Azerbaijan’s substantial energy resources and reliable infrastructure enable it to meet domestic energy demand and provide broad opportunities for energy export.
Oil and Gas:
Azerbaijan is duly considered as one of the oldest centers of petroleum industry. By the late 19th century Azerbaijan provided for approximately half of global oil supply. In 1848, the world’s first oil well was drilled in Azerbaijan - more than a decade before it was done in Pennsylvania (August 27, 1859). The first industrial oil production also began in Azerbaijan in 1872. It is remarkable that much of the oil technology used then was invented in Bakı. In 1877 the world’s first oil tanker “Zoroaster” was built to reduce oil transportation costs and later in 1897-1907 the world’s longest kerosene pipeline (885 km) was built between Bakı and Batumi (Georgia). When the Nobel Prize was established in 1901, roughly 12% of the prize money was drawn from Alfred Nobel’s shares in the Nobel Brothers’ Petroleum Company in Bakı. Roughly 12% of the Nobel Prize money was drawn from Alfred Nobel’s shares in the Nobel Brothers’ Petroleum Company in Bakı.
Restoring its independence in 1991, Azerbaijan reopened its oil and gas industry for international cooperation. The Government invited leading global energy companies to jointly develop hydrocarbon resources of the Caspian basin on the basis of Production Sharing Agreements (PSAs). To date, 31 PSAs have been signed between the Government of Azerbaijan and oil companies. These PSAs have been incorporated into Azerbaijan’s legislative system and Bakı Business Center New headquarters of the State Oil Company (SOCAR) currently under construction take precedence over Azerbaijani laws of general application. 34 companies from 15 countries are engaged in operations in 30 fields in Azerbaijan. The State Oil Company of Azerbaijan (SOCAR) is a partner in all international energy development projects. Successful exploration of energy resources has led to the development of the regional system of pipelines.
Along with the two pipelines (the Bakı-Supsa and the Bakı-Novorossiysk pipelines) traditionally used to export Azerbaijani oil, the major export pipeline – the Bakı-Tbilisi-Ceyhan (BTC) pipeline, – was inaugurated in May 2006. The BTC pipeline that stretches for 1768 km and carries crude oil from the Azeri-Chirag-Guneshli (ACG) oil field connects the Caspian offshore fields with the Turkish Mediterranean port of Ceyhan. The pipeline’s throughput capacity is 1.2 million barrels a day. Simultaneously with the oil sector, the country’s gas industry received a boost when the South Caucasus Pipeline became operational in September 2006. The 692-km long pipeline runs parallel to the BTC and carries natural gas from the Shah Deniz oil field to Turkey. The pipeline’s current capacity is over 7 bcm. In September 2011, Total, a French energy company, announced a major gas and condensate discovery in the Absheron block offshore Azerbaijan. The 270 sq km structure has the potential of at least 350 billion cubic meters of natural gas and 45 million tons of gas condensate. The find boosts Azerbaijan’s proved gas reserves to more than 2.5 trillion cubic meters, along with the country’s prospects of becoming a major producer and a significant supplier of natural gas to Europe.
Development of offshore Caspian oil and gas resources made Azerbaijan an important player in the global energy market. The country’s extensive pipeline infrastructure provides commercially viable opportunities for other Caspian basin countries to reach international markets. The issue of effective management of oil revenues for the benefit of future generations has been a constituent element of Azerbaijan’s oil strategy. The State Oil Fund (SOFAZ) was established in 1999 with a major goal of ensuring the equitable distribution of the oil wealth and safeguarding the interests of the generations to come. In 2007, the SOFAZ received a UN public service award for exceptional contribution towards improving the effectiveness, efficiency and quality of public service. As at April 2012, SOFAZ currency assets stood at $32.4 bn. Its gold assets amounted to 2.8 tons. Effective management of oil revenues for the benefit of future generations has been a constituent element of Azerbaijan’s oil strategy. Following World Bank President Robert Zoellick’s call for sovereign wealth funds to engage in investment activities in Africa, Latin America and the Caribbean region (ALAC), SOFAZ contributed $100 million to the ALAC Fund of the International Finance Corporation to finance investment projects in banking, insurance, construction materials, hotels and transportation. This made Azerbaijan the first developing country to co-invest with the World Bank in other emerging economies.
Azerbaijan is an active participant of the Extractive Industries Transparency Initiative (EITI) launched by the former UK Prime Minister Tony Blair at the World Summit for Sustainable Development in Johannesburg in 2002, and recognized as an international brand of transparency in extractive industries. Azerbaijan has been the first country to obtain an EITI-compliant country status.
Endowed with rich wind, solar and hydro-energy as well as bio-fuel potential, Azerbaijan possesses enormous opportunities for developing international partnerships in renewables. Azerbaijan’s wind power generation capacity is estimated at 800MW annually which translates into 2.4bn kWh of electricity. Annual
average sunshine in Azerbaijan is between 2400 and 3200 hours. This enables Azerbaijan to generate 1500-2000 kWh/m2. Azerbaijan’s hydropower potential is estimated at 40bn KWh. Considerable thermal water resources in Azerbaijan are found in the Greater and Lesser Caucasus Mountains, Absheron Peninsula, Talısh Mountains, Kür Lowland and Quba region. Rapid development of agriculture and related sub-sectors opens up opportunities for cooperation in biomass power generation. The State Agency for Alternative and Renewable Sources of Energy is responsible for developing the legal framework for domestic and foreign investments in the field of alternative energy. The State Program on the development of alternative and renewable energy sources (2005-2013) is a major policy document in this area.