Azerbaijan’s State Oil Company SOCAR will supervise the implementation of the oil production cut agreed within the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) in the country.
Early in April, 23 member countries of OPEC+ discussed the economic recession caused by the COVID-19 pandemic and agreed to cut oil production by 9.7 million barrels per day starting in May, in order to balance supply and demand on the global market.
The Ministry of Energy, which represented Azerbaijan in the meeting, announced the terms of the agreement and the commitments undertaken by Azerbaijan, proposing a proportional sharing of the production cut quotas among the oil producers.
The OPEC+ agreement considers the temporary implementation of production cuts in three stages: first during May and June 2020, second between July and December 2020, third between January 2021 and April 2022. It was agreed to reduce production at a higher rate in the first stage and to gradually restore production levels in the following periods.
According to the international agreement, daily production in Azerbaijan should not exceed 554,000 barrels in May and June 2020; 587,000 barrels in July-December 2020 and 620,000 barrels between January 2021 and April 2022. These figures are applied only to crude oil, but not to gas condensate production.
SOCAR’s Azneft Production Unit will initially reduce its daily production by 17,000 barrels to 100,000 barrels, reads the company’s press release. In the following period, it will gradually increase its production adding 5,000 barrels to total output per day. Beginning from next year, it plans to add 6,000 barrels more to daily production, which would bring Azneft’s total crude oil production to 111,000 barrels per day.
Daily production on the Azeri-Chirag-Deepwater Gunashli fields is expected to be reduced by 76,000 barrels in May and June. During the second stage of the agreement, the operator of the fields – Azerbaijan International Operating Company (AIOC) – will be able to increase production by 27,000 barrels per day, adding 26,000 barrels per day in the next year. Thus, in 2021, the level of AIOC production is forecasted at 487,000 barrels per day.
As a result of measures arising from the OPEC+ agreement, between the beginning of May and the end of December 2020 Azerbaijan’s oil production will decrease by 17.4 million barrels, amounting to 141.8 million barrels in total. In 2021, the country’s total crude oil production is forecasted at 30.7 million tons or 226.3 million barrels. These figures do not include hydrocarbon production by the Shah Deniz consortium and the Umid Babek Operating Company, nor is the condensate production by SOCAR’s Azneft PU and Bahar Energy Operating Company included.
By the end of 2020, SOCAR’s Azneft PU plans to suspend production at several oil and gas production facilities and conserve equipment in accordance with industrial requirements. The decision rationale for suspending particular fields is based on the assessment of the field’s economic efficiency, technical sustainability, industrial safety and minimisation of negative impact on the environment.