Wood Mackenzie’s Caspian upstream research team have assessed the most significant events of 2014 impacting the region’s oil and gas sector, including the Ukraine crisis and the collapse of global oil prices and significant progress with the region’s high profile megaprojects, identifying the key areas to watch this year.
Samuel Lussac, Manager of Wood Mackenzie’s Caspian Upstream research service says: “The low oil price and Russia’s economic turmoil will make 2015 a year of great uncertainty for the Caspian region. State budgets will have to adjust to lower revenues, operators will optimise expenditure, and exploration activity is likely to remain at a low level. However, despite this tough outlook, production from the region’s megaprojects will increase, M&A activity will stay high and the Southern Gas Corridor will enter the construction phase.”
Wood Mackenzie’s latest upstream analysis highlights some of the key upstream developments to look out for in the Caspian region in the coming year.
- Economies at risk – The largest Caspian economies rely heavily on the oil and gas sector. Petroleum exports account for around 60% of Kazakhstan’s total exports and more than 90% for Azerbaijan. The low oil price will therefore have a negative impact on state budgets. Wood Mackenzie forecasts that Brent will average around US$60/bbl in 2015, resulting in hard times for the Caspian region.
- Countdown to the Southern Corridor – Construction of both the Trans-Anatolian Pipeline (TANAP) and Trans Adriatic Pipeline (TAP) is expected to start in 2015, in Turkey and Albania respectively. Final investment decision on TANAP is scheduled around March 2015, but will first require completion of BOTAS and BP’s farm-in to the project. This will mark the final step of a 15 year long process to transport Caspian gas to Europe.
- Buyer’s market will emerge in Central Asia – The oil price collapse has already affected pending deals in Kazakhstan. This price environment may also encourage Asian investors to consolidate their upstream position in Central Asia. In 2014, a number of private Chinese companies farmed in to Kazakhstan and Kyrgyzstan and this is a trend Wood Mackenzie expects to continue in 2015.
- Exploration expenditure hit hardest – Operators will monitor exploration expenditure very closely in 2015. Operators are expected to favour low cost activity over higher cost programmes. However, there are a number of areas where we expect to see progress, Wood Mackenzie says. BP and SOCAR will shoot 2D seismic on the Shallow Water Absheron contract area, for which a production sharing contract (PSC) was signed in December 2014. By year end, attention will turn to Tajikistan, where partners CNPC, Tethys Petroleum and Total are expected to spud a 6,500 metre pre-salt well on the giant Bokhtar Area. Results are not expected until 2016, but a significant gas discovery would be a game changer for energy-short Tajikistan.
- Positive outlook for the Megaprojects – In 2015 production at Azeri Chirag Guneshli (ACG) and Tengizchevroil will increase slightly, following successful maintenance programmes in 2014. The ramp up at ACG’s West Chirag platform will alleviate oil production decline in Azerbaijan. Pipeline replacement should begin at Kashagan in the second half of 2015, allowing production to restart in 2017. Turkmenistan will drive regional gas production growth via the continued ramp up at Galkynysh. Phase One gas production capacity at Shah Deniz will reach 1,040 million cubic feet per day (mmcfd) following successful debottlenecking of the Sangachal onshore plant in 2014.
Source: Wood Mackenzie