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Azerbaijan, the oldest known oil producing region in the world, experienced an oil
boom at the beginning of the 20th century and later served as a major refining
centre in the former Soviet Union. Oil production peaked at about 500,000
barrels per day (bbl/d) during World War II, then fell significantly after the 1950s
as the Soviet Union redirected resources elsewhere.
Azerbaijan's has 1.2 billion barrels of proven oil reserves, as well as enormous
possible reserves in undeveloped offshore Caspian fields. However production
declined following Azerbaijan's independence in 1991, falling to an estimated
180,000 bbl/d in 1997, but has known dramatic recovery reaching almost
800.000 bbl/d in 2007. Over 80% of Azerbaijan's oil production currently comes
from offshore, with a significant percentage coming from the shallow-water
section of the Gunashli field, located 100 km off the Azeri coast. Development of
new fields through joint ventures and PSAs in the Caspian Sea likely will boost
Azerbaijan's oil production well beyond its earlier peak, with predictions that
Azerbaijani oil exports could exceed 1.5 million bbl/d by 2010 and 2 million bbl/d
within 20 years.
Azerbaijan has taken great care to assure that multiple foreign powers and
companies gain a stake in the expected oil boom, for both economic and
geopolitical reasons. Seventeen PSAs have been signed. Three of the 17 are for
onshore development and the remainder offshore. Two of the PSA consortia,
CIPCO and NAOC, were terminated in 1998 for lack of yield.
Since 1996, over $4 billion has been invested in the country's oil sector, and
Natik Aliyev, president of the State Oil Company of the Azerbaijani Republic
(SOCAR), has stated that he expects investment in the country's oil sector to
surpass $60 billion.
Although the Ceyhan route was not the most favourable in technical or
economical terms, during years great pressure was exerted by Americans and
Turks for its implementation, linking oil fields in the Caspian Sea directly with the
Mediterranean. Finnaly on November 1999 an agreement to build the Ceyhan
pipeline was signed at the Organization for Security and Co-operation in Europe
summit in Istanbul. The agreement included two pipelines ending on the Turkish
coast - a seventeen hundred kilometre oil pipeline from Azerbaijan, and a gas
pipeline from Turkmenistan. Construction work of the oil pipeline was completed
in the Spring of 2005. Now that the BTC pipeline is built, it provides the Turks
with lucrative transit fees and aid the Americans in their bid to prevent Iran from
becoming a major export route for Caspian oil, as well as limiting the Russian
influence, and therefore the European influence, in the area.
Since 1999 the EU made loans to Azerbaijan of about 25 million Euros under the
TRACECA program to rehabilitate and upgrade the seaport near Baku to allow up
to 500,000 bbl/d of oil shipments from the eastern Caspian. As Caspian
production increases, trans-Caspian pipelines could carry increasing volumes of
oil and gas from Kazakhstan and Turkmenistan. The cross-Caspian pipelines
could connect with other export pipelines from Azerbaijan, such as the proposed
MEP and the early oil routes. In addition, Iran has proposed a pipeline that would
transport oil from Baku via a proposed 300 km pipeline to Tabriz in northwest
Iran, where it would also connect with the existing Iranian pipeline network and
refineries
Azeri crude oil is refined domestically at two refineries: the Azerineftyag (Baku)
refinery, with a capacity of 230,000 bbl/d, and the Azerneftyanajag (New Baku)
refinery, which has a capacity of 212,000 bbl/d. With domestic production
topping out at 311,200 bbl/d in 2001 (and half of that exported as crude oil),
Azerbaijan's refineries have been running well below capacity, with overall
refinery utilization rates as low as 40%. Heating oil accounts for approximately
50% of output at Azeri refineries, followed by diesel fuel (28%), gasoline (10%),
motor oil (7%), kerosene (3%), and other products (2%). Both of the country's
refineries are in need of modernization, which the Azeri government estimates
will cost between $600 million and $700 million. Modernization of the two
refineries will enable Azerbaijan to process imported crude oil, thereby freeing up
domestic oil for export via the Baku-Ceyhan pipeline.
One potential complication in Azerbaijan's plans for developing its Caspian Sea
resources is uncertainty over the legal status of the Caspian Sea - specifically the
territorial rights of nations bordering its shores (Russia, Kazakhstan,
Turkmenistan, Iran, and Azerbaijan).
SOCAR's Oil and Gas Research and Design Institute is involved in geological and
geophysical surveys of prospects and oil and gas fields, exploration, the
preparation of prospects for development, oil and gas field development, well
drilling, completion, and operation, petrochemical and petroleum processing
engineering, petroleum industry economic and management studies, the
preparation of short-term reservoir engineering strategies, environmental
protection, the processing, storage, and transportation of petroleum products,
and the drafting and official registration of pertinent regulations. The Institute is
extensively involved in field development and the design of oil and gas
processing facilities. More than 80 laboratories and departments engaged in
research, design, and engineering operate under the Institute.
The Oil and Gas Research and Design Institute fills orders from SOCARs divisions
and does contract work for third parties.