INTERVIEW: Azerbaijan's Socar sees current oil prices as satisfactory for midterm planning

Azerbaijan's state-owned oil and gas producer Socar sees current oil prices as satisfactory for midterm planning, Deputy Vice President of Socar Vitaly Baylarbayov told S&P Global Commodity Insights June 20.

"We worked successfully in different price environments, including much lower ones. So, what we have now is fully satisfactory from the point of view of our midterm planning," Baylarbayov said.

Prices are currently significantly below peaks seen in 2022, which were driven by supply concerns, as a result of Russia's invasion of Ukraine. Platts, part of S&P Global Commodity Insights, assessed Dated Brent at $74.495/b on June 20. Platts assessed Dated Brent at a post-invasion high of $137.64/b on March 8, 2022.

The recent dip in prices has led some members of the OPEC+ crude production agreement to extend voluntary production cuts until the end of 2024. The group's largest producer Saudi Arabia has also suggested its latest 1 million b/d cut may be extended beyond July. Azerbaijan, which is a member of the group, has not joined the voluntary cuts, and continues to produce below its quota. Production was 500,00 b/d in May, according to the latest Platts survey by S&P Global. Its OPEC+ quota is set at 684,000 b/d for November 2022 through December 2023.

The country continues to support OPEC+ policy.

Baylarbayov said that despite the recent fall in prices, he expects oil prices to grow. "I don't believe that prices will go down, the trend will be upward. If this is correct, then I do not expect substantial cuts to take place," he said, adding this may change if there is a decline in demand in Asia and Western countries, primarily the US, which affects prices.

Prices are now below levels before the latest cuts were announced at a meeting June 4. On the eve of that meeting Brent was trading at $76.06/b.

The price included in Azerbaijan's state budget is significantly below current prices. In early June, Finance Minister Samir Sharifov said the baseline scenario is set at $60/b, according to local media.

Growing crude transit

The war in Ukraine has led to growing interest in Kazakhstan, which is heavily dependent on Russian export routes, in utilizing infrastructure in Azerbaijan as an alternative.

Baylarbayov said Azerbaijan expects to ship an additional 1.5 million mt of crude oil, equivalent to around 30,123 b/d, from Kazakhstan in 2023, compared with 2022.

"This situation is now affected by the geopolitical factors... This is just an additional factor which invites companies working in Kazakhstan to consider Azerbaijan as an option which was always on the table and still is," he said.

Most of Kazakhstan's oil passes through Russia, with the Caspian Pipeline Consortium (CPC) accounting for 80% of its exports. The line, which runs to the Russian Black Sea port of Novorossiisk, has suffered several disruptions since Russia invaded Ukraine in February 2022. It remains exposed to weather, security and geopolitical risks.

Baylarbayov added that from the beginning the Baku-Tbilisi-Ceyhan pipeline was built with extra capacity and was always designed to ship oil from Kazakhstan and other Central Asian states.

Combined with existing volumes of crude from Kazakhstan supplied via the route, Baylarbayov does not see total volumes exceeding 2 million mt/year in 2023.

"But the capacity which we can offer is much higher than that and we can talk almost immediately, without substantial investments, of the ability to transship 15 million mt of crude oil," Baylarbayov said.

To increase capacity beyond this Azerbaijan sees the need for significant additional investment, which will require long-term commitments from buyers.

"We clearly have enough of our own resources to develop infrastructure for oil transportation to the level required by the shippers. What is more important here is the long-term commitment. Because if you are investing, you need to be sure that your investments will be supported by the actual businesses," Baylarbayov said.

Gas supplies

EU interest in securing gas supplies from Azerbaijan has also risen in response to sanctions and ongoing concerns about Russian deliveries.

In mid-2022, Azerbaijan and the EU signed a memorandum of understanding to increase gas supply to Europe to 20 Bcm by 2027.

Baylarbayov said that concerns that Azerbaijan will struggle to reach this target are groundless.

"We clearly have reserves and plans for the introduction of those reserves on stream which will be in line with targets established under the memorandum between Azerbaijan and the EU," Baylarbayov said.

Azerbaijan expects new volumes to come on stream from Absheron, where the next stage is due to start production in July. Other options include the development of gas at the Azeri-Chirag-Gunashli, Umid and Babek fields.

He said that these volumes could come on stream very soon if offtakers sign long-term sale and purchase agreements.

Baylarbayov said that negotiations for both short- and long-term supplies are ongoing with buyers and transportation service providers.

He added that Azerbaijan will closely follow Turkey's plans to develop a gas hub.

"Turkey is for us a partner in this gas business, which is extremely important. Of course, we'd like to understand it well and if it serves the purpose we will be there," he said.

Turkey serves as a key transit route for gas from Azerbaijan to Europe.

Turkish Petroleum said previously that a summit on the hub is likely to take place in September, after twice being postponed due to the earthquakes that hit Turkey and Syria in early February, and then presidential elections.