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Azerbaijan should keep moderate production profile: expert

21 December 2013 [09:00] - TODAY.AZ
Under the "Norwegian Energy Experts in Azerbaijan" project between the Embassy of Norway and Caspian Center for Energy and Environment (CCEE), the Center interviewed Dr. Oystein Noreng, a Professor of Petroleum Economics and Management at BI Norwegian School of Management, Oslo, Norway. Along with his fruitful academic career, Professor Noreng has consulted the governments of Norway, Denmark and Sweden, the U.S. Department of State, the U.S. Internal Revenue Service, the United Nations, the World Bank, the International Monetary Fund, the International Energy Agency, and several major oil and gas companies.

Q.: How would you reflect on the price trends for oil and what should a country like Azerbaijan do to prepare itself for possible contingencies?

A.: The medium-term trend is downward due to heavy upstream investment in many places, meaning that supply volumes are likely to increase as demand stagnates. For some time the Gulf producers might cut volumes to stabilize prices, but are likely to opt for market share. This trend might be halted or even reversed in case of a major political crisis in the Middle East, but it might be accelerated by an understanding between the U.S. and Iran, by a stabilization of Iraq and/or Libya, as well as by a regime change in Venezuela, in addition to rising Kurdish exports through Turkey. The medium term floor might be around $50-70/bl. as U.S. shale oil will be the swing. I see this as a 2-12 year possibility.

Q.: What about natural gas, especially given that Shah Deniz Consortium has made a decision to sell its gas from the second phase in the European market?

A.: Due to rising exports from North America, natural gas prices are under a downward pressure in most places. U.S. and Canadian LNG might be sold in Europe and Asia at a cost of about $7/mbtu (which with a crude reference of 60 per cent corresponds to an oil price of $60-70/bl.). Possibly, this is a medium-term price reference. For net export prices, transportation costs should be deducted. At the moment, the European market is saturated, but should expand in the medium, on the condition that the economy picks up and energy policies are modified away from heavy protection for renewables. Competition would be considerable.

Q.: What does TANAP and TAP mean for Turkey and Europe?

A.: For Turkey a lot, for Europe less; possibly beneficial to South-East Europe and Italy.

Q.: How would you assess the place of the Caspian Basin in the global oil and gas market?

A.: At a time of looming oversupply, the place is rather marginal, but likely to increase, especially for Turkey.

Q.: Anything specific about Azerbaijan?

A.: Keep a moderate production profile. Proven and potential reserves in the ground are likely to increase in value after a medium-term drop. The Iranian market for refined products should be of immediate interest.

Q.: What stands behind the success of Norway and Statoil, if you do think that it is a success story in terms of developing its oil/gas resources?

A.: At first, a moderate and holistic approach, aiming at keeping control and reaping benefits in terms of spin-off effects. Industrial cooperation and knowledge transfer have been essential.

Q.: What would be an optimal strategy for Azerbaijan and SOCAR to be regarded a success story 20 years from now?

A.: A moderate pace of development to avoid a bubble and to develop supply and service industries at a pace compatible with the country's human and industrial resources.



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