Wood Mackenzie: Azerbaijan Needs More Offshore Rigs

Wood Mackenzie, a global energy and mining research and consultancy group, today praised the BP-led Shah Deniz consortium’s decision to transport Caspian Sea gas through the Trans Adriatic Pipeline to the heart of Europe. Still, Wood Mackenzie added that Azerbaijan could be facing difficulties when it comes to the future increase in gas exports as it doesn’t have enough offshore drilling rigs.

Nick Gellatly, Wood Mackenzie’s Lead Analyst – Caspian Upstream research, observes, “A final investment decision (FID) on Shah Deniz Phase 2 is expected to be taken before the end of the year, with gas sales agreements (GSAs) finalised before then. First gas could be achieved in late 2018, with first volumes reaching Europe in 2019. The initial 10 bcm capacity of TAP is strategically significant but represents only a small percentage of current European gas demand. SOCAR, Azerbaijan’s state energy company, has consistently emphasised the importance of scalability as it seeks to become an influential supplier to Europe in future. To this end, future TAP expansion to greater than 20 bcm will be important.”

Yet, he also said, the future ramp-up in Azerbaijan’s gas exports will still depend on development constraints in the country, such as a lack of rigs and the high cost and complexity of many of the offshore projects. However, the choice of TAP is another major step towards delivering Azerbaijani gas to the heart of Europe.

Azerbaijan has already taken steps this year to increase its rig capacity. Rovnag Abdullayev, the president of SOCAR, the Azerbaijan’s state-run oil company, in February this year announced that the corporation would invest $4 billion in the construction of four new offshore drilling rigs. Abdullayev reportedly said at a meeting in Ferbuary that up to fifteen thousand people would participate in the construction of the rigs over the next seven years.

Earlier this month, SOCAR turned the plans to reality when it ordered an $800 million semi-submersible drilling rig from Singapore’s Keppel.

During the contract signing ceremony, Abdullayev said: “We are keen to expand our offshore drilling programme to drill wells such as the Babak and Absheron fields in addition to the Shah Deniz field. We have ordered the first of our new next-generation rigs from Keppel. We are confident that the Keppel-designed rig is a robust and efficient rig that will increase our offshore drilling capabilities.”

Scheduled for delivery in 4Q 2016, the rig will be built to Keppel FELS’ proprietary DSSTM 38M design, which has been customised for the Caspian Sea’s harsh environment conditions.

Commenting on the TAP decision, Abdullayev today gave his support to the Shah Deniz consortium and voiced his confidence on the ramp-up of Azerbaijan’s gas exports:  “Beyond Shah Deniz, we are confident that Azerbaijan’s gas exports will increase dramatically as fields like ACG Deep, Absheron, Umid and Shafag-Asiman are developed, and we see the pipeline route towards Austria as a natural market for this gas. The development planning of both pipeline routes lays the foundation for future growth and we appreciate the support of the European Commission throughout this process.”