Newsletter No. 993
News-Analysis
April 25, 2008

 

The following newsletter has been contributed by Malikov Khagani (Shingetsu Member No. 123). Khagani is a PhD candidate at Niigata University.

COMPANIES BEGIN OIL PRODUCTION IN THE DEEP WATER GUNASHLI FIELD

As Shingetsu readers might remember, the Japanese energy companies Itochu and Inpex are taking part in the "century's contract," which is the main production-sharing agreement between Azerbaijan and foreign oil companies signed in September 1994 over the Azeri-Chirag-Gunsahli (ACG) oil fields of Azerbaijan in the Caspian Sea. Itochu and Inpex are also shareholders in the Baku-Tbilisi-Ceyhan Pipeline Company established in 2002 for the construction of the pipeline to carry ACG field oil from Baku via Tbilisi to the Turkish Mediterranean port of Ceyhan. Inpex joined the ACG project in April 2003 by acquiring a 10% share from the Russian oil company Lukoil.

According to the Inpex website, the ACG development project concession area measures 432.4 square kilometers and lies some 100 to 400 meters under the Caspian Sea in Azerbaijan's territorial waters. The fields were discovered during the Soviet era beginning in 1979, but in Soviet times development never progressed beyond the shallow-water portion of the Gunashli field. After the fall of the Soviet Union, the oil fields became part of the territory of Azerbaijan and the production-sharing agreement covering the concession was concluded. In November 1997, production of "early oil" in the Chirag field began, and by August 2004 volume had reached 154,000 bpd.

The international consortium involved in the ACG development project currently consists of ten companies based in six countries. Inpex has received funding and debt guarantees from the Japan National Oil Corporation (JNOC), as well as joint financing by a number of Japanese banks, including the Japan Bank for International Cooperation (JBIC).

The ACG project is currently devoted to the phased development of one of the world's largest oil fields (with recoverable reserves estimated at 5.4 billion barrels) by an international consortium operated by the British oil company BP. The project aims to achieve an output of more than one million barrels of crude oil per day by 2009.

The news passed along this week is that the deep-water portion of the Gunashli oil field has begun production. Bill Schrader, president of BP Azerbaijan, pointed out that the start up of the Deep Water Gunashli complex was an achievement that maintained BP’s track record for meeting the planned schedules of the ACG field. This success also reflects well on Inpex and Itochu.

Production is expected to increase throughout 2008 as more wells are brought on stream. Peak output from the site is expected to reach 320,000 bpd, bringing the overall total ACG production to over one million bpd.

Currently talks are being held for the expansion of Baku-Tbilisi-Ceyhan pipeline capacity, which is transporting ACG oil to world markets.