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Baku Energy Forum - Oil strategy: Azerbaijan's oil industry development

Oil strategy: Azerbaijan's oil industry development

28.01.2022

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Nowadays oil is considered to be one of the most important raw materials. Petroleum products are widely used in various industries. Oil is the primary raw material used to produce kerosene, gasoline, and diesel fuel, all of which are required to operate automobiles, airplanes, and other vehicles.

The history of Azerbaijan's oil industry development is divided into several stages, each of which is notable for its unique achievements.

Beginning of industrial oil production

The first stage begins with the mechanical production of oil from wells drilled in 1847 and lasts until 1920.

The first commercially significant oil was extracted from mechanically drilled wells in the Bibiheybat and later in the Balakhani fields in 1847-1848, and the development of Azerbaijan's oil industry began at that time. Oil was extracted from a manually drilled well in the sea in Bibiheybat for the first time in the world at the beginning of the 19th century.

The Nobel Brothers' Oil Production Association, as well as the Rothschild-based Caspian and Black Sea Oil and Trade Company and Royal Dutch Shell, were pioneers in the production of Azerbaijani oil.

Azerbaijan produced 11 million tons of oil in 1901, accounting for more than half of global oil production.

Other stages of development

The Soviet period of the Azerbaijani oil industry can be divided into three stages.

The first stage begins in 1920 after the nationalization of the oil industry in Azerbaijan and covers the period until the discovery of the "Oil Rocks" field in the open sea in 1949. With the nationalization of the oil industry, the country’s oil production was reduced to 2.4 million.

However, then there was a significant expansion of prospecting and exploration, which resulted in the discovery and commissioning of new oil fields. All that led to the fact that in 1941 oil production amounted to 23.6 million, accounting for 76 percent of all Soviet oil produced.

The second stage begins with the commissioning of the "Oil Rocks" field in 1950, which became the basis for the development of the offshore oil industry in Azerbaijan, and continues until 1969.

And the third stage covers the period from 1969 till the collapse of the USSR.

The largest oil field in the Azerbaijani sector of the Caspian Sea, Azeri-Chirag-Guneshli was also discovered in 1987, 1985, and 1981, respectively.

This period of time created all the prerequisites for the real intensification of the development of offshore gas and oil production in Azerbaijan on the Caspian Sea shelf.

Contract of Century

To turn independent Azerbaijan into a modern, strong, sustainable economic state, national leader Heydar Aliyev defined the oil strategy, which had to be the basis for a transformation of further political and economic reforms.

This strategy ensured the attraction of foreign investors to the development of Azerbaijan's oil fields, diversification of crude oil transportation routes, efficient management of oil revenues, and Azerbaijan's entry into a new stage of development.

A Contract of the Century was signed on September 20, 1994, for the joint development of the Azeri, Chirag, and deepwater Guneshli fields in the Azerbaijani sector of the Caspian Sea. The contract was signed in Baku by 11 international companies (Amoco, BP, McDermott, UNOCAL, SOCAR, LUKoil, Statoil, Turkiye Petrolleri, Pennzoil, Ramco, Delta) representing seven countries (Amoco, BP, McDermott, UNOCAL, SOCAR, LUKoil, Statoil, Turkiye Petrolleri, Pennzoil, Ramco, Delta) (Azerbaijan, USA, UK, Russia, Turkey, Norway, and Saudi Arabia).

On November 7, 1997, within the framework of the Contract of the Century, the first oil was produced on the Chirag platform, which marked the beginning of the success of Azerbaijan's new oil strategy.

Later on, in October 1887, April 1999, and in 2006 the Baku-Novorossiysk, the Baku-Supsa, and the Baku-Tbilisi-Ceyhan pipelines were commissioned.

On September 14, 2017, a new agreement was signed in Baku on the joint development of the Azeri, Chirag, and deepwater part of the Guneshli fields in the Azerbaijani sector of the Caspian Sea and the sharing of production.

The signing of the New Contract of the Century laid the foundation for a new phase of Azerbaijan's oil strategy. It means the beginning of a new era in Azerbaijan's history, an additional guarantee for the country's political and economic security, new investments, GDP growth, new jobs, and improved social welfare.

Current state of oil industry

Over the past period, Azerbaijan has become not only a supplier but also a reliable transit country.

As a result of the country's policy, Azerbaijan became a recognized member of the international community, proved itself as a reliable international partner, became a guarantor of European energy security, and laid the foundations for regional leadership.


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