Petroleum Industry in Azerbaijan - "Contract of The Century" and Following Years

"Contract of The Century" and Following Years

After gaining independence Azerbaijan started to attract badly needed foreign investment into the country.

The implementation of the 20 PSA contracts (requiring $60 billion investment) that have been concluded so far is an integral part of Azerbaijan's oil strategy. Azeri, Chirag and deep-water Gunashli (ACG)-International Contract No. 1 was signed by President Heydar Aliyev and the participating international companies on September 20, 1994, ratified in Parliament on December 2, and went into effect on December 12. Because of its potential reserves estimated at 6 billion barrels (950,000,000 m3) of oil, this project is often referred to as the "Contract of the Century". The projected investment for this project is $13 billion.

A few months later in 1995, a consortium was organized known as the Azerbaijan International Operating Company (AIOC). Originally AIOC was composed of eleven major international companies: BP (UK), Amoco (U.S.), LUKoil (Russia), Pennzoil, (now Devon of U.S.), UNOCAL (U.S.), Statoil (Norway), McDermott (U.S.), Ramco (Scotland), TPAO (Turkey), Delta Nimir (now Amerada Hess of U.S.), and SOCAR (Azerbaijan).

Since then Exxon, now ExxonMobil (U.S.); ITOCHU (Japan); and INPEX (Japan) have joined the consortium. McDermott, Ramco and LUKoil have since sold their shares. AIOC's first president was Terry Adams (UK) of British Petroleum (BP), the company which operates the offshore oil platforms and the onshore Sangachal Terminal.

However, the problem of how to deliver the oil to European markets existed. This problem was solved by the agreement for the construction of the Baku-Tbilisi-Ceyhan pipeline among Azerbaijan, Georgia and Turkey in 1998.

The Baku-Tbilisi-Ceyhan pipeline was officially opened on July 13, 2006 and now transports crude oil 1,760 km (1,090 mi) from the Azeri-Chirag-Guneshli oil field in the Caspian Sea to the Mediterranean Sea. The oil is pumped from the Sangachal Terminal close to Baku, via Tbilisi the capital of Georgia, to Ceyhan a port on the south-eastern Mediterranean coast of Turkey. It is the second longest oil pipeline in the world (the longest being the Druzhba pipeline from Russia to central Europe).

The BTC pipeline is expected to make a major contribution to the development of world energy supply with its more than 1 million barrels (160,000 m3) per day capacity. Thanks to this project Turkey is also expected to earn about $300 million annually. Around 15,000 people were employed during the construction of the pipeline which cost $3 billion

Shah Deniz field, discovered in 1999, is one of BP's largest gas field finds in recent decades. The Shah Deniz gas plant at Sangachal Terminal started up in 2007 and transformed Azerbaijan into a major gas producer. Stage 1 of Shah Deniz project is now complete and supplies Europe with 8 bcma of natural gas via the South Caucasus Pipeline. Stage 2 of the Shah Deniz Project has been approved and is being designed.

On September 9, 2011 French energy giant Total S.A. which has been operating in Azerbaijan since 1996, announced a major gas discovery in Absheron gas field offshore 100 km southeast of capital Baku. The field is estimated to have around 300 billion cm of gas subsequently boosting Azerbaijan's gas reserves from 2.2 to 2.5 trillion cm. The find also increased hopes for faster realization of Nabucco pipeline.