Azerbaijan’s Role in Global Oil Production
Azerbaijan’s status as an important oil and natural gas supplier in the European region is well regarded. Historically, the country has played a vital role in the global oil market, with the world’s first paraffin factory starting operations in 1823. Azerbaijan was also home to the first offshore oil field (Neft Dashlary) in 1846, a site that continues to produce oil.
A significant portion of the country’s hydrocarbon reserves is located in offshore basins in the Caspian Sea, with the Azeri-Chirag-Guneshli (ACG) oil fields accounting for over 70 percent of Azerbaijan’s total oil output. The ACG field also holds more than 70 percent of the country’s total oil reserves, representing billions of barrels.
The ACG fields are located about 120 kilometres off the Azerbaijan coast in the Caspian Sea. The overall area under development is estimated at more than 400 square kilometres, with estimated recoverable reserves of petroleum standing at between five and six billion barrels. At its peak, production of the ACG fields reached 835,000 barrels per day in 2010.
The State Oil Company of Azerbaijan Republic (SOCAR) is the authority that has a role in all aspects of the country’s oil industry, despite producing about 20 percent of the total output. The remainder is produced by oil companies such as British Petroleum (BP), the largest foreign investor, which has commitments to develop the ACG oilfield until 2050. BP operates this oilfield through the Azerbaijan International Operating Company (AIOC), a consortium of petroleum companies where it is the largest shareholder. Other partners include Chevron, ExxonMobil, SOCAR, ITOCHU, Statoil, Inpex, and Turkiye Petrolleri (TP).
Interest in Azerbaijan’s oilfields isn’t just limited to the big multinational companies. A good number of oil companies continue to invest in the oilfields. Nobel Upstream, an independent oil exploration and production company with its head office in London, is among many that play a role in Azerbaijan’s oil industry. Nobel Upstream’s interests are in the development of the Umid-Babek fields.
The majority of the oil that comes from Azerbaijan is a medium-light, sweet crude that’s exported through the Baku-Tbilisi-Ceyhan pipeline. A smaller pipeline (Baku-Supsa) carries a similar grade of the product. A much lower-quality grade of oil is transported through a northern pipeline into Russia, and it is later blended at its destination and sold as Urals blend, which is a medium, sour crude. Azerbaijan also exports small volumes of refined petroleum products, with the majority going to Georgia and Russia.
Renewed Exploration Interest
While daily oil production output has largely reduced since its peak in 2010, some high-value prospects in the Azeri sector of the ACG have brought renewed interest. Operators have expressed interest in developing hydrocarbon resources that are estimated at 4 billion barrels of oil equivalent (Bboe).
In 2019, BP announced a plan to drill four exploration wells in the offshore fields and follow these up with another two wells in 2020. One of the wells drilled in 2019 was expected to have a significant natural gas base, similar to the highly successful Shah Deniz field. BP also has plans to drill an onshore well in the Gobustan South West block, where it acquired a significant working stake in 2018. The block has mature oil and gas fields, with exploration activities expected to give more insight as to the levels of hydrocarbon reserves present.
As the exploration side of the industry experiences a resurgence, operators have also cast their focus on the development side, with several projects expected to come online in the next decade. Among those leading efforts in this aspect is SOCAR, which wants to increase its presence in the upstream sector and has tapped multinationals such as Equinor and Total to collaborate.
