Winter 2000 (8.4)
Natig Aliyev, President of the State
Oil Company of Azerbaijan (SOCAR) addressed the International
Oil and Gas Conference held in Baku this past November. The Conference
was dedicated to "Perspectives of Oil and Gas Production
in the Caspian Region."
As you know, Azerbaijan has been making steady progress towards
the production and marketing of our natural resources for the
past eight years. Major activity was launched in 1994 with the
signing of the "Contract of the Century" for the Azeri,
Chirag and deep-water Gunashli project. On one hand, Azerbaijan
has based these activities on its long existing oil strategy,
technical and scientific infrastructure and labor potential.
On the other hand, we are relying on the investment, technology,
experience and management brought in by foreign companies. No
doubt that the basis of these achievements lies in the new development
strategy of the oil industry established by Heydar Aliyev.
This strategy opened new possibilities for Azerbaijan to strengthen
its geo-political location and to become an international center
in the operation and export of the country's natural resources.
Although Azerbaijan has a 140-year old history of oil production,
the country still has rich onshore and offshore hydrocarbon resources.
Currently, 53 fields (36 onshore and 17 offshore) are under exploitation
in Azerbaijan. There is great potential for onshore development,
which is, however, contingent upon investment input at the exploration
The Caspian is very rich in oil and gas deposits. There is hardly
any inch of the basin that would not be considered valuable for
Since search and exploration started in the Azerbaijani sector
of the Caspian, 28 oil and gas deposits have been discovered.
In general, 145 prospective structures (including 40 structures
up to 60m deep, 33 structures 60-200m, and 72 structures over
200m) have been discovered and prepared for exploitation and
The next thrust for Azerbaijan's oil and gas industry involves
pipeline construction to Western markets. Above and below: Construction of pipeline
from Azerbaijan to the Black Sea via Georgia.
So far 465 million tons of oil (together with condensate) and
334 billion cubic meters of gas have been produced.
Availability of oil reserves is one of the basic factors for
determining the strategy of managing oil resources. Estimated
reserves in the Azerbaijani sector of the Caspian are more than
4 billion tons, which is significant.
However, the production level needs to be greatly increased.
The production for 2000 was 14.5 million tons. Taking into account
the recoverable reserves, we should be able to increase the production
level, and this depends on technological and financial support.
The proven reserves of Azerbaijan are as follows: 20 million
tons per year with sustainability for 200 years; 40 million tons
per year with sustainability for 100 years; 60 million per year
with sustainability for 70 years. According to the above figures,
Azerbaijan is ahead of other oil producing countries.
However, reserves are mostly found in deep portions of the sea
and the seabed. Therefore, discovery and exploitation require
a great amount of investment and state-of-the-art technology.
The policy to increase oil and gas production is the right decision,
since the future development of Azerbaijan, whether in political,
social or economic spheres, will depend greatly on oil and gas
The implementation of the 20 contracts (requiring $60 billion
investment) that has been concluded so far is an integral part
of our oil strategy.
A great deal has already been achieved within the framework of
these contracts. As such, Early Oil Production has started and
so far has yielded more than 11.5 million tons of oil. Already
$3.2 billion has been invested in oil infrastructure and pipeline
construction and refurbishment in our country.
However, there has always been a demand for a pipeline with greater
capacity - 50 million tons per year at least. This problem has
been solved by the agreement for the construction of a Baku-Jeyhan
pipeline among Azerbaijan, Georgia and Turkey. Already all financial,
commercial, legal and technical matters have been solved, and
soon a new consortium will be established for managing the project.
The "Shah Daniz" gas condensate field promises a huge
volume of gas for export by Azerbaijan. Concrete steps are already
being taken in this area.
Certainly, we don't have sufficient expertise and experience
to operate such huge projects in the conditions of competition.
Therefore, we are trying to solve problems in this area with
the help of the Steering Committee that we set up jointly with
foreign oil companies.
We are considering establishing steering committees for further
projects. However, since the exploration stage is completely
carried out by foreign experts, there is a real need to establish
such a committee upon the discovery of a commercially beneficial
oil and gas field. Participating in the work of a Steering Committee,
approving an annual Budget, clarifying the volume of oil production
as well as correctly forecasting this volume depending on the
market prices of oil may be considered part of oil production
An important aspect of our petroleum operations is marketing
of oil. This is being conducted by means of two existing pipelines
and will proceed after the launch of the Major Export Pipeline
from Baku to Jeyhan. Azerbaijan is expected to take 50 percent
of the participating interest in the Consortium created for it,
so we think Azerbaijan will be able to affect direct management
of the project.
Downstream (processing and sale) production is also very important
from the perspective of petroleum operations. Azerbaijan's processing
capacity is 20 million tons per year, which is currently being
used to the extent of 40 percent.
In general, Azerbaijan seems to have more prospects than other
countries in respect to the relationships between reserves, production
and processing of oil.
Realization of investments by virtue of 20 oil and gas contracts
will enable us to increase both upstream (exploration and extraction)
and downstream (processing and sail) sectors in Azerbaijan. As
such, in the near future, we would be able to increase oil production
up to 50-60 million tons, 20 million tons of which may be processed
in refineries. Given the fact that Azerbaijan has a population
of 8 million, reserves per capita are more than 100 tons, production
- 7.5 tons and processing - 2.5 tons. According to these indications,
Azerbaijan is very close to major oil producing countries.
Technical examination of both oil and gas and pipeline projects
signed between SOCAR and foreign oil companies is carried out
by the State Research Institute "Denizneftgazlayihe",
whose director is Majid Karimov. Financial, commercial, legal
and other matters are supervised by SOCAR's Foreign Investments
Department headed by Valeh Alasgarov.
Since SOCAR is also a Contractor Party to PSAs, (Profit Sharing
Agreements) we have established an affiliate company with each
Consortium. SOCAR is in the process of negotiations with foreign
oil companies to restore some of the old fields and increase
the efficiency of production from those fields. Management of
these fields will be based on the same principles as for new
fields, since restoration projects are not much different from
Certainly, we have done a lot to improve the structure of our
company to catch up with market conditions. But we are not satisfied
with the level, for both subjective and objective reasons.
The oil and gas sector needs state supervision, since it is going
to be the basis of the country's economy. At the same time, concrete
steps need to be taken towards privatization of the oil and gas
sector. We are planning to take concrete steps in the near future.
(8.4) Winter 2000.
© Azerbaijan International 2000. All rights reserved.
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