"Azeri-Chirag-Gunashli" block – the Caspian legend of Azerbaijan - ANALYSIS

"Azeri-Chirag-Gunashli" block – the Caspian legend of Azerbaijan - ANALYSIS
# 20 September 2019 12:00 (UTC +04:00)

Azerbaijan is a country, which possesses great history in the oil-gas sector and worldwide discoveries in the oil production field. However, besides achievements, there have also been declines in the oil sector that is economically-important for Azerbaijan, APA-Economics reports.

Although Azerbaijan’s oil sector fell into decay shortly before USSR’s collapse, after gaining independence serious measures were taken in order to revive and develop the leading sector of the economy. The most important and determined step, allowing to improve the economy of the country and to make Azerbaijan an active participant of international economic relations was signing the “Contract of the Century”.

The Agreement on development of Azeri-Chirag-Gunashli sea oil-gas block was signed on September 20, 1994. This Agreement was the first measure taken in the revival period of Azerbaijan’s oil-gas sector. Establishment and development works of necessary transportation infrastructure allowing exportation of “Azeri Light” crude oil, produced in Azeri-Chirag-Gunashli, through Baku-Tbilisi-Jeyhan and Baku-Supsa pipelines, as well as railway, were carried out thanks to the Agreement, besides organization of production process.

Currently, most of the oil produced in the country falls to share of Azeri-Chirag-Gunashli and the block plays very important role in Azerbaijan’s economy. Thus, while the State Oil Company of the Azerbaijan Republic (SOCAR) produces about 7,5 mln. tonnes of oil independently, the block produced 29 mln. tonnes of light Azerbaijan oil in 2018.

In total, 492 mln. tonnes of oil has been produced in Azeri-Chirag-Gunashli block from November 1997 to date (September 1), and 287 mln. tonnes of them fall share of Azerbaijan’s profitable oil.

Taking into consideration all of these indicators, it should be noted that the block brings great income to Azerbaijan. The income, especially obtained from sales of profitable oil, is gathered in the State Oil Fund of the Republic of Azerbaijan (SOFAZ), then transferred to the state budget, and directed at the development of projects necessary for the country. Thus, about USD 143,4 bln. have been included in the Fund in the framework of the execution of the Azeri-Chirag-Gunashli project from the beginning of 2001 to July 31, 2019.

Note that Azeri-Chirag-Gunashli block is developed by the SOCAR with foreign partners. Shareholders of the Azeri–Chirag–Gunashli development include BP (project operator0 with 35.78% of stakes, Chevron (11.27%), Inpex (10.96%), AzACG (11.65%), Statoil (8.56%), Exxon (8.00%), TPAO (6.75%), Itochu (4.3%) and ONGC (2.72%). Duration of the Agreement among sides was 30 years (it should end in 2024). Although Azerbaijan government and SOCAR signed an agreement on joint development of Azeri-Chirag-Gunashli and Production Sharing Agreement, which had been changed and reworked out, with international cooperator companies. The new agreement covering the development of until 2050 will pave the way for substantially increase the development potential of the block until the middle of the century.

Joint development of the oil-gas sector in the future will not only provide flow of foreign investments, but also help to learn modern equipment, technologies, and experiences of foreign cooperators in the field of oil-gas production deeply. Additionally, it should be taken into account that all fields, discovered in recent years, are rich with gas condensate and new oil fields (which are at the similar scope and level of Azeri-Chirag-Gunashli) are not discovered in the country recently. That is why joint and rational development process will pave the way for extending the lifetime of this legendary block.

By the way, not only oil but also gas is produced in the Azeri-Chirag-Gunashli, most of it is pumped into the reservoir again in order to keep pressure, rest of it gives to the SOCAR disinterestedly. Development of not only Azeri-Chirag-Gunashli but also Shahdeniz gas-condensate field is very important from the point of Azerbaijan’s refusal from gas import and full provision of energy security view. Azerbaijan provides itself with gas, at the same time exports it to Turkey and Georgia and will start to supply Europe with gas in 2020. It will help Azerbaijan to take its place in the international gas market, as well as to create a new bright page in the oil-gas history of the country.

The “Contract of the Century” led to the revival of the oil-gas sector and increase welfare and prosperity of Azerbaijan. Improvement of energy sector caused active progress of non-oil sector of the economy in Azerbaijan.