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OIL INDUSTRY OF AZERBAIJAN

Gündem 30 Kasım 2018
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In the 20th century, Azerbaijan’s oil industry rapidly developed, powerful production bases and scientific centers were established. Azerbaijan has played a major role in defeating the German fascism by supplying the front of Azerbaijan with the fuel during the Second World War.
One of the greatest achievements of our country in the post-war years was the discovery and development of offshore oil and gas deposits.In 1949, 100 miles off the coast, the first time oil in the open sea was extracted in world experience in Oil Rocks. As a result of purposeful measures taken during this period, the oil industry was strengthened and its extensive infrastructure was created.
In recent years, advances in the oil industry are of crucial strategic importance.On September 20, 1994, with the signing of the “Contract of the Century”, a new oil strategy was launched, with many companies across the globe for the first time to start joint exploitation of oil and gas fields in the Caspian Sea.The first international oil contract reflecting the economic sovereignty of Azerbaijan laid the foundations for the dynamic development of our economy and its practical results are evident. The work done since that date serves today’s and future generations. From this point of view, the issue we choose is a matter of the day.
2. The essence of oil strategy in Azerbaijan
The state has the right of ownership over natural resources, in particular the rich hydrocarbon reserves of the country.This, first of all, explained that national resources should serve the interests of the whole nation in the face of the state rather than individuals, and the equal right of individuals to natural resources should be ensured by the transfer of this wealth to the state.According to Article 14 of the Constitution of the Republic of Azerbaijan, natural resources belong to the Republic of Azerbaijan without prejudice to the rights and interests of any natural or legal persons.
Azerbaijan faced many difficulties in the early 1990s after its independence. Breaking of economic relations between the former republics of the USSR and the Republic of Azerbaijan, existence of negligence in the territory of the republic, and weakening of financial and technical equipment made the oil and gas industry a critical state. All these difficulties did not allow the development of fields such as “Azeri”, “Chirag” and “Gunashli”, which were revealed financial, technical and other problems. We had to choose one of the two options to get out of the difficult situation in the oil industry and master our country’s hydrocarbon reserves. For 15-20 years, we had to wait for the country’s financial-economic situation to be favorable, or to invite foreign oil companies. At that time, it was decided to invite foreign oil companies to Azerbaijan. At that time, negotiations with foreign companies on the development of Azeri-Chirag-Gunashli (deepwater part) fields were started. On September 20, 1994, the “Production Sharing Agreement” – “Contract of the Century” was signed with 11 prominent oil companies from 7 countries in the Azeri-Chirag-Gunashli (Deepwater) field development.
The “Contract of the Century” was approved by the Milli Majlis of the Republic of Azerbaijan and entered into force on December 12, 1994. The estimated recoverable oil reserves for the first time amounted to 511 million tonnes, then according to the estimate wells, this reserve reached 730 million tonnes, and the capital expenditure required for the development of the fields was estimated at $ 11.5 billion.
At present, the main task of the country’s oil and gas complex is to strengthen the successes achieved through the implementation of the oil strategy, to provide a fuller replenishment of the economy and population’s energy resources needs. In order to fulfill this important task, the State Program on the Development of the Fuel-Energy Complex of the Republic of Azerbaijan will continue to implement the specific development directions and areas for the implementation of concrete measures in the coming years. The involvement of international oil companies, foreign investments and modern technologies in oil and gas projects will continue, as an important and reliable exporter of energy will increase the interest of the return countries to Azerbaijan.
State Program on Development of Fuel and Energy Complex (2005-2015) was approvedfor the purpose of further development of the fuel and energy complex, which is of exceptional importance in the economy and social life of the Republic of Azerbaijan, with the purpose of improving the supply of energy resources of the population and economy and increasing the efficiency of utilization of energy consumers.The objective of the State Program is to achieve the full recovery of the demand of the population and economy for electricity, gas and other energy by developing the fuel and energy complex of the Republic of Azerbaijan for the next ten years.The main objectives of the State Program are following:
− To define the main directions of development of the fuel and energy complex of the Republic of Azerbaijan in accordance with modern requirements;
− To carry out relevant scientific and technical and organizational measures to increase the efficiency of the industrial sectors included in the fuel and energy complex;
− To ensure the implementation of progressive technological measures on the production, processing, transportation, storage, accounting and consumption of energy resources;
− To form a healthy competitive environment in the fuel and energy sector;
− Increase the volume of investments involved in the development of fuel and energy complex;
− To ensure environmental safety in the fuel and energy complex;
− To ensure a fuller fulfillment of payments for the consumption of fuel and energy resources (electricity and natural gas).
One of the main directions of the oil strategy was the transportation of Azerbaijani oil to the world markets. The main objective here is the creation of a strategically important East-West route for the purpose of long-term protection of the interests of Azerbaijan, the development of large-scale international economic cooperation and the transportation of oil to the world markets. For this purpose it was crucial to establish a trans-corridor that could provide the transportation of fuel from the Azeri-Chirag-Guneshli fields to Europe. It was proposed to lay Baku-Tbilisi-Ceyhan (BTC), the safest and long-lasting, most profitable route in the region.
3. Dynamics of oil industry development
Historical roots of Azerbaijani oil go to very ancient times. Ahmed Al-Balaruri (9th century), an Arab historian, geographer and traveler, pointed out that the economic life in Absheron, which was related to oil.
Finding oil and gas fields is one of the most important tasks facing the oil industry. It explains that currently, oil and gas fields are being exploited at depths of 3-6 km and more, and finding these deposits is not a problem. . Previously, oil and gas in any area seemed to be invisible to the human eye, meaning that oil was filtered from the bottom of the earth to the surface. So, at that time, geologists discovered the oil only for its external features. For example, people involved in oil production believed that the oil released into the earth’s surface was oxidized by air, and a solid substance similar to asphalt, sometimes crumbling into sand and soil. Therefore, surface oil and gas output at that time was regarded as one of the key criteria for proving the presence of oil and gas in any area. Experts considered that gas or oil coming from the ground meant finding oil and gas.
One method of exploring oil fields is a method of bacteriological exploration. This method has recently begun to be used and explained as follows: “There are only a few types of bacteria in the soil that can only be seen under a microscope that they feed on the oil. That’s why these bacteria are accumulated in oil and gas fields. The explorer is traveling around the desert and taking soil samples from different areas. If oil bacteria are found in these samples, then there is oil in that area.Since modern oil and gas are extracted from deeper layers, none of the above methods can be regarded as acceptable. Currently, geological, geophysical, geochemical and hydrogeological search methods are used in exploration of oil and gas fields. The most widely used geophysical method. Different types of this method are: magnetometric method; grammetric method; electrometric method; seismic method; radiometric method.
In recent years, state independence has been strengthened in Azerbaijan, social and political stability has been achieved, market relations in the society have been improved in democracy and economy, and conditions have been created for integration into the world economy.As a result of the policy carried out by national leader Heydar Aliyev, Azerbaijan has started to play an important role in the geopolitics of the Caucasus and the Caspian region.Azerbaijan has become a geopolitical center not only for oil and gas reserves, but also for the positions of the US, European and Asian states in the Caspian Sea region. The Caspian region has become one of the most important regions of the world in the XXI century, thanks to the development of oil and gas resources, as well as the implementation of huge projects on their export to world markets.
More than billions of dollars have been invested in our country. Azerbaijan has also benefited from other oil-related sectors of its economy, where development has been observed. There is great progress in infrastructure, service sector in Azerbaijan. Thousands of young people have improved their education in foreign countries or courses organized by foreign companies in Azerbaijan.Besides:
➢ The infrastructure of the oil industry will be renewed significantly and the new, strong infrastructure of our oil industry will be developed during the implementation of the agreements;
➢ The flow of investments into other sectors of the country’s economy will be ensured;
➢ Azerbaijan will get new, up-to-date technologies;
➢ Large number of Azerbaijan’s new enterprises will be established and they will serve foreign oil companies;
➢ A major boost to the development of banking and insurance business;
➢ A significant layer of entrepreneurs working within the framework of the laws of civilized society will be formed;
➢ Increase in revenue from taxes paid by foreign companies will significantly increase;
➢ Thousands of new jobs will be opened in various industries and services;
Azerbaijan will receive billions of dollars in oil sales that will allow implementing large social programs, increasing salaries and pensions, helping impoverished families, war invalids and refugees.
In the coming years, the demand for oil, along with the oil in the world, will increase considerably and our republic will become one of the most important exporters in this period. The work carried out on the implemented projects and programs, as well as the potential for prospective structures, provides a basis for optimistic forecasts. Thus, the role of Azerbaijan in protection of energy security of the region and the countries of the European Union will increase in the coming years. This is particularly important in light of the expert opinion that up to 2020, 70% of Europe’s energy consumption will be provided through imports up to 85% by 2030.Oil strategy has been the basis for the modernization of the Azerbaijani economy. Large-scale reforms were carried out, industry diversification was implemented. Presently, 36 joint ventures, 6 alliances, numerous subsidiaries and 13 subsidiaries created by SOCAR cover almost all areas of oil and gas industry. SOCAR successfully represents the state of Azerbaijan in the Production Sharing Agreement (PSA), signed with 25 companies from 15 countries. Within the framework of the HPBS in 1995-2013, about $47 billion was invested in the oil and gas sector of the Republic of Azerbaijan.

​After gaining independence, the Republic began closely with countries in the world to rebuild the dispersed economy. The newly independent state of foreign states had a great interest in the oil reserves. So, as a result of great efforts of Heydar Aliyev, the agreement on the production and export of Azerbaijani oil through the Western countries has been reached. Thanks to this, the independent development of the Republic of Azerbaijan, state security and geopolitical position, the development of its rich hydrocarbon reserves and the free transfer of world energy markets are not only the foreign policy priorities of our country, but also the contemporary issues of the world politics and the international arena. Oil and gas resources of the Caspian Sea and its Azerbaijani sector were of great interest to Russia, Iran, Ukraine, Turkey, US, England, France, Italy, Holland, Poland, Japan, China and many other states. One of the main reasons for this is the new oil strategy. As a result of implementation of the strategy, the economy of the republic integrated into the world economy.
​This strategy has led Azerbaijan to expand its interaction with other countries in the world as an independent state and to strengthen its international position, to integrate into the European Union and the world economy as a whole.It is important to demonstrate the presence and exploitation of oil and gas resources as one of the strongest factors, along with the human factor, in expanding the integration of Azerbaijan into international structures, turning into a solid, civilized state based on secular values.
Today, revenues from the sale of Azerbaijani oil are used efficiently. One of the main goals of the Oil Strategy is to organize the proper and efficient use of the proceeds for the sake of the welfare of the Azerbaijani people.Nowadays, oil revenues are created not only for the development of the oil industry, but also for the development of the entire economy in general. In general, the impact of these revenues in both the quantitative and qualitative parameters of the country’s economy, the government’s policy, as well as the welfare of the country’s population, is felt in a broad sense (both positive and negative).
Oil and gas resources are one of the main factors in the economy of Azerbaijan, its cultural development, and improvement of the social and cultural wellbeing of the population. The increase in oil and gas reserves in recent years, the effective use of them, the signing of new contracts with other countries in this area has contributed to the development of the country’s economy and at the same time improving the welfare of the country’s population. The industry, which is the most extensive part of the country’s natural resources, is now the industry’s leading oil and gas resource. The oil and gas industry, which unites 2/3 of the fuel and energy complex, also stimulates economic revival as the main area of ​​socio-economic development of our republic. At the same time, the improvement of the economic structure of the national oil and gas complex has led to an increase in oil and gas production. The state has taken important measures in this area.
Dr. Murtaza Hasanoğlu

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