Economic

Currently, against the backdrop of the global energy transition, the development of “green” energy and the gradual reduction in the use of traditional energy sources is accelerating. This is not a trend or a whim, but a necessity that will slow the pace of global warming, mitigate climate change, and improve the global ecological situation. It is a vital and irreversible process that all countries will have to undergo.

Azerbaijan is also an active participant in global processes aimed at achieving zero emissions and combating global ecological problems. This is evidenced by the remarkable plans such as the establishment of solar and wind power plants in the country, the expansion of the hydropower plant network, and the creation of a “green energy” zone in the liberated territories. Additionally, the country is the initiator and active participant in projects aimed at creating “green corridors” that will establish a “green” connection between Azerbaijan, Türkiye, Central Asia, and Europe.

A striking example of Azerbaijan's commitment to global “green” goals is the 29th Conference of the Parties to the UN Framework Convention on Climate Change (COP29) held in Baku. It was during this magnificent event that a number of agreements and documents were signed, which will contribute to the development of renewable energy sources in Azerbaijan and help the country become a major producer of “green” energy, as well as an exporter and transit hub for it.

During the event, certain objectives were outlined and statements were made regarding Azerbaijan’s plans for the development of “green” energy and the formation of a green economy.

Yes, global trends and plans for the energy transition and the “greening” of the international energy market and the world economy have already been defined. However, at this stage, it is not yet possible to talk about completely abandoning traditional energy resources and the oil and gas sector. It seems that oil and gas will remain the primary energy sources for the coming decades, and this necessitates the continued development of the oil and gas sector alongside investments in “green” energy.

It is worth noting that the oil and gas industry currently remains the leading sector of Azerbaijan’s economy, bringing significant revenues to the country and enabling the development of other sectors. In order to increase oil and gas production in the country, necessary work is being carried out in the field of existing projects, as well as the search for new sources.

So, what significant events have marked the country’s oil and gas sector in 2024? “APA-Economics” brings to the attention of its readers a summary of the important events that took place in Azerbaijan's oil and gas sector this year:

Azeri-Chirag-Guneshli

When discussing the country’s oil and gas sector, it is impossible not to acknowledge the significance of the legendary project for the development of the "Azeri-Chirag-Gunashli" (ACG) oil and gas field block. It was the initiation of this project that enabled Azerbaijan to revitalize its economy, which had been in decline after the collapse of the Soviet Union, and elevate it to a fundamentally new level.

It should also be noted that this year is very symbolic for the ACG project. In 2024, the 30th anniversary of the signing of the "Contract of the Century" for the development of ACG was celebrated.

Thus, 2024 will be remembered for a number of important events for ACG. In January, BP, the operator of the ACG field development project, commenced a new 4D (four-dimensional) high-definition ocean bottom node seismic programme on the ACG field.

The programme, which will focus on ACG’s Balakhany and Fasila reservoirs, will cover an area of 740 square kilometres under source and 507 square kilometres under receivers, with a total cost of around $370 million and a duration of five years (2024-2028). In terms of the area to be covered, the total cost, and the duration of the work, this project is BP’s largest seismic data collection program ever carried out worldwide. The volume of seismic work planned for this year has already been safely completed ahead of schedule, and the processing of the collected seismic data is currently ongoing.

In mid-April, the seventh platform, the “Azeri Central East” (ACE) platform, installed at the giant ACG field in the Caspian Sea, produced its first oil.

The first oil from the ACE platform was extracted from the first well drilled from the platform at the end of the previous year. Currently, ACE is producing approximately 26,000 barrels of oil per day from three wells.

It is worth noting that the ACE platform is the most advanced platform that BP operates globally in terms of technology and digital capabilities. The platform’s innovative design allows for the automation of labor-intensive processes, ensuring safer and more efficient operations. The platform is equipped with a fully automated, state-of-the-art drilling rig. The application of modern technology and new processes also helps reduce emissions generated during operations.

One of the important facts is that, in order to advance the exploration, appraisal, development, and production of the non-associated natural gas (NAG) reservoirs located in the deep layers of the Azeri-Chirag-Gunashli (ACG) field, a new addendum was signed on September 20, 2024, to the existing Production Sharing Agreement (PSA) for ACG production. The non-associated natural gas resources of ACG are believed to be significant, with up to 4 trillion cubic feet (tcf) in place.

According to this document, SOCAR and the ACG partners are currently planning further activities for the development of the NAG layers. As part of this work, an initial well is currently being drilled with the aim of producing gas from two priority layers. This well is of great importance, as it will allow for assessment through production, which will help shape future development plans.

The well is being drilled from the existing "West Chirag" platform, and the first gas production is expected to occur in 2025.

Additionally, December of this year has been significant for ACG as well. In this month, the 600 millionth ton of oil was produced from the field block.

The total 600 million tons of oil have been transported from the Sangachal terminal to world markets via the Baku-Tbilisi-Ceyhan (BTC) pipeline and the Western Export Pipeline (WEP), passing through the territories of Azerbaijan, Georgia, and Türkiye.

Note:

SOCAR signed an updated purchase and sale agreement with Norway's Equinor company SOCAR and ONGC Videsh Limited (India) for assets in ACG and BTC (their stake in the projects was 7.27% and 8.71%, respectively). Under this agreement, SOCAR acquired Equinor's stake in ACG and BTC of 6.655% and 7.96%, respectively, and ONGC Videsh Limited's stake in ACG and BTC of 0.615% and 0.75%, respectively.

On November 29, Equinor announced that it had completed the transactions related to these operations. The total value of the deal was 720 million USD.

Shah Deniz

Azerbaijan's second major hydrocarbon project is the development of the Shah Deniz gas-condensate field. It was the second phase of the Shah Deniz development (Shah Deniz-2) that enabled Azerbaijan to become one of Europe's gas suppliers. Since the field's commissioning until December 1, 2024, nearly 48.3 million tons of condensate and 234.3 billion cubic meters of gas have been produced from the field.

In total, 21 wells have been drilled as part of the Shah Deniz-2 project. These include five wells on the northern flank, four on the western flank, four on the eastern-southern flank, five on the western-southern flank, and three on the eastern-northern flank of the field.

The analysis of data obtained in 2023 from the exploration well (SDX-8) drilled in the Shah Deniz contract area has continued this year. The aim is to assess deeper horizons beneath the currently producing reservoirs.

This year, BP began using advanced drone technology to perform technical inspections of large tanks at its Caspian Sea facilities. The company used “Elios 3” drones for the first time to conduct technical inspections of empty tanks on the Shah Deniz Alpha platform.

This is one of BP’s technological firsts aimed at improving the safety and efficiency of its operations in the region. This innovation offers several additional advantages, such as speed and reliability—thanks to the use of drones, human intervention is no longer needed, and the operation is completed faster and more efficiently. Additionally, the application of this technology will ensure more consistent and accurate technical inspection data, which will help in decision-making during operations.

Another significant milestone in the development of the field was the entry of a new partner into the project. On June 5, a contract was signed with MVM Group of Hungary, granting them a 5% stake in the Shah Deniz project and a 4% stake in the Southern Gas Corridor CJSC (SGC).

In August, MVM Group completed the acquisition process from the Southern Gas Corridor (SGC) CJSC, securing a 5% stake in the Shah Deniz gas field development project, and from the Azerbaijan Gas Supply Company Limited, acquiring a 4% stake in the South Caucasus Pipeline Company.

“With this landmark acquisition, MVM Group will significantly expand its international presence and further diversify its position in the natural gas value chain. The transaction is fully aligned with the European Union’s efforts to diversify gas supplies, as well as with the national energy strategy and MVM Group's development strategy,” stated the company's official report.

Absheron field

The discovery of the Absheron field has played a significant role in increasing Azerbaijan's gas potential. According to the latest calculations, the field's hydrocarbon reserves consist of 303 billion cubic meters of gas and 100 million tons of condensate.

In February of this year, SOCAR and the French oil and gas company TotalEnergies completed the process of selling 15% of their stakes in the Absheron gas field development project to the Abu Dhabi National Oil Company (ADNOC) of the United Arab Emirates (UAE).

As a result, both the French company and SOCAR now hold 35% of the project each, while ADNOC owns 30%.

It is worth noting that in August 2023, ADNOC, SOCAR, and TotalEnergies signed a contract for the acquisition of a total 30% stake in the Absheron gas-condensate field.

Furthermore, on July 3, 2023, the Absheron gas-condensate field began operation, with a daily output of 4.2 million cubic meters of gas and 1,200 tons of condensate. During the first year of the Initial Production Scheme (IPS) phase, over 1.5 billion cubic meters of gas and approximately 580,000 tons of condensate were produced.

Currently, work is underway for the next phase of field development, with the final investment decision to be made soon.

Karabakh field

The development of the "Karabakh" oil field is of great significance in stabilizing the process of declining oil production in Azerbaijan. In 2024, there have been changes in the composition of the project’s shareholders.

Norway's Equinor has completed the transaction for the sale of its 50% stake in the "Karabakh" oil field development project to SOCAR. The transaction was completed on April 24, 2024.

In addition, in September of this year, SOCAR and BP signed a memorandum of understanding announcing their intention to join agreements for two exploration and production blocks in the Caspian Sea sector of Azerbaijan.

The first block is the "Karabakh" field, located 120 km east of Baku, 20-25 km away from the "Günəşli" field, in 150-200 meters of water depth. There is an existing Risk Service Agreement (RSA) for the development of the field, signed in 2018 and ratified by the Milli Majlis of Azerbaijan. Currently, SOCAR holds 100% interest in the RSA.

The second block is the Ashrafi-Dan Ulduzu-Aypara (ADUA) area, located 90-110 km northeast of Baku, in 80-180 meters of water depth. This area includes several existing discovered and prospective structures. An existing Production Sharing Agreement (PSA) for exploration, development, and production in the ADUA area was signed in 2018 and ratified by the Milli Majlis. Currently, SOCAR holds 100% interest in the PSA.

It is also important to note that SOCAR hopes to begin oil production at the "Karabakh" field in a short period.

“Our main oil production volume comes from the Azeri-Chirag-Gunashli field block. Our main goal is to stabilize the rate of decline in oil production and then maintain this level for a certain period. At the same time, it is the development of new fields,” stated Babek Huseynov, Vice President of SOCAR.

He also added that the "Karabakh" field is promising in terms of oil production: “As for the "Karabakh" field, there are already wells, three of which are exploration wells and one is an appraisal well. Therefore, we hope that production will begin here soon.”

Note

In September of this year, SOCAR and BP announced that they had signed a memorandum of understanding to explore potential cooperation opportunities in international upstream (exploration and production) oil and gas projects with the aim of enhancing energy supply security.

Under the memorandum, the companies will jointly evaluate the synergy potential in the field of hydrocarbon exploration and production at the international level, as well as a number of new investment opportunities.

The memorandum also reflects the intention of both companies to share their expertise and knowledge in assessing opportunities to ensure reliable and accessible energy supply to the world.

Onshore exploration work

On September 20 of this year, SOCAR and Hungary’s "MOL Hungarian Oil and Gas" company signed a Memorandum of Understanding (MoU) on exploration, development, and production in the Shamakhi-Gobustan area.

According to the MoU, the parties will cooperate to further increase Azerbaijan's hydrocarbon production.

As we can see, Azerbaijan is actively working to develop its oil and gas sector, stabilize oil production volumes, and increase the production of natural gas. The gas potential of both developed and several promising fields opens up significant export opportunities for the country, as natural gas is now considered a more environmentally friendly transition fuel in the context of the formation of the new global energy system.

The facts speak to Azerbaijan's substantial gas export potential. Just this year, Azerbaijan began exporting gas to five European countries—Serbia, Slovenia, North Macedonia, Croatia, and Slovakia. Thus, Azerbaijan is currently delivering gas to 12 countries worldwide. And this is not the end. The most important thing is that Azerbaijan possesses vast potential, a large raw material base, and infrastructure capabilities, while the remaining issues will be resolved over time. All these factors give reason to believe that 2025 will be a successful year for Azerbaijan in all sectors, especially in the oil and gas industry.

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