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Tuesday, 22 September 2015 17:00

SOCAR receding into the background Featured

“We should put oil and gas out of mind”, - President Ilham Aliyev

“We should put aside oil and gas, forget about them at all. We are going to witness a day when the oil price will leave us indifferent, since such areas as industry, agriculture, tourism, information and communication technologies are developing and should be developed at a faster pace in Azerbaijan”, President of Azerbaijan Ilham Aliyev said in August at the opening ceremony of one of the up-to-date tourist complexes in Azerbaijan. So, if the president of the country, where the global oil industry originated, speaks about the end of the oil era, this is a sign for the global world community to pay a focused attention to the matter. It was Azerbaijan where the drilling of the first well on the Bibi Heybat field in the mid-nineteenth century opened the oil era. In 1949, the production of offshore oil by industrial way was started for the first time at the Oil Rocks offshore field in Azerbaijan. It is Azerbaijan, where in 1994 national leader Heydar Aliyev formulated the first ever model of the global energy security of the XXI century, based on the principles of balanced international cooperation, demonopolization of production and diversification of export routes (north and west routes for early oil export, the BTC main route). It is Azerbaijan, where new gas upstream and midstream projects are being developed to strengthen the EU's energy security.

 On September 20, 1994 the Contract of the Century, namely the production sharing agreement/PSA on Azeri, Chyrag, Deepwater Gunashli, was signed under the leadership of national leader Heydar Aliyev in Baku. At the date of signing the consortium included US companies Amoco, Unocal, Pennzoil, Exxon and McDermott, British companies British Petroleum and Ramco, Norway's Statoil, Turkish TPAO, Delta Oil from Saudi Arabia, Russian company LUKoil, the National Iranian Oil Company and the State Oil Company of the Republic of Azerbaijan. The contract was signed amidst the most challenging political and economic conditions of the early 90s, when neighboring Armenia occupied 20% of lands of Azerbaijan, the economy was in a slump, with gold and foreign currency reserves at a zero level. The subsequent (12 December 1994) approval of the ACG agreement as a law of Azerbaijan in the parliament confirmed the commitment of Azerbaijan as a reliable and stable partner for many decades to come. The Contract of the Century resulted in further 27 similar psa contracts, which marked the beginning of the gas strategy of Azerbaijan. The oil and gas export infrastructure was built in record time and already in 2006 it enabled oil supplies. In 2019 it is to secure gas exports to international markets via the Southern Gas Corridor, which is now under construction.

“In 1994 we entered into a new policy and since that time to the present day Azerbaijan has achieved great success in the oil and gas sector. I can say that the period from the signing of the contract up to the first oil production was, probably, the shortest one in the world history. It took only three years. This is a record figure on the global scale”, President Ilham Aliyev said in one of his speeches.

Therefore, today Azerbaijan has entered a new phase. The country is currently involved in the extended phase of implementation of non-oil sector projects with a focus on industrial production, the growing transport sector, alternative energy sources, traditional for Azerbaijan and highly demanded in the global food markets bioproduction, agriculture, tourism and brand-new technology. The long-running fall in prices for energy carriers in the international markets along with the SOCAR’s stagnating output and the company’s inability to resist to the expected oversupply crisis in the world market have become a catalyst for deeper reforms in economy. The lack of strategic oil reserves and the capability to commission new production capacities at a fast pace did not allow SOCAR to ramp up oil production quickly during the crisis and in this way offset as much losses from lower prices as possible and raise its market share, like other world producers do, for example OPEC member countries, oil companies. At that technology-savvy oil companies keep on raising oil production, even with CAPEX drops worldwide.

 However, the large gas reserves of international consortia and the availability of long-term export contracts signed in 2013 enable to talk about the compensatory nature of Azerbaijan's exports after 2020. Moreover, program for modernization of the basic branches of the non-oil sector will bring the economy to quite a new level, which is independence from oil and gas revenues.


“We are implementing infrastructure projects. Oil prices have lost more than half of their value compared with the last year. Of course, it certainly badly affects our revenues, we earn less, but at the same time the potential created by diversifying the economy enables the citizens of Azerbaijan not to feel that”, the president of Azerbaijan said.

So, if before the oil quotes used to boost the development of the stock and financial markets, industrial production, new technologies, bringing new environmentally friendly energy resources to the markets and even much more than that, in the very near future the role of the oil factor in the global economic growth will become less important.

 Please see the material in more detail in the following issue of Caspian Energy Investor (spread in over 50 countries)

Natalya Aliyeva

President and Editor-in-Chief of Caspian Energy International Media Group




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