By Gulgiz Muradova
Foreign investments and opportunities are flowing into Azerbaijan at an unprecedented rate, raising the very real prospect that the country is turning into the great energy hub of the Eurasia, providing credible long-term opportunities to all its partners.
Until recently a net oil exporter, Azerbaijan takes huge steps in a way of turning into a net gas export and gas transit hub in the neighboring region, with major energy companies supporting the industry. So far, one of the strongest boosts given to the Azerbaijani economy has been the development of the oil and gas sector from the Caspian Sea, into which the British giant BP invested.
However, the energy resources are not the only reasons for such a giant company to invest in Azerbaijan.
Today, Azerbaijan is a politically stable, modern and highly developed country with a population of 9.8 million people and a strong economy. The Azerbaijani economy is characterized by being open and mixed, with a combination of private and public ownership and enjoys high investor confidence. Azerbaijan is a safe and relatively easy country to do business - the country ranked the 65th in the global Doing Business 2016 report. Davos World Economic Forum ranks Azerbaijan’s economy number 37 with respect to competitiveness.
With respect to geography, Azerbaijan is located in the gifted area and the neighboring region has major strategic significance. Azerbaijan's neighborhood, full of vigor and vitality, boasts obvious advantages and potentials in development, while the country itself acts as a stabilizing factor in the region.
The truth is, the importance of Azerbaijan in the energy security system of Europe is undeniable. The country's policy aimed at diversifying energy supplies and maximizing the security of European partners continues to bear fruit, while energy giants are firm to stay in the country.
Azerbaijan and its core partner in major energy projects British BP have long been together and the British giant announced that still energy-rich Azerbaijan is in core of BP activity. BP, jointly with its partners, has invested more than $70 billion in Azerbaijan's oil & gas projects and other related area, according to April 2016 report by BP.
The modern history of national oil industry starts with the ‘Contract of the Century’, the deal to develop three major oil fields – the Azeri, Chirag and Gunashli. The deal became a crucial turning point in the rapid development of the Azerbaijani economy, while GDP increased sixteen times, exceeding $50 billion today.
The ACG is a super-giant field located about 100 km east of Baku. It is the biggest producing oil field in the Caspian Sea and covers an area of more than 432 square kilometers. The field lies in water depths of between 120 and 170 metres. The depth of the reservoir is 2,000-3,500 metres.
To date the field has produced 416.5 million tons of oil and 128.2 bcm of associated gas. Some 231.8 million tons of the total volume of the oil produced at the block accounted for profitable oil. The volume of average monthly production stands at 2.5 million tons of oil.
Over the past two decades since the ‘Contract of the Century’, the nation was able to establish itself as a reliable partner to cooperate with international companies, attracting new technologies and innovation into the country and foreign investments into the non-oil sector as well. And, BP and Azerbaijan agreed to extend the ACG deal up to 2050, which will add significant resource development potential.
By extending the 1994 agreement, Azerbaijan will be able to preserve its oil income for many years.
Azerbaijan has been progressively implementing the largest energy project of our time - the Southern Gas Corridor, which will deliver Azerbaijani gas to Europe and thereby provide a number of countries with important blue fuel.
As the EU looks to diversify its energy supplies, the SGC aims to provide increased energy security for the continent, bringing affordable gas supplies initially from Shah Deniz, and paving the way for future gas delivery from the wider Caspian region and, potentially, the Middle East.
Gas volumes in the Shah Deniz reservoirs are so vast that they will not only meet the needs of Azerbaijan and its regional neighbors, but provide significant supplies to Europe. Of the incremental 16bcma of gas that the full field will produce, 10bcma will be transported to markets west of Turkey. With a five-year extension to the original PSA signed last year, Shah Deniz will produce natural gas until at least 2036.
As of today, BP and its partners invested more than $15 billion in the Shah Deniz Stage 2 project.
The Trans-Adriatic pipeline will start delivering gas from the Shah Deniz gas project to European consumers in 2019. TAP would connect to the Trans-Anatolian natural gas project running through Turkey to the Greek border.
As a rule, such projects are never left without attention and giant companies are eagerly investing in the SGC, which enjoys political and financial support of the European Commission. Reflecting the importance of the Corridor for all countries involved in the program, a number of international financial institutions are supporting the project.
The SGC project is a unique project opening up route for Caspian energy sources, and allowing Azerbaijan to realize its strategic goal of preserving its position as a leading energy country in the neighboring region.
As Azerbaijan strives for a sound and developed neighboring environment for its progress and seeks common development with neighboring countries, Baku realizes the necessity of good diplomatic work in neighboring countries to realize the set goals. That is why the country has set up a unique energy format – Azerbaijan-Georgia-Turkey. Today, the very tripartite format is the main partners in the major energy and transport projects that promises huge benefits to Europe in large.
Besides, the strategic goal of Azerbaijan's diplomacy with neighboring countries is to make the best use of the strategic opportunities the country now possesses. Azerbaijan enjoying traditionally friendly ties with Iran, Kazakhstan and Turkmenistan can bring these countries closer to Europe. The Azerbaijan-Turkey-Turkmenistan-EU format, as well as Azerbaijan-Turkey-Kazakhstan tripartite format, that is being developed, can bring more “blue fuel” to the Old Continent.
Natural gas is set to keep its positions in the European market as the main energy source. In Europe, the relative importance of natural gas increased quickly during the 1990s and more slowly thereafter, to peak at 25.4 percent in 2010. The share of the natural gas in the total energy basket fell during the next four years to reach 21.4 percent in 2014, a share that was below that observed 10 years earlier, perhaps reflecting difficulties linked to the security of supply from Russia.
EU gas demand is expected to have increased by some 6 percent in 2016 to around 447 Bcm, according to industry group Eurogas, following a rise of around 4 percent in 2015.
SOCAR and BP will jointly explore potential prospects in the block D230 in the North Absheron Basin in the Azerbaijan sector of the Caspian Sea. Block D230 covers areas in a water depth of up to 300 metres, with a reservoir depth of 3,000-5,000 metres.
The deal will enable the companies to work together to ensure the long term future for Azerbaijan’s oil and gas production through exploring new opportunities. That will also act as a guarantor of long-term, reliable and mutually beneficial cooperation between Azerbaijan and its partners.
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