MARCH 11 2015 (The Bulletin) – Azerbaijani officials have asked their EU counterparts to speed up the authorisation of Azerbaijan’s purchase in 2013 of a 66% stake in DESFA, Greece’s gas pipeline network, for $423m. The European Commission is investigating the potential takeover for any breeches of competition rules.
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(News report from Issue No. 222, published on March 11 2015)
MARCH 11 2015 (The Bulletin) – Oil production in Azerbaijan is likely to drop by around 4% this year to 806,000 barrels per day, media reported quoting senior officials at state energy company SOCAR.
This is more bad news for Azerbaijan which is largely reliant on oil and gas sales for its revenues.
The fall in oil prices has already hit Azerbaijan which has cut government spending and devalued its manat currency.
The main problem for Azerbaijan’s oil production is that output at the BP-led Azeri, Chirag and Guneshli (ACG) is falling. ACG makes up the vast majority of Azerbaijan’s current oil output and only it could knock overall production so substantially.
BP has tried to stem the oil production decline but with limited success. Azerbaijan has put BP under increased pressure to find a solution, so for a senior SOCAR figure to brief the media so early in the year that ACG is likely to miss its targets is telling. Perhaps, Azerbaijan is trying to put BP under more pressure.
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(News report from Issue No. 222, published on March 11 2015)
MARCH 6 2015 (The Bulletin) – Azerbaijan’s state energy company SOCAR plans to issue a Eurobond by the end of March, the company’s CEO Rovnag Abdullayev said. Mr Abdullayev said SOCAR was launching the Eurobond because of the slide in oil prices over the past six months or so which have hit the company’s profits.
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(News report from Issue No. 222, published on March 11 2015)
MARCH 4 2015 (The Conway Bulletin) – The European Union has identified Central Asia and the South Caucasus as a future source of energy that will, importantly, reduce its reliance on Russia.
In an interview with the FT, Maros Sefcovic, the European Commission’s vice-president for energy affairs, said that the region could become a major supplier of gas to the EU.
In particular, the EU is looking to Azerbaijan and Turkmenistan. It has diligently invested time and money building up relations and pipeline infrastructure over the past few years in the region.
Now, as relations with Russia sour over the Kremlin’s support for separatists in Ukraine, the EU is speeding up its search for alternative sources of energy.
And in Central Asia and the South Caucasus it will find a willing partner. The fallout over the drop in Russia’s economy and the collapse in energy prices have been severe and governments are looking for alternative markets. Europe may be bureaucratic but it is stable and reliable.
Turkmenistan’s government was quick to respond positively to the EU’s smoke signals.
It’s a different scenario in countries which don’t produce energy.
Armenia is reliant on Russia’s Gazprom for its energy. It has had to ask for a gas price discount, pulling it more and more under the influence of the Kremlin.
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(News report from Issue No. 221, published on March 4 2015)
FEB. 25 2015 (The Conway Bulletin) – In a boost to Turkmenistan’s aspirations to expand its client base for gas deliveries, the EU said it was stepping up efforts to diversify its energy suppliers away from Russia.
The Financial Times reported that a long-term energy blueprint drawn up by the EU will emphasis building relations with countries such as Turkmenistan, Azerbaijan and Algeria.
Russia currently supplies around 27% of the EU’s gas needs, an excessive over-reliance, according to EU diplomats.
Maros Sefcovic, the European Commission’s vice-president for energy affairs, said it was sensible to diversify.
“As much as we want to diversify our energy sources, I think the countries around the Caspian equally want to diversify their [export] routes,” he told the FT.
This will please Turkmen President Kurbanguly Berdymukhamedov. He has said that he wants to increase the number of clients Turkmenistan has for its gas.
China dominates Turkmenistan’s order books. Iran and other neighbours also buy gas but in smaller quantities.
It has previously floated the idea of a pipeline underneath the Caspian Sea linking Turkmenistan directly to pipelines pumping gas from Baku across the South Caucasus, Turkey and into Europe. The problem is that building the pipeline requires serious investment.
Turkmenistan holds the world’s fourth largest gas reserves in the world and its officials want to supply Europe.
“A huge resource base of hydrocarbons onshore and offshore allows Turkmenistan to increase the exports of natural gas to the world markets, to develop the new routes of its exports in the eastern and the European directions,” the Turkmen energy ministry said after the FT story.
A global drop in energy prices is pressuring Turkmenistan’s economy, forcing the Central Bank to devalue its currency. Part of the problem is Western sanctions on Russia imposed in retaliation for its support to separatists in Ukraine.
But there may be an upside for Turkmenistan, as the row speeds up Europe’s energy diversification.
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(News report from Issue No. 221, published on March 4 2015)
MARCH 2 2015 (The Conway Bulletin) – The collapse in oil prices forced Max Petroleum, a British-Kazakh oil and gas company, to suspend trading on the London AIM stock exchange.
In a statement, Max Petroleum said it was in negotiations to restructure its debt with Sberbank and other creditors.
“If current negotiations are unsuccessful, or if other events outside the control of the Company require that the Company ceases trading while such negotiations are ongoing, then the consequences will be negative for all stakeholders in the Company,” the company statement said.
Last month Max Petroleum squarely blamed the slump in global oil prices for its problems which wiped out profit margins and deterred potential investors.
The Max Petroleum’s troubles are a microcosm of the problems facing Kazakhstan-orientated companies trying to weather an economic downturn linked to the oil price drop and the turmoil in Russia’s sanction-hit economy.
Almaty-based confectionery plant Rakhat, which South Korea’s LOTTE bought in 2013/2014 in a multi-million dollar deal, also said that it had had to lay off 500 of its 3,800 workers. It blamed unfair competition from cheaper Russian sweets.
Once feted as one of Kazakhstan’s most famous companies outside the extractive industries, Rakhat is now trying to eke its way out of the economic storm — just like most other Kazakh companies.
Max Petroleum, listed on the LSE since 2005, is a small Kazakhstan oil producer with an output of around 200,000 tonnes of oil a year.
In August 2014, AGR Energy, linked to the prominent Assaubayev family, made a deal to buy 51% of Max Petroleum for £37m ($62m), promising to embark on a significant investment to revitalise the company. The slump in oil prices, though, appears to have deterred AGR Energy from follow through with the deal and the promised investment.
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(News report from Issue No. 221, published on March 4 2015)
FEB. 25 2015 (The Conway Bulletin) – Armenia has asked Russia not to raise the price it pays for gas despite a drop in the value of its dram currency, media reported quoting the head of the Public Services Regulatory Commission (PSRC) Robert Nazaryan.
Russia’s Gazprom owns the gas distribution system in Armenia and can, therefore, dictate the price that Armenians pay for their gas.
The worry for officials in Armenia is that the dram lost around 15% of its value against the US dollar at the end of last year. Energy prices are set in US dollars, making it more expensive for people in Armenia to buy.
“In this connection at this moment the Armenian side is conducting negotiations with the Russian side for the natural gas price not to be raised because of the dram-dollar fluctuations,” media quoted Mr Nazaryan as saying.
Russia dominates Armenia’s economy and by asking Gazprom to keep the cost of gas consistent, Mr Nazaryan is effectively asking for a subsidy. If Gazprom agrees, Armenia will fall further under the control of the Kremlin.
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(News report from Issue No. 221, published on March 4 2015)
FEB. 18 2015 (The Conway Bulletin) — Turkmenistan intends to increase production of gas in 2015 to around 80b cubic metres compared to 76b cubic metres in 2014, media reported quoting its energy ministry.
This is important because it underlines Turkmenistan’s determination to sell more gas to make up for the drop in prices.
Over the last few years Turkmenistan has built up its client base for gas and shifted itself into position as one of the region’s major gas suppliers.
Its main client is China but Europe, India and Pakistan are also clamouring to receive more gas.
News that Turkmen President Kurbangkuly Berdymukhamdov wants to increase gas production this year will be a boost for the proposed TAPI pipeline that is planned to run from Turkmenistan across Afghanistan to Pakistan and India and also for a potential pipeline to run under the Caspian Sea that will feed gas to Europe.
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(News report from Issue No. 220, published on Feb. 25 2015)
FEB. 19 2015 (The Conway Bulletin) — Bucking expectations BP said output from its Azeri-Chirag-Guneshli (ACG) oil field in Azerbaijan continued to fall in 2014. BP said oil output at ACG, which is essential to Azerbaijan’s overall output, fell to 31.5m tonnes in 2014 from 32.3m tonnes in 2013.
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(News report from Issue No. 220, published on Feb. 25 2015)
>>Slump in global oil prices triggers tax cut>>
FEB. 11 2015 (The Conway Bulletin) — Kazakhstan will slash its oil export duty by 25% to help companies manage a sharp drop in energy prices, economy minister Yerbolat Dossayev said.
The measure is part of a package of proposals designed to help Kazakhstan’s economy weather an increasingly nasty economic downturn. Energy minister Vladimir Shkolnik also said that taxes on miners would be cut soon.
Currently oil exporters pay $80 to ship a tonne of oil out of Kazakhstan. The government will cut this to $60.
It’s a drastic step for Kazakhstan which still relies heavily on oil exports for its revenue. Drastic but, possibly, unavoidable. Oil prices have halved in the past seven months, forcing spending cut backs and budget cuts.
The sharp drop in oil prices also creates another problem for Kazakhstan. It makes the more expensive projects, such as the Kashagan project in the Caspian Sea, unprofitable. Dropping export tax may go some way to addressing this problem.
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(News report from Issue No. 219, published on Feb. 18 2015)