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Bulletine Energy 


2017 July 17 ( Monday )  11:00:38
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Price of Al-92 Gasoline Rises in Azerbaijan by Almost 29%

Baku/17.07.17/ Turan: By the decision of the Tariff Council (TC) of Azerbaijan from July 15, 2017, the retail price of motor gasoline of the brand AI-92 rose from 0.7 manat to 0.9 manat ($ 0.53) per 1 liter.

The growth was 28.6%. Before that, the increase in gasoline of this brand occurred in early December 2013 - an increase of 30%.

Prices for low-octane gasoline and diesel fuel are currently regulated by the state. Since April 1, 2014 Azerbaijan has begun import of high-octane gasoline and since then the state has ceased to regulate the cost.

By the decision of the Council, the retail price per ton increased from 917 to 1,179 manat (including VAT, at the current exchange rate of $ 693.5).

Its decision to increase the price of gasoline brand AI-92 is justified by the following:

A) Desire to improve the quality of motor fuel produced and to improve the environment;

B) Expanding investment opportunities to meet domestic demand;

C) Modernization and reconstruction of the oil refining industry;

D) Devaluation of the manat resulted in the restriction of the export opportunities of SOCAR and foreign exchange earnings.

According to the estimates of the TC, the new retail price for AI-92 gasoline in Azerbaijan will be lower than in other CIS countries and the region. In particular, 1 liter of gasoline of this brand in Georgia is $ 0.86, in Russia - $ 0.61, in Belarus - $ 0.59, and in Ukraine - $ 0.98.

However, when comparing prices, the TC made a serious mistake; the above-mentioned countries, except Ukraine, offer gasoline of the Euro-4 or Euro-5 standard. In Azerbaijan, according to official statistics, the quality of oil products corresponds to the ecological standards of Euro-2.

In addition, the current increase in gasoline prices will not improve either quality or environmental standards until 2020, since the complete modernization of the refinery named after Heydar Aliyev, according to the schedule, will be completed just then. After this, it is possible to produce gasoline according to the Euro-5 quality standard. Recall that the process of modernization of the refinery started last year. The cost of the project is currently estimated at $ 1.5 billion. The project will be financed by the Oil Fund of Azerbaijan.

In 2016, the production of motor gasoline in Azerbaijan amounted to 1 million 153.2 thousand tons. At present, only AI-92 gasoline is produced in the country.

At the same time, in the structure of domestic consumption, the share of motor gasoline was 1 million 263.9 thousand tons.-12B

SOCAR Vice-President: Domestic Gasoline to Be as Cheap as Possible in Future

Baku/17.07.17/ Turan: Changes in prices for AI-92 gasoline will support SOCAR in accelerating the modernization of the oil refining industry, which will fully satisfy the domestic demand for oil products in Azerbaijan until 2040. This was said by the SOCAR Vice-President for oil refining David Mammadov on the air of AzTV television channel on July 15.

According to him, the price of oil products, in particular gasoline and diesel fuel was last raised in December 2013.

"If we compare that price in dollar terms with today's price, we will see that the price until July 15 was low. At present, SOCAR is implementing large-scale projects. In particular, the Baku refinery is working on modernization. For this, of course, means are required. We are 100% state-owned company and therefore we expect these funds from the state. Given that our estimates of revenues and expenditures are approved by the government every year, it provides for certain investment projects, including in the extractive, exploration, drilling and processing industries. Due to the fact that all of them require funds, we applied for an increase in gasoline prices, as the company's internal capabilities are limited," Mammadov said.

He explained that currently about 72% of SOCAR's oil products are sold on the domestic market, and the proceeds from this sale have declined sharply in dollar terms (purchase of all equipment for refinery modernization and installation services in US dollars).

"If we imported petrol AI-92 today, according to our calculations, its cost would be 1.05-1.08 manat. This is on the condition that the government would free its imports from various customs collections - excises, customs duties, etc. Azerbaijan imports gasoline of the brand AI-95, and its price is known to be quite high at the market - 1.15 manat. The development of oil refining will ensure that the cost of the bulk of AI-92 gasoline in the future will be as cheap as possible," SOCAR Vice-President said. -0

S & P about Creditworthiness Risks of SOCAR

Baku/17.07.17/Turan: The international agency S & P Global Ratings placed a long-term corporate credit rating "BB" of SOCAR (State Oil Company of Azerbaijan) in the list of CreditWatch Negative ("ratings on revision with negative expectations"), the agency reports.

"The placement of the SOCAR rating on the CreditWatch list reflects the uncertainty as to whether a possible significant deterioration in the assessment of its own creditworthiness (SACP) is compensated by state support if the negative dynamics of the indicators observed in 2016 do not reverse quickly enough."

The agency notes the risk of possible significant deterioration in the company's SACP score (current level is "b +"). Potential risks stem from the lack of clarity about the company's financial policies and management approach to capital expenditure, liquidity management and significant trading volume.

Positive impact on the rating of SOCAR ("BB") is currently being rendered by "extremely high", according to the expectations of the agency, the probability of obtaining support from the state.

"We continue to believe that SOCAR plays a "critical" role in the Azerbaijani economy, which is highly dependent on the oil and gas sector, but we will need to assess how the government controls the company's consolidated financials, its capital expenditures and risk management practices, Including in the subsidiaries of SOCAR outside of Azerbaijan. We will also need more detailed information about what support mechanisms can be used by the government to support the investment program of SOCAR and (if necessary) liquidity," is emphasized in the press release.

S & P intends to analyze the reasons that the state may have for supporting the growth of SOCAR's business not directly related to oil and gas production in Azerbaijan (for example, trade operations and the construction of chemical and oil refineries in Turkey).

"In addition, we note that the International Bank of Azerbaijan (IBA), which accounts for about 40% of the assets of the banking system of Azerbaijan, announced the restructuring of the debt in May 2017. As much as we understand, the money resources of SOCAR on accounts in the IBA are not subject to restructuring. But we will see whether the government will cover the company's losses in the event of their occurrence. In general, we will have to determine whether this indicates a change in the policy of the government of Azerbaijan with regard to the support of other organizations related to the state, in particular SOCAR," the report says.

Financial results of SOCAR in the end of 2016 turned out to be worse than analysts of S & P expected: the adjusted ratio "free cash flow from operating activities to changes in working capital (funds from operations - FFO) / debt" was only 10.5%. The adjusted debt index increased from 12.8 billion to 18.4 billion manat ($ 10.4 billion), mainly due to a significant negative amount of free cash flow (FOCF).

Only 0.9 billion manat out of the total capital expenditure of 4.5 billion manat was provided with state financing in the form of an infusion of capital, and the value of cash flow from operating activities was minimal due to a large outflow of working capital in the amount of 2 billion manat, which was associated with trading.

"We continue to consider debt-like obligations, a put option on the shares of the Turkish subsidiary Steas (2.8 billion manat) and long-term advances in the deferred sale of shares in key strategically important projects (such as the Shah Deniz project and construction of pipelines connected with this project, 2.9 billion manat), as instead of raising borrowed funds, the company accelerated the process of monetizing assets and in 2023 will have to transfer the largest strategic assets of CJSC Southern Gas Corridor. These obligations actually become a priority in relation to the repayment of the issue of Eurobonds of SOCAR in 2030," the press release says.

The requirement to restructure the debt does not apply to the money of SOCAR in the amount of 1.1 billion manat (as of the end of 2016), placed in the defaulted IBA. According to the company's management, these funds are still available to finance capital or operating expenses. "Nevertheless, we believe that the company is exposed to the risks inherent in the weak financial system of Azerbaijan, as well as other risks associated with activities in Azerbaijan, including those associated with low domestic prices and fluctuations in the exchange rate," the agency notes.

S & P underscores significant uncertainty about the future financial performance of SOCAR and will try to get more detailed information about the company's investment plans, expected financing from the state and the possible receipt of cash from new projects after their completion.

SOCAR takes part in the implementation of several major strategic projects, which should be completed in 2018-2020. However, there is considerable uncertainty about the degree of involvement of the company in these projects and the availability of projects by public funding.

The international project to develop a large Shah Deniz gas field in Azerbaijan is a key one and provides for a significant increase in production - by almost 16 bcm (currently about 10 bcm), as well as the construction of pipelines to increase gas supplies to Turkey and South Europe in 2018-2020.

"The government considers this project to be strategically very significant for the country and is ready to finance a significant part of its capital expenditures. In addition to these large capital expenditures, SOCAR invested heavily in the construction of a carbamide and refinery plant, and acquired a methanol plant for 810 million manat. In our opinion, these projects may have less strategic importance for Azerbaijan and will be financed at the expense of the company itself," is outlined in the message.

In addition, the agency notes the significant (and growing growth) of the volume of SOCAR's trading operations and wants more detailed information on their share in the generated EBITDA and working capital increase, as well as on risk management practices for these operations. "As far as we understand, about 3 billion manat from the total volume of the consolidated short-term debt of SOCAR as of the end of 2016 (6.7 billion manat) is connected with trade operations," the press release says.

SOCAR is a vertically integrated oil and gas company of medium size.

"We plan to withdraw the SOCAR rating from the CreditWatch list within the next 90 days after the reassessment of the company's connection with the state, the government's plans for its support and the characteristics of its own solvency of SOCAR.

Depending on our assessment of the probability of providing state support, the SOCAR rating can be confirmed or lowered by one step. We can also downgrade the company's rating by two steps if we come to the conclusion that the probability of the company getting support from the state is lower and we will reconsider SACP's assessment in the direction of worsening by two steps (up to "b-")," the report says.

S & P will also conduct an assessment of SOCAR's planned own capital expenditures, expected capital inflows from the state and the impact of increased trading. "We will also need to get more detailed information about financial policies, risk management and corporate governance in the company. We can revise the SACP assessment (most likely, 1-2 steps down) if the adjusted ratio of FFO / debt to Less than 12%, significant pressure on liquidity indicators or detection of shortcomings in the company's risk management system," the press release says. -12D-

Production of Marketable Gas in Azerbaijan Stabilized

Baku/17.07.17/ Turan: Oil production in Azerbaijan in the first half of 2017 decreased by 9% compared to the same period of last year, the State Statistics Committee said.

According to statistics, in the first half of 2017 the volume of commercial gas production decreased by 0.2% compared to the same period last year.

At the same time, SSC does not quantify oil and gas production.

In 2016, oil production in Azerbaijan, including gas condensate, amounted to 41 million 29.5 thousand tons, and gas production was 29,331.3 mcm. -12D

In Greece and Albania, More Than 60% of Territory Cleared along TAP Route

Baku/17.07.17/ Turan: Over 60% of the territory along the route of the Trans Adriatic Pipeline (TAP) has been cleared in Greece and Albania.

According to the TAP consortium, the length of this section is 463 km.

The TAP pipeline in early 2020 is scheduled to receive Azerbaijani gas in the framework of the Shah Deniz-2 project.

The consortium Shah Deniz on June 28, 2013 officially announced the selection of the pipeline TAP. The length of the pipeline is 878 km, of which 550 km will pass through the territory of Greece, 215 km - Albania, 105 km - the bottom of the Adriatic Sea, and 8 km - Southern Italy.

In September 2013, the Shah Deniz consortium signed with European companies an annual supply of 10 bcm of gas for a period of 25 years to Italy (8 bcm), Greece (1 bcm) and Bulgaria (1 bcm).

The TAP laying ceremony took place in Greek Thessaloniki on May 17, 2016.

* TAP shareholders are: BP, SOCAR and Snam S.p.A. - 20% each, Fluxys - 19%, Enagas - 16% and Axpo - 5%. -0

Gazprom Placed Eurobonds at Record Low Rate

Baku/17.07.17/ Turan: Gazprom placed Eurobonds for 500 million Swiss francs at a record low rate of 2.25%, TASS reported citing First Vice President of Gazprombank Denis Shulakov.

According to him, the said rate "is historically the lowest level of borrowings not only of Gazprom, but also of any Russian issuer."

Applications from investors came from leading European countries, including Germany, Britain and Italy. At the same time, the greatest number of applications fell on the Swiss.

RBC reports the issue of four-year bonds of Gazprom was traded at 2.1% per annum.

Gazprom is an understandable borrower for investors and, despite all political risks, its credit quality remains very high," explained financial analyst of ING Yegor Fedorov, adding that there are no good alternatives in the Eurobond market of developing countries.

In March, foreign investors purchased about 75% of the issue of new Gazprom Eurobonds. In total, the company placed Eurobonds for $ 750 million. Their yield is 4.95%. -0

World Gas Production and Demand will Go Shoulder to Shoulder

Baku/17.07.17/ Turan: In the next five years, gas demand will grow by 1.6% per year - faster than other hydrocarbons. The production will grow at the same speed, the new report of the International Energy Agency (IEA).

Annual gas consumption by 2022 will reach 4 trillion cubic meters against 3.63 trillion cubic meters in 2016.

The reason for this will be low prices, large reserves of raw materials, and the role of gas as a more environmentally friendly fuel that reduces air pollution.

Almost 90% of the expected growth in demand will occur in developing economies, and primarily in China (40%), in OECD countries, demand will grow slowly.

The main driver will be the industry, which will provide half of the overall growth in demand.

The expansion of gas use in the chemical sector, the high demand for fertilizers in India and Indonesia, as well as the replacement of coal by coal in small-scale production in China, will increase the industrial demand for gas by almost 3% per year.

Demand for power generation will continue to grow, albeit at a more moderate rate - less than 1% per year.

IEA expects that gas production will grow at the same 1.6% per year. Almost 40% of the growth will come from the largest producer, the United States, with an annual growth of 2.9%.

By 2022, the United States will produce about 890 bcm of gas, or 22% of global production, more than half will be exported in the form of liquefied gas (LNG). In general, LNG production will grow by 160 bcm by 2022, and the leaders of growth will be the USA and Australia, while the Russian Federation will take the sixth place.

Gas production in Russia by 2022 will grow to 685 bcm from 645 bcm in 2016. The increase in production will take place at the expense of Novatek and Rosneft, the report says. Gazprom's gas production is expected to remain at 410 bcm. --0