The State Oil Company of Azerbaijan (SOCAR) has announced the cost of natural gas. The company's annual report on its activities in 2019 states that the actual cost of production of 1,000 cubic meters of natural gas amounted to 61.89 manat. This is 4.29 manat or 7.4% more than in 2018.
According to the report, in addition to the costs of gas production by SOCAR, the actual cost of 1,000 cubic meters of gas sold by SOCAR in 2019, taking into account the cost of gas received from the Operating Company under the terms of the Production Sharing Agreement, gas processing, storage and transportation costs, 140, It amounted to 46 manat.
The information has raised concerns about the increase in the price of natural gas sold to the public.
I wonder how realistic it is to raise the price of natural gas sold to the population in the current situation?
Ibrahim Ahmadov, deputy head of SOCAR's public relations and events department, told Telegraf.com that the cost of extracting gas from the well to the mouth, ie the cost of production, is 61.89 manat:
"After adding other costs, ie the cost of processing, storage and transportation of gas, the actual cost of 1,000 cubic meters of gas sold by SOCAR is 140.46 manat. In other words, the cost of each 1,000 cubic meters of natural gas for home delivery is 140.46 manat. Yes, there is growth here. Not only gas production, but also the cost of oil production is growing every year. The 7.4% increase is not so sharp. Sometimes the cost of annual production can increase by 2, 3, 5, 7 or even 10 percent.
However, it is not only the cost of production that determines the actual cost of gas, but also other factors. The cost of production is less than half of the total cost compared to other factors. In short, a 7 percent increase in the cost of production does not have a significant impact on the total cost of gas. Growth is expected and will be every year. Because it is difficult to extract oil and gas from each field when it is exploited.
As the bed gets older and older, you need to invest more in it so that you can produce. In general, the growth that has taken place over the past year is not so great.
The company official believes that this factor cannot be taken as a basis for a direct increase in gas prices:
"Decisions to increase the price of gas sold to the population are made by the state. The state itself knows on what grounds and factors it determines the tariff for gas sales. In the past, the price-setting body was the Tariff (Price) Council. That is, the gas company itself does not directly determine the price. The level of inflation and other factors are taken into account for the increase in gas prices.
At what percentage increase in the cost of gas production affects the price increase?
Ibrahim Ahmadov says that the actual cost of each 1,000 cubic meters of gas sold is 140.46 manat:
"Currently, 1,000 cubic meters of natural gas are sold to the population for 100 manat, and to industry for 200 manat. People who exceed the limit buy natural gas for 200 manat. The average is around 100-200 manats. I think that if the cost of production increases by 20-30 percent of the total cost, this issue will be considered.
As I am not a person who calculates the factors influencing the price increase, I cannot comment on it. The Tariff Council should say what the cost of gas should be so that the price increase can be taken as a basis.
But I can say that the current growth is not very large in terms of total cost. The cost of production increased by 4.29 manat, and the cost of gas - 140.46 manat. In general, there is an increase of 2-3 percent. Therefore, I do not see any cause for concern. "
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