In order to turn an independent Azerbaijan into a modern, powerful state with sustainable economic development, national leader Heydar Aliyev determined the oil strategy, which would lie at the heart of fundamental transformation of the future political and economic reforms. This strategy ensured the involvement of foreign investors in the development of Azerbaijan’s oil fields, diversification of routes of transportation of crude oil, effective management of oil revenues and Azerbaijan`s entry into a new stage of development.
Under the leadership of national leader Heydar Aliyev, one of the landmark agreements in Azerbaijan`s 20th-century history due to its political, economic and strategic importance - the Agreement on the Joint Development and Production Sharing for the Azeri and Chirag Fields and the Gunashli Field in the Azerbaijani Sector of the Caspian Sea-“The Contract of the Century” was signed on September 20, 1994.
The $7.4 billion agreement involved 11 international oil companies (AMOCO, BP, McDermott, UNOCAL, SOCAR, Lukoil, Statoil, TPAO, Pennzoil, Ramco, Delta) representing 7 countries (Azerbaijan, USA, UK, Russia, Turkey, Norway and Saudi Arabia) as contractor parties. They soon established several working structures - the Steering Committee, Azerbaijan International Operating Company (AIOC) and the Advisory Council.
The Contract of the Century was ratified on December 12, 1994 by the parliament of Azerbaijan.
Although according to initial evaluations Azeri, Chirag fields and Deepwater part of Gunashli field had 511,000,000 tons of crude oil, further evaluations set oil reserves at 1,072,000,000 tons.
The Contract of the Century paved the way for the signing of another 26 contracts with 41 oil companies from 19 countries.
These large block of oil fields have been developed in three phases. First oil from Chirag platform was produced on November 7, 1997.
In order to implement the provisions of the Contract on time and ensure transportation of the growing volumes of oil to the international markets, new oil pipes were built and commissioned:
- late 1997, oil started to be exported to the Black Sea by Baku-Novorossiysk pipeline;
- in 1999, a pipeline from Baku to another Black Sea port – Supsa – was commissioned. The first tanker carrying Azerbaijani oil was sent to the world markets in December 1999;
- in 2002, the foundation of Baku-Tbilisi-Ceyhan main oil pipeline was laid thanks to continuous efforts of national leader Heydar Aliyev. Although provided for in the Contract of the Century, the pipeline was once considered as a myth and many believed that it would remain on paper. The globally important pipeline was a crucial step towards making Azerbaijan an energy corridor. The Baku-Tbilisi-Ceyhan oil pipeline was inaugurated with the participation of the President of the Republic Azerbaijan Ilham Aliyev on May 25, 2005. Frist Azerbaijani oil was shipped from the Turkish port of Ceyhan in 2006.
In general, in order to deliver the Azerbaijani oil from the Caspian Sea to the world markets, pipelines with a total length of one-tenth of the length of the equator were constructed: Baku-Novorossiysk (1330 kilometers), Baku-Supsa (833 kilometers) and Baku-Tbilisi-Ceyhan (1768 kilometers).
As of the beginning of 2020, more than $36 billion has been invested in the development of the Azeri-Chirag-Gunashli fields. The block produced 500 million tons of oil and more than 40 billion cubic meters of associated gas, which were handed over to the government of Azerbaijan.
Under the Decree signed by President of the Republic of Azerbaijan Heydar Aliyev on December 29, 1999, the State Oil Fund of the Republic of Azerbaijan was established in order to ensure effective management of hydrocarbon revenues and fair distribution of oil among generations and to channel oil revenues into the development of priority areas. Thanks to the effective and transparent management of revenues, the State Oil Fund has quickly become one of the world`s most transparent funds and ensured long-term financial profits for the present and future generations.
On September 14, 2017, the amended and restated Azeri-Chirag-Gunashli Joint Development and Production Sharing Agreement was signed in Baku. This marked a new stage in the development of Azeri-Chirag-Gunashli field. The new agreement was signed by officials of the Azerbaijani government, SOCAR, BP, Chevron, IMPEX, Statoil, ExxonMobil, TP, ITOCHU and ONGC Videsh companies. Under the amended and stated agreement, which was extended until 2050, BP remained the operator of the project, while SOCAR`s shares increased from 11 to 25 per cent and Azerbaijan's direct share in profitable oil amounted to 75 per cent. Subsequent to the new contract, an agreement was reached in 2019 on the construction of an additional production platform in the contract area of the ACG fields’ block.
The signing of the Contract of the New Century marked a new stage in Azerbaijan’s oil strategy. This means the start of a new era in the history of modern Azerbaijan, additional guarantees for the country’s political and economic security, new investments, GDP growth, new jobs and welfare.
Whereas the Azeri-Chirag-Gunashli fields were initially estimated to have 500 million tons of oil, the current assessment exceeds 1 billion tons.
On October 18, 2018, an inauguration ceremony of the Star Oil Refinery was held in the city of Izmir, Turkey. President of the Republic of Azerbaijan Ilham Aliyev and President of the Republic of Turkey Recep Tayyip Erdogan attended the ceremony. The processing capacity of the Star Oil Refinery is 10 million tons of crude oil per year. The refinery will produce diesel, jet fuel, light naphtha and other refined products. The plant is also capable to fully meet Turkey's need for jet fuel.
Over the past period, Azerbaijan has become not only a supplier but also a reliable transit country. Countries on the eastern shores of the Caspian Sea transport their hydrocarbon resources to international markets through Azerbaijan. Russian companies also prefer to transport the oil produced from the Russian sector of the Caspian Sea to international markets via the Baku-Tbilisi-Ceyhan pipeline. Azerbaijan also has the biggest fleet in the Caspian Sea.
Azerbaijan's greater participation in international markets further increases the country's power.
In 2020, the Karabakh field became the first oil field discovered in the years of independence. The initial estimated geological reserves of the field are more than 60 million tons of oil.
One of the world`s largest gas fields, Shah Deniz was discovered by Azerbaijani geologists in the middle of the 20th century. However, due to unavailability of the necessary technology the exploitation of the field was halted and its potential was not identified.
In 1996, a consortium established by SOCAR and international oil companies discovered large reserves in the gas field, and the result exceeded expectations. The field is estimated to contain gas reserves of 1.2 trillion cubic meters. This is considered one of a few huge gas fields in the world.
The discovery of ‘Umid’ and ‘Absheron’ fields in the following years confirmed Azerbaijan’s possession of large gas fields. This opened a new page in the history of natural resources of Azerbaijan.
In 2011, Azerbaijan and the European Commission signed a Joint Declaration on the Southern Gas Corridor project, which marked the initial stage of the project.
In order to start the second phase of the development of Shah Deniz field, members of the consortium made another historic decision in Baku on December 17, 2013. The signing ceremony was held with the participation of official representatives of a number of countries at the Heydar Aliyev Center. The agreement provides for the attraction of $28 billion of investment.
The idea of the Southern Gas Corridor became a reality thanks to the will and leadership of Azerbaijan. On October 29, 2013, President of the Republic of Azerbaijan Ilham Aliyev signed an Order to establish a State Commission with the purpose of protecting Azerbaijan’s interests in the Southern Gas Corridor project and provide state support to the project participants.
The ceremony of laying the foundation of the Southern Gas Corridor took place in Sangachal on September 20, 2014 - on the 20th anniversary of the Contract of the Century - with the participation of heads of state and government, ministers of Southeastern European countries, and chief executives of international companies.
Azerbaijan has become the initiator, shareholder and host country of the strategically important Southern Gas Corridor project. Turkey and Georgia were the first to join the initiative. They were subsequently followed by Italy, Greece, Bulgaria and Albania. Currently, new and potential partners include Bosnia and Herzegovina, Croatia and Montenegro.
Azerbaijan is already exporting its gas to neighboring countries and new pipelines have been built to start exporting it to the European market:
- in 2007, Baku-Tbilisi-Erzurum gas pipeline (South Caucasus Gas Pipeline) was commissioned, and gas produced under the first phase of Shah Deniz project is exported to Georgia, Turkey and Greece;
- in 2012, Azerbaijan and Turkey signed TANAP (Trans-Anatolian Natural Gas Pipeline) project on the initiative of President of the Republic of Azerbaijan Ilham Aliyev and then Prime Minister of the Republic of Turkey Recep Tayyip Erdoğan;
- in 2013, Shah Deniz consortium chose TAP (Trans Adriatic Pipeline) project, which will link the Turkish border to the south of Italy, to deliver the Azerbaijani gas to the European markets, and the construction of the pipeline is nearing completion.
These projects enable implementation of the Southern Gas Corridor project through connecting the Shah Deniz gas field to the south of Italy.
TANAP, an important part of the Southern Gas Corridor, which was officially inaugurated on May 29, 2018 at the Sangachal terminal, is an indispensable infrastructure project to address the energy security issues.
Following the completion of the South Caucasus Pipeline Expansion project, one of the key components of the Southern Gas Corridor, the transportation of commercial gas to Turkey within the framework of Shah Deniz-2 began on 30 June 2018.
On June 12, 2018, a solemn ceremony was held in Eskisehir, Turkey, marking the launch of TANAP, Trans-Anatolian gas pipeline.
On 30 November 2019, the official opening of the TANAP-Europe connection was held in Ipsala settlement of Edirne province of Turkey, marking the completion of its construction.
Since 2015 Baku has been hosting an annual meeting of the ministers of the Southern Gas Corridor Advisory Council.
TAP project will also be completed in 2020. Thus, Azerbaijan's rich gas reserves will be delivered to the Turkish and European markets in a diversified, short and secure way.
Azerbaijan's proven gas reserves are 2.6 trillion cubic meters. Predicted reserves are about 3 trillion cubic meters. The potential of the Umid field alone is more than 200 billion cubic meters. This will enable Azerbaijan to be seen as a reliable supplier of hydrocarbon resources for the next 100 years.
As part of the D230 project, work on the Shafag-Asiman gas field has been underway since 2018 together with BP, the operator of the Shah Deniz and Azeri-Chirag-Gunashli consortia. In 2021, Total will start gas production from the Absheron field, which has a gas potential of more than 300 billion cubic meters.
Azerbaijan`s purposeful activity in the field of energy has transformed the country into a regional energy hub.