Caspian
Oil & Gas 2004
Posted: 07 June 2004
Show Daily: Friday 4 June 2004
Good morning on this the final day of the highly successful Caspian
Oil and Gas 2004
Looking back at yesterday
The conference has now ended. A CD-ROM will be produced; you can
obtain information on its availability from the show management
office here at Caspian Oil and Gas 2004 or, after the show, from
Caspian Events Limited’s offices in the UK or here in Baku.
Samir Sharifov, Executive Director, The State Oil Fund of the
Azerbaijan Republic not only chaired the first session of the day
on ‘Caspian Regional Development: the role and strategic
objectives of public sector multi-lateral organizations and Regional
and local economic impact’ but delivered a keynote address
on Azerbaijan’s progress as far as the Extractive Industries
Transparency Initiative (EITI) is concerned. The first reports
(from foreign and national companies on what they pay; and from
the government on what it receives) will be published in July.
Later in the session, the British Ambassador, HE Laurie Bristow,
congratulated Azerbaijan on its EITI progress; it is amongst the
first countries to implement the initiative. He produced a truly
amazing statistic. In researching his presentation he looked at
the World Bank website and thought he had found the global figure
that a lack of transparency is costing the world. That figure was
one trillion US dollars. As he dug deeper, he realized that this
was not the ‘lack of transparency’ figure, but ‘merely’ the
total amount paid in bribes all over the world in just ONE year;
the amount due to a lack of transparency globally within the extractive
industries is, he therefore concluded, much more than this!
‘Transparency is about tackling corrupt practices, but it
goes wider than that,’ he explained. ‘It’s about
openness and accountability in the way publicly owned resources
are managed. These are more than abstract concepts: they have a
direct effect on people’s incomes and living standards, on
employment and business opportunities. Research shows that lack
of effective and transparent governance can have dramatic costs:
- Investment and growth are hindered - growth that could lift
large numbers of people out of poverty
- Macroeconomic and fiscal
stability is damaged
- Public expenditure decisions are distorted
and public administration made less effective. So resources
may be diverted away from
where they are most needed such as health and education
- Democracy
and the rule of law are undermined
- Public trust in the state
and in politicians is damaged
- At its worst, it can contribute
to conflict
Mr. Bristow spoke of the support of private companies and international
organizations for the EITI. ‘Most of the major multinational
companies operating in Azerbaijan have made a firm and indeed enthusiastic
commitment to the Initiative. They do so because their commitment
to Azerbaijan is for the long term. It is in their interests to
ensure that the revenues from the oil and gas sector in Azerbaijan
are used effectively to promote stability, growth and sustainable
development over the long term. Supporting the EITI process contributes
directly to reducing the risk to their investment and to creating
further economic opportunities in the future.’
He went on to explain that the UK has committed a million pounds
to help establish an EITI technical assistance trust fund in the
World Bank, and is looking at practical ways to support implementation
of EITI in Azerbaijan.
Ever wondered about a definition of sustainability? Charlotte
Philipps of the European Bank for Reconstruction and Development
provided one. It is, she said: ‘... meeting the needs of
a project today while protecting, sustaining and enhancing human
natural and financial capital in the future ... ’ She
explained to her audience that pure project finance is no longer
an option; sustainability, transparency and good governance are
all key components nowadays
‘Sponsors want to make money but only a stable investment
climate will ensure this; lenders have long learned that prosperity
creates stability and that the people have to prosper for projects
to be successful; for governments, transparent and wise revenue
management leads back to prosperity and stability, one of the great
enhancers of investment climates; and finally, participation in
a project design process in a meaningful way, which then in turn
increases governmental and sponsor accountability, is also important.’
Ms Philipps suggested that in addition to publishing what is paid
and what is received, governments should also consider publishing
what they are spending. Samir Sharifov was able to reassure her
that the government of Azerbaijan is working very actively in this
direction and publishes what the government spends from the Oil
Fund; indeed information on this is available at www.oilfund.az
Dr Ria Kemper, Secretary General of the Energy Charter Secretariat
spoke on ‘The Energy Charter Process: promoting international
energy cooperation’, focusing on two aspects of the Energy
Charter’s work that are particularly relevant here in the
Caspian region. The first concerns the role of the Energy Charter
Treaty in providing a framework of rules to protect and promote
investment, and the mechanisms through which these rules can be
implement; and the second is the unique role of the Energy Charter
process in addressing the complex and multi-faceted problems of
energy transit.
Dr Kemper outlined the background to the Charter process. ‘Following
the end of the Cold War, producer, consumer and transit countries
saw the prospect of mutual advantage in agreeing common ‘rules
of the game’ in the energy sector,’ she explained. ‘Producer
states, such as Azerbaijan and other countries of the Caspian region,
recognized the imperative to attract investments in order to maintain
and develop long-term production, refining and transportation capacity.
Countries dependent on imported energy, such as those of the European
Union and Japan, shared an objective to ensure their security of
supply. There was also a clear interest in formulating principles
to govern the transit of energy resources across different national
jurisdictions.
‘These complementary interests provided the background to
the creation in the early 1990s, on the initiative of the European
Community, of the Energy Charter. This framework for energy cooperation,
based on the 1994 Energy Charter Treaty, now has 51 signatory states
across Europe and Asia and a further 17 observer states, including
the addition in recent years of important countries for the Eurasian
market such as China, Iran and Korea.
‘The essence of the Treaty itself is a collective attempt
by governments to promote the necessary climate of legal stability
and predictability that is required to facilitate energy trade,
investments and transit. It also includes important, but non-binding,
disciplines to promote energy efficiency. The Energy Charter ‘process’ is
the means by which governments interact to promote the implementation
of the Treaty’s provisions.’
Dr Kemper explained that last December, the Secretariat proposed
to conduct so-called ‘in-depth reviews’ to allow for
a more exhaustive assessment of the investment climate and market
structure of their members states, and expressed her sincere appreciation
of the decision of the Azeri authorities to be one of the first
to have such a detailed review. Work on the project has already
started, and a team from the Secretariat will be visiting Azerbaijan
in the coming weeks. The report will be presented in the Charter’s
Investment Group and in the Charter Conference in the second half
of this year. Once finalized, it will be available to any interested
party through the Energy Charter’s website. www.encharter.org
‘The focus for this report will be the measures taken by
the Azeri authorities to promote energy investment, seen in the
context of the obligations arising from the Energy Charter Treaty,’ she
explained. ‘However, I need not remind this audience that
investment decisions in the energy sector are contingent not only
on the regulatory framework established by individual national
governments, but also on the available export routes to bring energy
supplies to energy consumers. Multilateral rules governing the
issue of transit are therefore a vital part of the Caspian and
Eurasian energy equation, and here the Energy Charter has a distinctive
role.’ She went on to speak of transit issues ‘an area
where significant problems remain’. She outlined some of
the challenges explaining she continued to believe that there are ‘no
insurmountable difficulties in the current text of the Protocol
itself, which is available on the Charter’s website’.
The afternoon session on Caspian Region energy industry development
needs: technology, operations and maintenance was chaired by Dr
Khoshbakt Yusufzade, Vice-President of SOCAR and Dr Ken Forrest
CBE, former Director, Offshore Supplies Office, UK Department of
Trade and Industry. Both gave compelling presentations.
Dr Yusufzade spoke with his customary enthusiasm, looking back
over successful joint ventures between Azerbaijan-based companies
and overseas companies that have resulted in state-of-the-art technology
being used that has lead to successful exploration, drilling and
production activities in the Caspian Sea. He made the point that
Azeri geologists and scientists thought for years there could be
large gas reserves in the Shah Deniz field. It was thanks to new
technology and drilling capabilities that the huge gas reserves
could be found.
Dr Forrest spelled out the British recipe for creating a ‘home
grown’ oil and gas supply industry, strongly commending the
UK approach to the government of Azerbaijan. The UK had an extensive
engineering base with world class capability in heavy engineering,
shipbuilding and mechanical, civil and electrical engineering but
the hydrocarbon discoveries of the late 1960s created a sudden
demand for a wide range of products and services that UK companies
had no experience of supplying.
The profitable operations of the international oil industry, which
depends so much on minimizing the period between commitment to
massive capital investment and first oil flow, meant that in the
short term a substantial amount of the goods and services needed
for the offshore developments would have to come from overseas;
otherwise the oil companies would seek their fortune elsewhere.
The UK turned to the USA, which had offshore experience thanks
to developments in the Gulf of Mexico. Despite the differences
between their relatively benign conditions and the severe weather
and sea condition of the North Sea their level of understanding
was certainly on a higher plan than in the UK in those early days. ‘But
in engaging US companies there was a real danger that they would
win a dominant position in the UK market,’ Dr Forrest explained. ‘A
situation which could easily become permanent through UK industry’s
lack of a track record; to prevent this, the UK government set
up the Offshore Supplies Office (OSO) with two main objectives:
- To ensure maximum involvement of UK first in the development
of UK oil and gas fields
- To ensure there was no slippage in the
timetable for oil production
To meet its objectives OSO set about identifying the key sectors
where UK industry would have to concentrate to create a self supporting
capability and also determine the best mechanism by which this
might be done.
It was decided that the best way forward was to
encourage UK companies to joint venture or have some other form
of association, with experienced foreign companies.
But it was
the UK government’s intention that in the shortest possible
time technology and know-how would be transferred from the foreign
company to the UK company. This then was the tale that Dr Forrest
told his audience explaining that this led to the market share
of goods and services supplied by UK companies for North Sea development
rose from 25% in the 1960s to over 75% in the mid 1980s; a level
of market share that has been maintained ever since. Helping Others
This year’s Anglo-Azeri Society Charity Dinner held on Wednesday
evening raised a staggering US$45,000 for local charities here
in Azerbaijan - thanks go to all who supported a highly enjoyable
evening and who parted so eagerly with money for such good causes!
Exhibitor News
A delighted Rustam Rahmatulin of Middle East Petroleum
won yesterday’s
pair of return tickets to London in the British Airways prize draw.
It will be his first visit to London where he will be staying with
his brother. There’s a pair of return tickets to London on
offer every day of the show – all you need to do is drop
your business card into the special box on their stand (No. 290)
Do you have any news for us? The press office will be open until
the show closes at 14.00hrs today and although this is the last
issue of the Show Daily, your news could find its way into our ‘close
of play’ press release which is sent world-wide
News
And, here’s some more news brought to you by Upstream the
official publication of Caspian Oil and Gas 2004. You can take
out a trial two-week subscription to Upstream by going to www.upstreamonline.com
this trial gives you immediate access to Upstream newspaper online,
the next hard copy issue mailed to you, live news 24 hours a day,
5 days a week as well as full archive access.
2 June: Azerbaijan has achieved "significant progress in
the oil and gas sector" following the signing of the first
production sharing agreement to explore and develop the Azeri,
Chiraq and Guneshli offshore oilfields in September 1994, according
to BP Azerbaijan president David Woodward.
Woodward, speaking at the Caspian oil and gas conference in Baku
today, said this advancement "has been matched by economic
and political progress". The country has become part of international
community, awarding 21 PSAs to 33 companies from 15 countries.
He said that "this decade will witness the accelerating rate
of developments in the oil and gas sector in Azerbaijan".
That should lead to oil exports from the country growing almost
six times to over 1 million barrels per day by 2009.
The main contributor to that increase is the BP-led Azeri-Chiraq-Guneshli
consortium, which is quickly moving into the expanded stage of
development. Additionally, BP will proceed with drilling at the
Inam structure, Woodward said.
Accelerated development is set to bring a lot of cash into Azerbaijan
and this will be a challenge for the government and President Ilham
Aliyev.
Woodward said that based on current energy prices, he expects
Azerbaijani revenues from the ACG and Shah-Deniz fields and the
Baku-Tbilisi-Ceyhan export pipeline to Turkey to grow to $5 billion
per annum in 2010. This is roughly equal to the country's annual
gross national product today, he said.
President Aliyev said yesterday at the opening of the Baku show
that revenues will be used to foster other branches of the economy,
which have been in decline following the collapse of the Soviet
Union.
Important Information for Exhibitors
The exhibition closes at 14.00hrs
today. Small items may be removed after the close of the show.
Stand fittings and larger exhibits
may be removed from 08.00hrs tomorrow, Saturday 5 June. All exhibits
and stand materials must be removed by 18.00hrs on Monday 7 June
2004.
Meritex, the official freight forwarders, will deliver empty cases
back to their clients’ stands from 14.30hrs onwards, once
the aisle carpet has been removed.
After the close of the show, there is a heightened risk of pilferage
from stands. We would like to remind all exhibitors not to leave
valuable items such as laptops, mobile phones, etc unattended on
their stands at ANY time during this period.
Caspian Events
Ltd and the Azerbaijan Chamber of Commerce and Industry thank you
for being with us at Caspian Oil and Gas 2004
and look
forward to seeing you at the 2005 show; and before that, we look
forward to your feedback on this year’s event. The 12th
International Caspian Oil & Gas Exhibition and Conference
will be held here in Baku 7-10 June 2005. Have a safe journey home!
For more information see http://www.caspianoilgas.co.uk/ 
Posted by Richard Price,
Editor Pipeline Magazine
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