Azerbaijan’s state oil company, Socar, has reached an agreement with a BP-led consortium to develop a newly discovered natural gas field in the Caspian Sea. This reserve, located beneath the extensive Azeri-Chirag-Gunashli (ACG) oil field, has the potential to significantly enhance Baku’s gas export capacity to Europe.
The reserve is estimated to contain 4 trillion cubic feet of gas “in place,” equivalent to approximately 113 billion cubic meters (bcm). It is important to note that “gas in place” refers to the total volume within the reservoir, not all of which is recoverable.
The formalization of the agreement was accomplished through an addendum to an existing production sharing agreement (PSA) for the ACG oil field, which was renewed in 2017 and will remain effective until 2049. BP confirmed that an appraisal well was drilled earlier this year, leading to the identification of “deep-lying gas reservoirs” in July. Consortium members are collaborating with Socar to devise a development plan for the new reserve, with production expected to commence in 2025. Socar will purchase all gas produced under the terms of the addendum, although specific annual production volumes have yet to be disclosed.
Socar President Rovshan Najaf emphasized the significance of this agreement, stating, “We are once again proving that Azerbaijan is a reliable partner in global energy markets. This project will bolster Azerbaijan’s role as a key supplier of energy to Europe, contributing to the energy security of our partners.”
This new development arrives as Azerbaijan seeks to fulfill its commitment to double gas exports to European Union states to 20 bcm annually by 2027. President Ilham Aliyev indicated in July that the target has been adjusted to 16 bcm by 2027. Last year, Azerbaijan exported 11.8 bcm to Europe through the Southern Gas Corridor, an increase from 10 bcm two years prior.
However, uncertainty surrounding Azerbaijan’s ability to meet the 20 bcm target has led to hesitation among buyers, complicating efforts for pipeline operators to secure the necessary investment for capacity expansion.
In a separate agreement, BP and Socar will also jointly explore hydrocarbons in two additional blocks in the Caspian Sea, known as Karabagh and ADUA.
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