WHAT: The event produced about $7.5bn in deals, led by a 15-year Absheron Phase 2 gas supply agreement with Turkey.

WHY: Baku wants to sustain exports, offset maturing oil output, and capitalise on Europe’s search for non-Russian gas.

WHAT NEXT: Absheron, ACG gas, Karabakh, and SGC expansion will determine how far Azerbaijan can raise supply.

 

Baku Energy Week saw Azerbaijan and its national oil company SOCAR net some $7.5bn in commercial energy agreements, as the Azeri government looks to capitalise on global oil and gas supply disruptions and soaring prices to bring key upstream projects forward and maximise its exports.

 

Absherson progress

Taking centre stage among oil and gas deals at the event on June 1-3 was a 15-year gas sales agreement committing half of future output from Absheron Phase 2 to Turkey. Under the deal, BOTAS will buy 33bn cubic metres (bcm) of gas from the field, whose partners are SOCAR, TotalEnergies and Abu Dhabi investment vehicle XRG. The second phase is expected to triple Absheron’s output to at least 4.5 bcm per year.

The contract brings TotalEnergies, operator of the offshore field, one step closer to reaching a final investment decision (FID), which it is targeting for this year. Emmanuel de Guillebon, managing director of TotalEnergies Azerbaijan, said the project was at the tendering stage, with appraisal work completed.

The second phase will involve three subsea wells, each expected to produce around 40,000 barrels of oil equivalent per day, with gas accounting for about 70% of output and condensate for the remainder. Unlike the first phase, which tied a subsea well back to an offshore gas-processing platform linked to SOCAR’s Oil Rocks facilities, Phase 2 is expected to use a subsea development concept, with a roughly 140-km multiphase pipeline carrying production directly to onshore processing facilities near Sangachal. Part of the gas will be exported to Turkey and onwards through the South Caucasus Pipeline, while the remainder will supply Azerbaijan’s domestic market.

Condensate from the next stage of Absheron is expected to be processed and stabilised through existing infrastructure before export.

Growth at Absherson will help Azerbaijan sustain and potentially ramp up its gas exports to Europe. But with the project only expected online in 2029, assuming an FID is taken this year, its gas will not arrive in time to help the EU phase out remaining Russian gas supply by late 2027.

The European Commission and Baku signed a memorandum of understanding (MoU) in 2022 to double gas supply to the EU to 20 bcm per year by 2027. With shipments reaching only under 13 bcm in 2025, this target will not be met. But the impending gas crunch caused by the loss of remaining Russian supply may add impetus to further growth. 

 

Other upstream developments

BP, Azerbaijan’s largest foreign oil and gas investor, also announced the start of the first commercial non-associated gas production from the Azeri-Chirag-Gunashli (ACG) field, Azerbaijan’s main oil-producing asset for nearly three decades. The initial well was drilled from the existing West Chirag platform and marks the start of ACG’s first commercial gas phase.

ACG holds estimated recoverable non-associated gas resources of 4 trillion cubic feet (113 bcm), with potential upside to 6 tcf. BP said the first well would provide reservoir and flow data to help assess the wider resource base and inform future full-field gas development.

The company has also identified additional potential in deeper ACG reservoirs. BP said a thin oil rim had been found between gas and water zones in the deeper reservoir, adding to the field’s remaining development potential even as oil output from the wider ACG complex has declined from its peak.

BP is also progressing the Karabakh field, which it operates with a 35% stake alongside SOCAR. The company has said it hopes to take a FID by mid-2027. The development is being designed around subsea tiebacks and existing infrastructure, a model intended to shorten the investment cycle and reduce the cost of bringing new Caspian barrels on stream.

SOCAR has presented Karabakh as part of a broader shift towards more flexible, lower-cost development of smaller and more technically complex Caspian resources. A subsea bundle manufacturing facility is also planned under the project, supporting Azerbaijan’s effort to build more local capability for future offshore tiebacks.

Azerbaijan’s state-owned giant is also eager to expand exploration. SOCAR said it was assessing deeper and shallower layers of the Caspian that have not been fully explored, including structures in the Middle and South Caspian basins. The Goshadash structure was described as one of the projects closest to drilling, while the Gunduz structure, part of an offshore cluster being developed with BP, was also said to be ready for drilling.

Gran Tierra Energy also featured in the upstream discussions. SOCAR President Rovshan Najaf met Gary Guidry, Gran Tierra’s president and CEO, during Baku Energy Week to review work under a February agreement on exploration, development and production sharing for an onshore prospective area in the Guba-Caspian region. The sides also discussed expanding co-operation in upstream activities.

Azerbaijan is also looking to raise gas output from the Umid field. Umid Babek Operating Company has said it is developing a concept to increase production, including infrastructure expansion and capacity growth. The field currently produces around 7mn cubic metres per day and has estimated reserves of around 200 bcm of gas and 40mn tonnes of condensate.

SOCAR also signed a memorandum with Shell setting out basic principles for potential cooperation across several parts of the energy sector. The areas include improving efficiency at existing production assets, exploration and development of new fields, downstream and LNG projects, AI, technology exchange, knowledge and human capital development.

SOCAR is also looking to broaden its reach downstream in Europe. It signed a heads of terms deal with Serbian power firm Elektroprivreda Srbije (EPS) for building a gas-fired power plant project in the Serbian city of Nis. If the project goes ahead, it would help cement Azerbaijan’s foothold in a gas market that remains dominated by Russia. 

 The Azeri state oil company also signed a deal to sell gas to San Marino, the micro-state fully enclosed by Italy, with deliveries expected to start in October. 

 

Enter the US

Meanwhile Washington has its eye on a larger US role in Azeri energy.  US Assistant Secretary of State Caleb Orr the investments discussed by a US delegation and Azerbaijan were worth more than $8bn.

The US-linked oil and gas agreements included a joint study agreement between SOCAR and Chevron to assess oil and gas prospects in the Azeri sector of the Middle Caspian basin. SOCAR also signed a memorandum with US gas producer Comstock Resources covering potential cooperation and investment opportunities in existing and new gas fields, as well as infrastructure serving those fields.

US finance was also part of the package. SOCAR and Apollo Global Management signed an agreement on investment support for the Trans-Anatolian Natural Gas Pipeline (TANAP), which serves as the middle portion of the Southern Gas Corridor network of pipelines. Apollo will acquire a minority, non-controlling interest in the holding company that retains SOCAR Turkey’s 7% stake in the pipeline. SOCAR and Apollo also signed a memorandum that envisages increasing existing financing for TANAP to up to $300mn and exploring financing mechanisms for other SOCAR Group assets.

Apollo already has an interest in TANAP through BP, having acquired a 25% stake in BP Pipelines (TANAP), which holds a 12% interest in the pipeline.

To expand Azeri gas supply to Europe, TANAP and other parts of the Southern Gas Corridor will need to be expanded through investment in extra compressor stations and other upgrades.

SOCAR also signed a memorandum with JP Morgan to expand long-term cooperation in financing strategic projects and improve the company’s access to long-term capital. Separately, SOCAR and US tech firm Lummus Technology signed a strategic cooperation agreement covering refining and petrochemicals, technological infrastructure, engineering work and potential licensing processes, including licences for the Petkim Master Plan project.