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 AZERBAIJAN
Former Soviet Union
Azerbaijan has the oldest commercial producing regions in
the world from several large onshore fields. It was also one of the
first global regions recognised as having offshore potential.
In the early 1900s the Soviet State Oil Ministry intended
to fill in shallow bays along the Caspian Sea coastline with rocks so
that they could drill using land rigs. The idea was abandoned but in the
1930s the Soviets began to build wooden platforms and walkways that
allowed land drilling far into the lake.
 By WWII hundreds of kilometres of wooden and steel
platforms existed in the vicinity of Baku, the capital. Total oil
production from Azerbaijan peaked in the mid-1960s as onshore areas
started to decline and as the Soviet Union redirected drilling efforts
outside the region, primarily to the Volga-Urals.
Output steadily declined but then fell rapidly after
Azerbaijan’s independence in 1991. Since 1997 production has recovered
as new offshore fields have been developed. Development of new fields in
the Caspian Sea is expected to boost Azerbaijan’s production well beyond
its earlier peak.
SOCAR, the Azerbaijani State company, was established in
September 1992 with the merger of Azerbaijan’s two State oil companies,
Azerineft and Azneftkimiya. SOCAR is responsible for the production of
oil and gas and the operation of its 2 refineries and existing
pipelines. Government ministries handle E & P agreements whilst SOCAR
takes a direct interest in all agreements.
Most of SOCAR’s production comes from the shallowest
water part of the Gunashli field (known in the Soviet era as the 28th of
April Field), which began producing in 1981. It has been developed to a
maximum water depth of 120 m and is in decline. In 2002 a new production
platform was added with 12 wells in an attempt to maintain output. SOCAR
also operates a number of other smaller depleting fields.
Fourteen offshore production-sharing agreements have been
signed with foreign companies, the most important in September 1994, a
30-year contract with the Azerbaijan International Operating Company (AIOC),
operated by BP. The AIOC is developing three fields; Azeri, Chirag, and
the deeper water part of Gunashli (together called ACG).
Azeri-Chirag-Gunashli: The ACG field complex is
located east of Baku, 85 kms southeast of the Apsheron Peninsula along
the Apsheron-Pribalkhan trend, at water depths of 100 m to 400 m. The
three fields, which together are approximately 50 kms long, cover an
area of 440 sq kms and contain an estimated 5.4 Bn Bbls of recoverable
oil.
Almost all of Azerbaijan’s oil production increases from
1997 to 2004 came from the first ACG project (Early Oil) based on a
fixed platform on Chirag. ACG is being developed in four separate
phases: Early Oil, Phase 1, Phase 2 and Phase 3. Oil was first shipped
to Sangachal where it is used in local refineries or exported through
Azerbaijan’s only export routes at the time – the Baku-Novorossiisk
pipeline (northern route) with a capacity of 115,000 Bbls per day, which
sends oil to the Russian Black Sea, and the Baku-Supsa pipeline (western
route) completed as part of the Early Oil project at a capacity of
150,000 Bbls per day, which mainly carries Early Oil to Georgia’s Black
Sea coast.
Exports through the northern route began at the end of
1997, and on the western route in 1999. Exporting oil from the expanding
ACG project required the building of a new export pipeline. Several
options for routes were considered and in August 2002, the partners
approved the 1,760 km Baku-Tblisi-Ceyhan (BTC) Pipeline which opened in
2006.
Shah Deniz: Azerbaijan has considerable offshore
gas reserves but there is minimal infrastructure and most production has
been flared. The country’s natural gas consumption has been on the
decline since 1991 but it still imports from Russia, whilst exporting
some of its own gas to Georgia and northern Iran.
In 1999 the country enacted a law requiring that every
oil and associated gas production project should include a plan to
develop its natural gas potential and in 2000 it began to switch its
power-generating facilities from fuel oil to gas, at first using
additional Russian gas.
The Bakhar oil and gas field, operated by SOCAR, was the
most important source of gas. The field is located off the southern tip
of the Absheron Peninsula and accounted for over half of the country’s
output but is in decline.
However, the main future growth depends on new production
from the Shah Deniz field. Shah Deniz was discovered in 1999
approximately 95 km southeast of Baku and is estimated to contain over
400 Bcm. It began producing in late 2006. The first phase of the field’s
development was sanctioned in February 2003 and entailed the
installation of a fixed offshore platform for 15 wells at a water depth
of 105 m, two subsea pipelines to bring the hydrocarbons ashore, and a
new onshore gas-processing terminal next to the oil terminal at
Sangachal.
In 2001 a gas export deal to supply Turkey was signed and
so development of the BTC pipeline is being coordinated with the 690 km
South Caucasus Gas Pipeline (SCP) which follows the same route through
Azerbaijan and Georgia before connecting to Turkish infrastructure near
the town of Horasan. The SCP began construction work in late 2004
planned to be completed in time for the first Shah Deniz export.
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