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Wednesday, 28 June 2017 13:00

Azerbaijan will stick to new agreements and that is hugely valuable – Tim Eggar Featured

Caspian Energy (CE): Mr. Eggar, you have not been to Baku for a long time. Could you please tell the objective of your visit to Baku? Which changes have you seen?

 

Tim Eggar, former Minister of State for Energy and Industry, UK: The purpose of my visit is that I as the Chairman of the Board of Cape plc and the members of the board arrived to see Baku and see the operations we have in Azerbaijan. We have a very successful joint venture with SOCAR, which is called SOCAR Cape, and we have trained many thousands of Azeri workers. We conduct offshore operations for both AIOC and SOCAR, as well as operations for the new Sangachal Terminal Expansion Program. Meetings were held with the senior people at SOCAR, we had a board meeting and my fellow board members could see Baku. I am still in a state of shock about the changes in Baku. When we passed through the new airport terminal and turned down the road, I kept thinking about where the roundabout was, because there was always a traffic jam there! The old exhibition center, where the Caspian oil shows used to be held, was quite big, but now it looks tiny. As regards the downtown, we went to the center to see the Old Town. I hardly recognized even the Old Town. It has been innovated. It is incredible. I can hardly find words to describe it.

 

Azerbaijan will have a much bigger role going forward…

 

CE: Could you please tell about the results of your work you have enjoyed since 1994?

 

Tim Eggar: There are obviously physical changes in Baku. There is the ability to build large offshore vessels and rigs in Baku, which was not possible in the early nineties. When I first came to Baku in 1993, the life was very difficult.  Accommodation was poor, even food was quite difficult to find. Now you have the amazing SOCAR building. The new contract was signed. For me it is quite difficult, because at the time we signed it (Azeri-Chyrag-Gunashli PSA) in 1994, we thought it would last forever! But it was designed to last for 30 years, and we are at that stage. Time has passed and quite rightly SOCAR and Azerbaijan will have a much bigger role going forward. I think that is what late president Heydar Aliyev always thought about. He realized that it was difficult for SOCAR and Azerbaijan to play a big role in 1994, because, frankly speaking, the country did not have money. I think he always felt that a time would come when SOCAR and Azerbaijan will play a much more leading role in the development of Azerbaijan’s own resources.

CE: How do you see the future of the Baku-Tbilisi-Ceyhan oil pipeline (BTC)?

Tim Eggar:  Obviously, the BTC oil pipeline will remain extremely important. The move to export large quantities of gas from the Shah Deniz field will also be important not just for Azerbaijan and for Turkey, but for Europe as well. So, I think one should not underestimate the geopolitical and economic importance of both lines.

We would be able to think about export through Iran in due time…

CE: How feasible is it for other Caspian littoral states to join transport projects of Azerbaijan? 

Tim Eggar:  Well, personally I have always hoped that Kazakhstan would use the potential of Azerbaijan for export and also Turkmenistan, but I understand the political difficulties. There are obviously lots of challenges. But if I were to express my hope, maybe in 30 years time, when, perhaps, I pass away, we would see a proper operation of the Trans Caspian Pipeline route, using Baku as a central gathering point, and maybe even Iran will join it. Or we would be able to think about export to and even through Iran in due time. It is my vision.

CE: The gas output is declining in the UK. What solution do you see here in terms of energy security? Which sources will replenish the decreased output?

Tim Eggar:  For a long time the UK has had to import some of gas to meet the local demand. We have a number of different options. We can import gas through pipelines from the rest of Europe and we can also import gas through LNG tankers. So, we import gas from Qatar, from Trinidad and from the rest of Europe. I do not think there is any sign at the moment that gas export from Qatar will be ineffective. As far as UK’s energy security is concerned, our oil and gas production is falling, so we have to be very careful in our efforts to secure extra gas.

CE:  The situation with Qatar has unveiled risks…

Tim Eggar: Yes, it is obviously a challenging situation and we have to see what will happen next. It is never a good thing when neighbouring countries have a big conflict. It is a reminder of the geopolitical risks which are always a big factor in oil and gas markets.

More supplies will be through pipelines from the rest of Europe

CE: Which new sources will the United Kingdom need to secure extra gas?

Tim Eggar: Extra gas will come from increased LNG imports and possibly additional gas import lines.

CE: From the United States?

Tim Eggar: Possible, but probably not from the United States. Probably, more supplies will come from West Africa, from Qatar. More supplies will be through pipelines from the rest of Europe. And the rest of Europe, in turn, will be getting gas, as now, from Algeria, from Russia and from Azerbaijan in the future. So, there are many different ways in which gas will be supplied to Europe, and we will take some gas from the rest of Europe, but not all. We will also rely on our own resources, on LNG and also on more renewables. So, even the United Kingdom, which is not a very sunny country, has some solar energy and also wind energy.

CE: The wind energy sector is perhaps most effective in the United Kingdom...

Tim Eggar: Yes, but only to a limited extent. Of course, wind does not blow consistently. It rises and calms down. A lot of our wind energy is coming from offshore areas. S0, it is generating maybe even 30 miles (50 kilometers) away from the land. So it is quite expensive.

CE: How do you assess risks of Brexit for the energy security of the United Kingdom?

Tim Eggar: I think there are many risks for Brexit. It is a very serious challenge for the United Kingdom and to a lesser extent for the rest of Europe. I think that few people understand the complexity of what is going to happen. I think the energy issue is relatively straightforward, relatively easy to solve compared to other issues. I mean the issue of importing gas and exporting electricity that is almost independent of the European Union. There are rules, but personally I do not see that as the major challenge facing the UK.

Brexit is a tragedy from my point of view

CE: How do you see this process? What is Brexit now for the United Kingdom?

Tim Eggar: The European Union has existed since 1957. Originally, there were 6 countries brought together to form the European Community. The United Kingdom did not join it until 1973. And since 1973 we have been involved very much in Europe. We reached many agreements with the rest of Europe, including the Single Market agreement, which enables trade to go across borders without tariffs, people to move more or less freely without visas. And almost all our laws are related to business activity and connected to Europe and to the European Union. But in the UK there have always been people saying that we should not have any influence from Europe, we should not have any rules from Europe, we should be truly free to do our own things, to pursue our own independent policy. And for various reasons there was a referendum called, where the British voters were asked to answer whether “they want to stay as a member state of the European Union” and 52%-48% people answered “no”. It was a tragedy from my point of view. I think it is a terrible decision. And I think that when people voted, they did not fully understand the complexity of all this. Nonetheless, we are a democratic country. The people made their choice and the government has to implement it now. It is proving to be very difficult and we have not really started this process. We have less than 2 years to negotiate the exit. We just had the elections, which brought very unexpected results. So, it is a mess now.

CE: If you were Ms. May, how would you solve this issue?

Tim Eggar:  If I knew, I would be a prime minister…

CE: But if to just imagine the situation, what would be your first step?

Tim Eggar: It is a very complex issue, but there are different ways to negotiate Brexit. Nowadays people talk about hard Brexit or soft Brexit. It is very complex. If I had to solve this issue, I would try to keep as close relations as possible and make as little changes as possible. But given the political situation, there are many people in the parliament, who want to get out in a very hard way, while the others do not want to leave at all. The voters have differing views. So, personally I would try to work out how I could stay as close to the European Union as possible.

CE: How will Brexit affect trade, in particular, with such countries as Turkey, Azerbaijan, and our region as a whole?

Tim Eggar:  The general view is that the British economy will grow more slowly as a result of Brexit. Economists talks about a possible 10% drop in growth achieved by the end of next 15 years. At an early stage the economy may slow down and it might even lead to an economic recession like what happened in 2008, it would particularly be another big serious this time, because organized trade will be disrupted, many things will cost more and businesses will be reluctant to invest.

CE: How would you assess the impact of the Southern Gas Corridor on energy security of the United Kingdom?

Tim Eggar: Well, I think it is, first of all, be a good thing for the United Kingdom, because the more different sources of gas Europe has, the more chances there are for reliable gas supplies from Europe to the UK. We import quite a lot of gas, including gas through pipelines.

The more pipelines we are building, the more ways will be in to increase potential sources of new supplies.

CE: What do you think about investment attractiveness of the Caspian upstream projects?

Tim Eggar: Upstream projects in the Caspian region are the projects where investments are traditionally made in.I think here the opportunities are very clear. I hope it will be possible to get an agreement with Turkmenistan on the Kapaz field. I hope it will be possible in time to get an agreement with Iran, because there are big possibilities in the southern Caspian Sea. So, a lot of obvious big opportunities do rely on a political agreement.

I think the big challenge is that you have the resources, but there is the issue of transportation and political risk. As for gas, petrochemicals, gas-to-liquids technology (conversion of natural gas into liquids) and so on require huge investment. Big companies will say it is certainly a risk. I think we have to be realistic and say that regarding the projects of the Caspian littoral states, the political risk of the region does matter.

CE: Do you expect a consensus on the Caspian Sea status?

Tim Eggar: I hope, but I have been hoping for 25 years…

CE: Can even small British companies be interested now in operations in the Caspian - in all five sectors?

Tim Eggar:  There are now two big British companies: BP and Shell. The other British companies are much smaller. I used to be a CEO of a small company. The reality I think is that only big companies really have a role in Azerbaijan going forward, because the amount of capital investment is so high. Now SOCAR also has funds. But if you go back 20 years, SOCAR did not have the money or probably the technical ability. The company had people, but they did not have the equipment to perform exploration work at the best level. Now things have changed. Personally I think that for smaller developments onshore or near offshore SOCAR could work with smaller companies, which are, as a rule, a bit cheaper and a bit more inventive and flexible than big companies.

The government does not change agreements when they are signed and that is very unusual…

CE: You used to work for Monument company in Turkmenistan and Azerbaijan…

Tim Eggar: I was a CEO of Monument and we worked, as you say, in Turkmenistan and on the Absheron prospect in Azerbaijan. We were a part of the Absheron project. But, unfortunately, when oil prices went down in 1998-1999, Monument was bought by Lasmo. Then Lasmo exited, I think wrongly, projects in Azerbaijan and Turkmenistan and then it was bought by ENI. So, I am personally very sad about that.

CE: What do you think about attractiveness of new forms of agreements such as a Risk Service Agreement?

Tim Eggar:  I do not know the details, but I think one of the most remarkable things about what is happening in Azerbaijan is that the government does not change agreements when they are signed. That is very unusual. The British government is always changing oil taxation. Most countries around the world change agreements, but Azerbaijan does not. I think that is a very remarkable thing and very sensible thing. So when investors look into a new structure of an agreement, they say: “ok, we will negotiate a new agreement and the big thing is that we know that Azerbaijan will stick to new agreements. That is hugely valuable”.

CE: How real is it now to use the experience of Azerbaijan across the Caspian after reaching a consensus on the status of the Caspian Sea?

Tim Eggar: I think yes, it is quite real. This is my dream! 

I would like to add that much is being talked about this in the western world, when Heydar Aliyev was looking at how and with which countries and companies to strike agreements, he made a very important, remarkable decision. The decision to distribute participation interests between different companies from different nations was very important for geopolitical reasons, but I think one of the things that I found best remarkable was the decision to create a state oil fund. If we think back in the early 1990s, at that time Azerbaijan was a country without financial resources, but Heydar Aliyev foresaw a time when oil and gas reserves would run out. He took a far-sighted decision to create the State Oil Fund of Azerbaijan, which currently manages as much funds as the total level of Azerbaijan's GDP. So, it was a very far-sighted decision for that time and it was carried through. I think this is an amazing decision for the future of Azerbaijan, which will secure a decent future for many generations. Incidentally, with the benefit of hindsight I wish the United Kingdom had created such a fund.

 

Thank you for the interview

 

Caspian Energy 

 

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