Iran and Azerbaijan share oil fields, so what’s stopping Tehran from drilling?

Iranian-Azerbaijani energy relations go back to the 1990s collapse of the Soviet Union. Both countries hold large reserves of oil and gas, and Azerbaijan has used an active energy and foreign policy to carve itself a place on the world energy market.

 

The Baku-Tblisi-Ceyhan pipeline project was the first major step for Azerbaijan in this endeavor. Both countries are interested in developing successful bilateral relations based on energy. Iran hopes to use the infrastructure of Azerbaijan, particularly the Baku-Tbilisi-Ceyhan pipeline to export its oil.

 

Iran also hopes to join the Trans-Anatolian Gas Pipeline project in the future. However, at present, Iran has not enough natural gas to export to the EU or other countries.

 

Azerbaijan has also called on Iran to use its natural gas storage for use in times of increased consumption.

 

Shared fields in the Caspian Sea represent a potential basis for future cooperation. Azerbaijan has also invested in Iranian renewables as another potential platform for partnerships.

Iran is the only state in the Caspian Sea area which has no oil and gas activities in that region. This is due partly to the fact that the majority of Iranian oil and gas fields are located in its southern half and offshore in the Gulf.

 

Shared fields in the Caspian Sea here represent

a potential basis for future cooperation

 

The ability to harness the Caspian’s reserves is not just an issue of procurement but also about distribution pipelines, thus meaning further efforts are needed in conjunction with other nations.

 

Iran’s Caspian field, Sardar-e Jangal, was discovered in 2001. According to initial estimates, this field holds 50bcm of natural gas and 2bb of oil – of which Iran could expect to obtain 500 million barrels. After the signing of the nuclear agreement, Iran offered four projects in the Caspian Sea, blocks 24, 26 and 29, as well as the Sardar-e Jangal oil field, to foreign companies for exploration and development.

 

The development plan for the deep-water Sardar-e Jangal oil field is said to cost in the range of $7-10 billion, with Iran open to foreign investment for the project. Similarly, Iran has also invited foreign companies to invest in other fields. Iran is ready to attract foreign investment, and has frequently assured foreign companies with guarantees of the security of their investments – though such guarantees are constantly weighed up by investors vis-à-vis international developments in Iran’s foreign policy.

 

After the nuclear agreement was signed, Iran invited foreign companies to invest in its oil fields, with NIOC and Norway’s ORG signing a memorandum to study feasibility, as well as in three exploration blocks in the Caspian Sea. However, this agreement has so far resulted in little by way of actual progress.In a visit to Tehran by Azerbaijani President Ilham Aliyev in April 2018, leaders of both countries signed a Memorandum of Understanding on the “Joint Development of Relevant Blocks of the Caspian Sea”.

 

This followed a visit to Baku by President Rouhani in March, during which both sides signed a protocol in agreeing that Iran’s state-run NIOC and Azerbaijan’s SOCAR would recover oil on a 50-50 basis. The Khazar Exploration and Production Company (KEPCO) was tasked by the NIOC to improve Iran’s share of oil and gas fields in the Caspian Sea.

 

According to the document, a joint oil company would be established between the two countries, with the Alborz and Alvand fields identified as common areas in which Iran and Azerbaijan could enjoy an equal share.Iran has divided its exploration area in the Caspian into 46 blocks, eight of which have been given priority. Two blocks are shared with Azerbaijan.

 

Iran, between 2003 and 2005, carried out seismic tests across more than 4,000 square kilometres of the Caspian Sea at blocks 6, 7, 8 and 21. According to Mohsen Delvaz, CEO of KEPCO, Iran still need more exploration in order to have a clear estimate of how much capital will be required to launch extraction operations.

 

However, preliminary estimates indicate that at least $10 billion will be needed for the joint Iranian-Azeri oil field and between $7 and $10 billion for the Sardar-e Jangal field.

 

Iran is, again, open to foreign investment for the development in order to meet these heavy costs. But foreign companies remain wary, given the re-imposition of US sanctions on Iran.

One energy expert has pointed out that the Alborz and Alvand fields mark the first successful step towards stabilising Iran’s energy rights in the Caspian Sea, but the recent agreement has also been a cause for uncertainty.The challenges for Iran in extracting hydrocarbon resources from the Caspian Sea mainly draw from concerns about the depth of its waters and the land-locked nature of the sea. This results in a lack of connection with open water, operational restrictions related to transportation of equipment, the changing climate, the very difficult and complex nature of providing support due to distance from the coast, as well as the cost and risk of exploration operations, a lack of background in fleet maintenance and offshore services, and technological sanctions.

 

Iran has a lot of experience in the development and production of hydrocarbon fields

in the offshore sector

 

Of course, Iran has a lot of experience in the development and production of hydrocarbon fields in the offshore sector in general, but these experiences are of a completely different nature in the southern parts of the country and in the Gulf.

The Caspian Sea, due to its depth, requires special conditions at all stages of drilling, development, production and transfer.

 

The sanctions regime represents the over-riding issue in these challenges. It is possible for Iran to sign agreements with Chinese and Russian energy firms to invest in joint fields in the Caspian Sea, yet deals with China have so far failed to materialise.

 

Azerbaijan is far more active than Iran in the Caspian Sea. This is to expected, since the US withdrawal from the JCPOA allowed Azerbaijan to attract foreign technology and capital for extraction from a joint field with Iran, playing an important role in the regional energy market at Iran’s expense.

 

Furthermore, Azerbaijan can bolster EU energy security via the TANAP and TAP projects – of which Iran is not yet a part.Geological and financial problems will continue to plague Iranian efforts, yet an active regional foreign and energy diplomacy could yet lead to breakthroughs.

 

Chinese companies would not be the best option for Iran in terms of the Caspian, due to financial requirements and insufficient experience in deep water.The crucial issue is to resolve the tension with the west – and this requires engagement with the US. Without foreign financial capabilities and technology, Iran will face serious problems in playing a key role in the regional energy market and producing more oil and gas from joint fields, let alone those over which it has full sovereignty.

 

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Energy is a Backbone of Azerbaijan-Turkey Relations

Europe is a constant hunger for oil and gas despite the development of the alternative energy resources. In this regard Azerbaijan takes an important role for Europe. Baku-Tbilisi-Kars is a chain that will unite East to the West. Energy consultant Omid Shokri Kalehsar commented Eurasia Diary’s questions on the Azerbaijan-Turkey relations and Baku-Tbilisi-Kars railways project.

 

– Yesterday the President of Azerbaijan arrived to Turkey. What are the objectives of the visit?

 

– Azerbaijan–Turkey relations have always been strong with the two often being described as “one nation with two states” slogan. Erdogan attended in opening cermony of  Baku- Tbilisi- Kars Railway project.the project designed to be a new corridor that will connect Azerbaijan, Georgian and Turkish railways.  The project implementation began in 2007 and construction began in 2008 and it foresees the rehabilitation and reconstruction of 178 km-long railway .This project will effectively open a new rail-only corridor from the Caspian Sea to Europe via Turkey, eventually excluding the need for sea transportation once the planned rail tunnel under the Bosporus Strait in Istanbul is complete.

 

The Baku-Tbilisi-Kars project could also open a North-South rail corridor linking Russia to Turkey. This line will transport both freight and passengers and is expected to provide an alternative freight transport route to routes that transit through Iran. Energy play key role in Turkey-Azerbaijan relation and it can be describe of backbone of their relations. Both countries are interested to play important role for transporting goods from region to the consume market and in this regard Baku- Tbilisi- Kars Railway project hold a potenail to help these counteris to gain political and economic benefits.

 

Durign Erdogan trip to Baku,both president express there willing  to develop bilateral relations, increase trade volume and mainly there plan to begin using TANAP project soon. Erdogan in his last visit to Baku has expressed his country’s support to Azerbaijan’s  position on Nagorno-Karabakh.He  said that Turkey and Azerbaijan have a unanimous stance on the Armenian-Azerbaijani conflict. According Erdogan: “We speak the same language and act from the same positions”.

 

Erdogan’s remark came in response to the reports that Azerbaijan’s wishes to see Baku in the OSCE Minsk Group mission (which mediates peace between the conflicting parties).

 

 

– What role will Azerbaijan and Turkey play in the supply of energy resources to Europe?

 

– Azerbaijan began to present itself as a key ally in the European energy market, partly by retaining an interest in having a potential role in the Southern Gas Corridor. Many international transport routes, including the Baku-Tbilisi-Ceyhan, Baku-Supsa, Baku-Novorossiysk oil pipelines and Baku-Tbilisi-Erzurum, Azerbaijan-Georgia, Azerbaijan-Iran and Azerbaijan-Russia gas pipelines originate namely from Azerbaijan.It is believed that TANAP, which will later be linked to TAP. The Southern Gas Corridor project envisages the transportation of the gas extracted at the giant Shah Deniz field in the Azerbaijani section of the Caspian Sea. Gas deliveries to Europe are expected just over a year after the first gas is produced offshore in Azerbaijan.The Southern Gas Corridor pipeline system has been designed to be scalable to twice its initial capacity to accommodate additional gas supplies in the future. Shah Deniz 2 gas will make a 3,500 kilometer journey from the Caspian Sea into Europe. The existing South Caucasus Pipeline will be expanded with a new parallel pipeline across Azerbaijan and Georgia, while the Trans-Anatolian pipeline will transport Shah Deniz gas across Turkey to join the Trans-Adriatic Pipeline, which will take gas through Greece and Albania into Italy.The first gas supplies through the corridor to Georgia and Turkey are given a target date of late 2018.

 

 

 

According to the Strategic Plan of the Turkish Ministry of Energy and Natural Resources (2015-2019), diversification of energy resources is a top priority. Turkey is interested in using its geographic position in the region to become an energy transit country and regional hub for oil and gas from the Caspian Basin, Central Asia, and Iran, to European markets. Turkey is interested in using its geographical position to play a key role in the energy market.

 

Turkey needs more investment in infrastructure to increase the capacity of its refineries and natural gas storage facilities. It could be argued that energy would help Turkey to improve its relations with the EU and enhance its candidacy status. Both sides could use the increased energy and diversification of energy resources to strengthen beneficial relations and gain mutual advantage from an energy agreement. That said, many of these plans are still in the early stages of development, and it will take years for them to come to fruition. However, in the meantime it remains to be seen what advances will be made in the short term, and how quickly Turkey’s ambitions as a transit country materialise.

 

– I would like to hear your opinion on the Nagorno-Karabakh conflict. The other day Ilham Aliyev and Serzh Sargsyan met. But Sargsyan does not want to return Azerbaijani territories. What can you say about this? 

 

– In Nagorno-Karabakh conflict Minsk group has play key role but during its history we can see a little progress in its attempting to solve Nagorno-Karabakh problem. Recent meeting betwen  tow preseident has no clear effects on future this conflict.The meeting, which takes place on the initiative of the Organization for Security and Europe (OSCE) Minsk Group, will come more than a year after the leaders of the two nations last met. Minsk groups espicaly Russia hold a potentail to solve Nagorno-Karabakh conflict and is able to pressure both parties to be more active in negation process with aim of solving Nagorno-Karabakh conflict.

http://ednews.net/en/news/analytical-wing/206247-energy-is-a-backbone-of-azerbaijan-turkey-relations

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