenia imported roughly 60 Bcf of natural gas via Russian-owned pipelines. Natural gas imports to the region come primarily from Russia, and in recent years Turkmenistan and Kazakhstan (piped through Russia). But a change in Russian suppliers this year, from the Russian independent Itera, to state-owned Gazprom, has in effect put large portions of the Caucasus countries economies in the hands of the Russian monopoly. In January 2006, two explosions damaged the transit pipeline and cut off supplies of Russian natural gas to Georgia and Ukraine. Georgian President Mikhail Saakashvili blamed the explosions on Russias security services, and Russia accused Saakashvili of being hysterical.
As oil production from the Caspian Sea region increases, the Caucasus region has become an integral export route for oil and natural gas. Previously, the only way for Caspian energy to reach European consumers was via the Russian pipeline system. The United States has supported the principle of multiple export options for Caspian exporters, and three of the largest projects to these ends cross through Georgia (Baku-Tbilisi-Ceyhan, South Caucasus Pipeline, and Baku-Supsa, a.k.a the Western Early Oil Route)--none of these pass through Armenia. Small oil resources exist in the region, and the new infrastructure will allow these smaller projects (i.e. refineries and smaller oil fields) to tie in to the pipeline and become economically viable.
The Caucasus Region, comprising the newly independent states of Armenia, Azerbaijan, and Georgia, is important to world energy markets as a transit area for oil and natural gas exports from the Caspian Sea to Europe. Although the region has been beset by conflict, regional leaders hope that the development of several oil and natural gas export pipelines will bring peace and prosperity to the Caucasus. The Caucasus region is an important transit corridor for oil and gas exports from the Caspian Sea. With the commercialization of the BTC pipeline and the SCP pipeline during 2006, the region stands to reap the economic benefits of transit revenues and access to world energy markets.Armenia and Georgia are largely dependent on Russia for their energy needs. Turkmenistan and Kazakhstan also export small amounts of natural gas to the Caucasus Region. Small energy resources exist in Georgia that can be developed.
Azerbaijans major natural gas production increases in the future are expected to come from the development of the Shah Deniz offshore natural gas and condensate field. Industry analysts estimate that Shah Deniz is one of the worlds largest natural gas field discoveries of the last 20 years. According to the projects operator, BP, the field contains potential recoverable resources of roughly 15 Tcf of natural gas and 600 million barrels of condensate. However, other industry and trade sources, employing widely different definitions of reserves, estimate the fields size to be as high as 35 Tcf. Shah Deniz is located offshore, approximately 60 miles southeast of Baku (see Map 3), and is being developed by the Shah Deniz consortium (members: BP, Statoil, SOCAR, LukAgip, NICO, TotalFinaElf, and TPAO). The Shah Deniz production sharing agreement was signed in 1996. The first phase of the Shah Deniz fields development was officially approved on February 27, 2003, and estimates place its cost at over $4 billion, a 25 percent increase from previous estimates. Phase 1 entails the installation of a new fixed offshore platform, two subsea pipelines to bring the hydrocarbons ashore, and a new onshore gas-processing terminal to be erected adjacent to the existing oil terminal at Sangachal, near Baku. Shah Deniz consortium members expect to begin producing natural gas for export during late 2006. Until the South Caucasus Pipeline comes online, Georgia will buy some of the natural gas and leave it in storage until the Turkish section of the pipeline is complete. According to the partners, once the new pipeline infrastructure is in place, Shah Deniz will be capable of producing approximately 350 Bcf of natural gas per year as early as 2009 (roughly on par with 2004 natural gas production from Kuwait) as well as 40,000 bbl/d of condensate. Natural gas from Shah Deniz, as well as associated gas from ACG and the Bakhar-2 project, is expected to make Azerbaijan self-sufficient in natural gas, and it will result in significant export revenues. The second phase of the Shah Deniz project is set to produce an additional 1 Tcf per year of natural gas as early as 2015 according to BP.
During 2004, Azerbaijan exported approximately 211,000 bbl/d, but exports are expected to more than double to 478,000 bbl/d in 2006 and reach as high as 1.1 million bbl/d by 2008 according to Azeri government estimates. Implicitly, the government estimates assume additional production from new offshore discoveries as well as the modernization of old fields. On May 25, 2005 Azerbaijan began filling the Azeri section of the long-awaited Baku-Tblisi-Ceyhan (BTC) pipeline that runs 1,040 miles from the Azeri capital city of Baku, via Georgia, to the Mediterranean port of Ceyhan. At a cost of almost $4 billion, the BTC pipeline allows oil to bypass the crowded Bosporus andDardanellesStraits.. Test filling began in early May 2005, and the BP-led consortiumloaded its first tanker on July 13, 2006. Currently, Azerbaijans other export routes are the Baku-Novorossiysk pipeline (northern route), which sends approximately 50,000-90,000 bbl/d of Azeri (and exclusively SOCAR) crude oil to the Russian Black Sea. The Baku-Novorossiysk pipeline closed briefly in late June 2004 after oil thieves set off an explosion when they attempted to steal oil from the pipeline. The Azeri state company began reducing oil exports via the Baku-Novorossiysk pipeline in August 2005 in order to divert crude to the BTC line, once it becomes operational. Some Azeri government officials have hinted that SOCAR will stop using the Novorossiysk route once BTC becomes fully operational because it will no longer be economic to have higher quality Azeri crude oil mixing with Russian-based Urals blends. The crude oil mixing has decreased the price of pure Azeri light at the port of Novorossiysk by as much as $4-5 per barrel. AIOC will, however, continue to export oil via pipeline and rail from Baku to Supsa (also called the Western early oil pipeline) and to Batumi on the Georgian Black Sea coast. (see Map 2, PDF, high Res). The Baku-Supsa line has an estimated capacity of 155,000 bbl/d and the Exxon and Azpetrol rail links to Batumihas 120,000 bb/d of transport capacity. Early in June, a small pipeline was completed to allow Exxons share of ACG production to be pumped direct from BPs Sangachal terminal to the nearby Azpetrol rail tank-car terminal in Azerbaijan. Before the startup of BTC, Batumi offers shippers like Exxon the ability to keep their Azeri Light crude oil streams isolated in the rail system and maintain their price premium over the regional Russian Urals blend. ExxonMobil launched shipments in June 2005 and has since committed itself to supplying over 70 million barrels of oil over five years (roughly 40,000 bbl/d) via Batumi. The company will continue to use its 8 percent share of Baku-Supsa to which it is entitled to as an ACG shareholder. Since it is not a member of the BTC consortium, it will avoid paying some of the capital costs of the pipeline. During the summer of 2004, Iranian president Mohammad Khatami visited Baku and discussed a North-South transport corridor stretching from Russia to Iran. Although relations between Azerbaijan and Iran remain tense, Khatamis visit may lead to improved trade and economic cooperation and oil export options. During the first half of 2005, gasoline shipments averaged around 10,000 bbl/d. As more crude oil export options become feasible, Azerbaijan plans to decrease refined product shipments beginning in June to a level of around 2,800 bbl/d.
During 2005, monthly oil production in Azerbaijan rose 150,000 bbl/d during 2005, driven almost exclusively by growth from the Azeri-Chirag-Guneshli (ACG) field. This is above the production levels the country produced at its peak during World War II. SOCAR, the state oil company of Azerbaijan expects the countrys total liquids production to average roughly 600,000 bbl/d for all of 2006. Domestic petroleum consumption in Azerbaijan has fallen since independence, resulting in a growing margin for net petroleum exports (see Figure 1). Azerbaijans net exports amounted to roughly 310,000 bbl/d in 2005, most of which was routed to Russia, Italy, Turkey, and Germany. Estimates of Azerbaijans proven crude oil reserves range between 7 and 13 billion barrels according to industry journals and government sources. The State Oil Company of the Azerbaijan Republic (SOCAR) estimates proven reserves at 17.5 billion barrels which, under an antiquated Soviet reserve classification system, may include reserves that are either not viable or not fully proven. The countrys largest hydrocarbon structures are located offshore in the Caspian Sea and account for most of the countrys current petroleum production. The majority of Azerbaijans oil output (59 percent in 2005) comes from SOCAR, but AIOC oil represents a growing share of the countrys total production.
Azerbaijan becoming independent in 1991, has attracted significant international interest in its oil and natural gas reserves. Foreign investors are helping the country develop its rich oil and natural gas reserves in the Caspian Sea basin, and completion and possible expansion of new pipelines, especially the BTC (Baku-Tbilisi Ceyhan) pipeline, will allow Azerbaijan to become an important energy exporter over the next decade. Oil production growth in Azerbaijan comes primarily from the Azeri-Chirag-Guneshli (ACG) field. Azerbaijan can become a large natural gas provider to Turkey and to Europe.