"AZERBAIJAN'S GAS MARKET LIBERALIZATION CAN BE CONSIDERED IN TERMS OF OVERALL PRIVATIZATION"
Caspian Energy (CE): Mr. Malikov, what can you say about Azerbaijan's gas transfer system and gasification of the country's regions?
Alihan Malikov, Chairman, Azerigaz CJSC: As of 2007, the existing gas transfer system of the country, including trunk gas pipelines, distribution network, instrumentation, gas distribution and metering stations and its inseparable part, subsurface gasholders, is in operable conditions and, depending on gas volumes, supply the growing demands.
The current state of the gas transfer system, its technical capacities and performance resulted from the attention and development policy led by our government. The last years' orders of President of Azerbaijan Ilham Aliyev and government's resolutions enable Azerigaz's team to implement large-scale projects covering upgrade and reconstruction of the system and gasification of individual regions across the country.
All these actions chiefly resulted in enlarged capacity of subsurface gasholders (SG), up to 1.2-1.4 billion m3 of active gas, restored supply of gas to Nakhchivan Autonomous Republic, gasification of Lerik and Yardimli regions, extended and improved physical infrastructure of gas industry as a whole and, as a result, increased number of physical consumers to 1.1 million in 2006 from 851,000 in 2004.
CE: How did gas supply to Azerigaz's system increase due to development of oilfields? How do you use this gas? What would be the gas supply in the outlook?
Alihan Malikov: To answer this question objectively and correctly, one should compare amounts of gas supplied to gas transfer system of the country and take the last reporting period, the year 2006, as a basis. In 2006 we received just 5,907.8 million m3 of gas from oilmen. As defined in the approved Fuel and Energy Balance, we shall receive 9.1494 in 2007 and (by initial assessment) 12.127 billion m3 of gas in 2008; in 2009-2011 this amount will be growing in average by 10-15% per annum and by 2011 shall make over 15.0650 billion m3 of gas.
As you can see, according to preliminary and, one can say, conservative assessments, we have a clear tendency of received gas amount increase in terms of gas amount change.
As to the second part of your question, increased amounts of gas are firstly used to generate electricity and fully supply the demand of population.
Furthermore, such increased amounts of received gas can already enable us to pump in subsurface gasholders not 600-700 mcm as half a decade away, but 1.0-1.2 billion m3; naturally, that enables us to fully supply the demand for gas in the fall and winter period.
CE: How far did you advance enlarging Azerbaijan's subsurface gasholders?How much is the project cost estimate? How realistic is it for Gazprom to use these capacities?
Alihan Malikov: I must say that subsurface gasholders in all countries where they are located and operated are the important and inseparable part of the gas transfer system, i.e. apart from the transfer system they are just holders. Why it is so important: because even having considerable amounts of gas, unless we operate subsurface gasholders, we fail to use extra gas in efficient way in summer and suffer its shortage in winter.
Therefore, taking into consideration that normal gas supply, especially in fall and winter period, is vital for us, we had to tailor technical capacities of subsurface gasholders to meet increased amounts of received gas, and we did so.
We have already prepared several versions of feasibility study regarding SG reconstruction; the project cost can be considered quite high, calling for significant investments, which, in their turn, require a responsible approach for the version selection. In terms of using SG capacities following the reconstruction, the authorization for their use, i.e. gas storage by non-Azeri companies shall be issued only by the government (for it is a strategic facility) and, in general, this issue shall be considered only after the reconstruction.
CE: Are there any preconditions for the country's gas market liberalization?
Alihan Malikov: In principle, taking into account that Azerbaijan, like all other post-Soviet republics, entered the international market and now it is a country with developing market relations, the issue of liberalization of our gas market can also be considered in terms of privatization.
However, I would say that both the country's energy complex as a whole and its component, gas industry, calls for a careful and through approach when solving the questions of liberalization and privatization in common, as it is the issue of the country's energy security after all.
Therefore, these issues are, in terms of scope and period of solution, the sole power of the government of the country; so they shall be solved, I think, both with consideration of national interests and elimination of energy dependence on third parties.
CE: What shall be done to improve the gas supply in the country (to reduce gas transfer losses, improve gas supply to power plants, maintain consumed gas register, etc.)? How are you preparing for the winter season?
Alihan Malikov: The issues concerning improvement of the country's gas supply, uninterrupted and regular gas supply to power plants and annual preparation to the fall and winter season constitute our continuous work that includes core parameters of gas supply.
For the fullest supply of gas demand, each year we draw the action plan with the following basic components:
- collecting applications for required amounts of gas from large consumers, especially from power engineers;
- performance of all operations to ensure gas supply to subsurface gasholders and gas extraction from them;
- preparation of gas transfer system as such for work in fall and winter period, including full inventory of gas supply facilities, readiness checkup and the population;
- finally, acceptance of forecasted amounts of gas to be supplied during the next year and drawing gas balance plan to be included in the country's Fuel and Energy Balance for the planned year.
To maintain the accurate account of gas consumed by various groups as per the approved schedule, all instrumentation is checked, combined by dates, pass the recheck, if necessary, which constitutes the basis for their accurate work.
CE: How efficient was the pilot project on introduction of new Smart-card type gas meters that enable prepayment for consumed gas?
Alihan Malikov: I would like to say Smart-card gas meter system working by ‘pay and use' principle is very effective and we were taking in account this factor while implementing this project.
However, the operation principle of meters, though at the first glance effective, calls for the opportunity to prove it.
Therefore, authorized by the government, we drew the technical documentation and feasibility study of this pilot project to be implemented in Ganja; this project was approved and is being successfully implemented. Some 3,000 meters have been installed in Ganja so far. This year we are planning to proceed with these operations in full scope, i.e. to create conditions to transform the pilot project into a larger project, for which we are purchasing additional meters. This is substantiated by the fact that collection of payments from the population with such counters is 100%. There have been no complaints from the population so far and I think we are going right way.
CE: What is Azerbaijan's demand for gas, consumption forecasts and actual consumption today?
Alihan Malikov: It should be mentioned that in terms of actual demand for gas in the country one should account for the demand as such and also ‘cut his coat according to the cloth', i.e. make certain actions allowing effective use of actual volume of gas.
Therefore, while making the calculation by consumers, we mainly take the year 1991 as a reference point as namely then the demand of all gas consumer groups was supplied.
At the same time, one should remember that today our country is developing in a sustainable way, which, naturally, strongly increases the gas demand and calls for our full supply of this demand.
Today, by our preliminary calculations, the power engineers (as stated in their requests) require an annual average of some 6.0-7.0, population 3.0 and other consumers nearly 1.0 billion m3, which makes a total of 10.0-11.0 billion m3 per annum.
As to the actual gas consumption, during 2006 all consumers were sold 4.3279 and in the first half of 2007 3.4821 billion m3 of gas.