THE ORIGINS

For more than 100 years, the Nobel laureates have been receiving quite a decent financial reward (almost $1 million) for the largest discoveries in the field of physics, chemistry, medicine, as well as for their literary works and efforts to achieve peace on the planet. The Nobel Award Committee rigorously fulfills the last will of Alfred Nobel nicknamed “the death merchant” by journalists for his invention of dynamite. It is believed that it was Alfred Nobel’s arms trade that helped him to make the fortune, which has later been bequeathed as a premium for scientists. However, Alfred was one of the brothers who founded the Nobel Brothers Association in 1879, which was dealing with the extraction and processing of oil in Baku. Thus, 12% of the Nobel Prize fund is made up of the revenues received by the Nobels in Baku.

By the end of the 19^th century, Baku has become the world's main oil extraction centre, providing half of the world's oil production. But if the Nobels heard about the oil in Baku only at that time, the local people have known about the “combustible oil emerging from the earth” for several centuries. For the first time in history, the industrial production of oil started in Baku. This event was known in Azerbaijan but documentary evidence has been found recently in the archives. As a result, the world's first oil well of 21m deep and drilled in 1847 in the village of Bibiheybat near Baku was found and restored, which became an open-air museum.

“We must propagate this event in the world. I have repeatedly said that the first industrial production of oil has taken place in Azerbaijan but the actual location has remained unknown. Therefore, I gave an instruction to determine this location. Of course, we knew that it was on the territory of Bibiheybat, but now this place is clarified and a wonderful monument is created here. I think that it is a wonderful moment for both the oilmen and tourists visiting our country,” said President Ilham Aliyev at the opening ceremony of the monument. He noted that although Azerbaijan was known as an oil province at the turn of the 19-20^th centuries, the resources had not been used to increase the well-being of the people.

“At that time we were part of the tsarist Russia and the local natural resources had not any tangible effect on the public welfare. Poverty and misery were prevailing. Our people possessed great wealth but could not use it. Azerbaijan also proved itself as an oil country during the Soviet period. Without the efforts of Azerbaijani oil workers during the Second World War, the outcome of events could be quite different. Our oil industry played a decisive role in the victory over fascism. This year we will celebrate the extraction of 2 billion tons of oil. Imagine if Azerbaijan were an independent country, now it would be one of the richest countries in the world. Today our oil serves our people, strengthens our state,” said Aliyev.

According to SOCAR First Vice President Khoshbakht Yusifzadeh’s statement at the second international forum of SOCAR organised by the Baku Higher School of Oil and Confidence Capital, the two billionth ton will be produced in November 2017: “1 billion 971 million tons of oil have been extracted so far. 1 billion tons from offshore fields and 971 million tons from onshore ones”. According to statistics, during the independence period, Azerbaijan produced about 650 million tons of oil, most of which comes from the Azeri-Chirag-Gunashli fields. Since 1997, this block has produced 423.5 million tons of oil.

Azerbaijan's participation in the global agreement reached at the end of last year to reduce oil production in order to maintain prices points to the importance of the country in the world oil industry. Moreover, Azerbaijan doubles its obligations to reduce oil production, which is acknowledged by the main actors of the oil market. “Azerbaijan is one of the best, if not the best, executor of obligations to reduce oil production,” said Saudi Arabia's Minister of Energy, Industry and Natural Resources Khalid al-Falih during his visit to Baku.

At the same time, Azerbaijan is an active player as far as the prolongation of the oil reduction agreement is concerned. “We think that it is necessary to bring the world's oil reserves to the average five-year level. The Azerbaijani Energy Minister agreed to join us in Vienna on May 24-25,” said al-Falih.

Azerbaijan has chosen the export of natural gas as the main and promising direction of the oil and gas production industry. Hence the full-scale development of giant gas condensate field Shah Deniz according to the world standards. In general, the proven gas resources of the country are estimated at 2.5 trillion cubic meters. Half of this volume is concentrated in Shah Deniz. Thanks to Shah Deniz Stage I, Azerbaijan has turned from an importer of gas to an exporter and fully meets the needs of Georgia and supplies another 6.6 billion cubic meters of gas to Turkey.

The development of gas production is also beneficial given the global growth of gas consumption, and particularly in Europe, which is the final destination of Azerbaijani gas exports.

According to Emma Richards, the analyst of BMI Research at Fitch, the coming decade will be marked by a drop in domestic gas production and consumption growth in Europe. In particular, gas production will drop from 130 billion cubic meters in 2016 to 100-110 billion in 2026, and consumption for the same period will increase from 500 to 550 billion cubic meters. As a result, gas imports will increase from 350 to 450 billion cubic meters. The strategy of Azerbaijan is aimed precisely at meeting the growing needs of Europe in gas, both from a new source and an alternative route.

The development of Shah Deniz Stage II and the construction of the Southern Gas Corridor will make it possible to supply 6 billion cubic meters of gas annually to Turkey starting from 2018 and 10 billion cubic meters to Greece, Bulgaria, and Italy in 2020. Vitaly Baylarbayov, Deputy Vice-President of SOCAR, said that the entire course of works on the Shah Deniz project, construction of the TANAP and TAP gas pipelines is on schedule. “The current delays associated with the transfer of olive trees on the Italian coast have not affected the timing of the TAP construction; at least the TAP consortium has not informed us of this. In any case, the Italian site is the shortest, only 8 km, and individual delays should not drastically affect the overall implementation of the project. The launch of SGC will actively work towards the development of other promising gas fields in Azerbaijan, including the Shah Deniz III, as well as Absheron, Umid, Babek, Shafag-Asiman fields and others. In the long term, the reserves of these deposits will be enough to fill the SGC even in case of the double expansion. Plus, we are counting on the supply of gas from the eastern coast of the Caspian Sea, as well as from Iraq,” said V. Baylarbayov at the SOCAR forum.

Meanwhile, SGC creates new prospects for SOCAR such as an access to a number of Balkan countries. Thus, SOCAR became a member of the Ionian-Adriatic pipeline, which can join the TAP in Albania and go through Montenegro, Croatia, Bosnia and Herzegovina. This will allow SOCAR to gasify Bosnia and Montenegro, and to arrange gas supplies to Albania under the TAP project.

The Vertical Gas Corridor (VGC) connecting Bulgaria to Romania and Hungary also opens interesting prospects for Azerbaijani gas. According to BMI Research, while the gas price is crucial for Western Europe, the availability of natural gas is crucial for Central and Eastern Europe, which depend on a single source of supply. Therefore, the launch of VGC will provide for gas supplies from SGC to the countries of Eastern Europe, including Poland, the Czech Republic, and the Baltic countries.

It is impossible not to pay attention to changes in the world consumption trend, which shows the growing demand for liquefied gas supplies. According to calculations of BMI Research, in the coming years, there will be a sharp increase in LNG supplies. As a result, the share of LNG in total gas supplies will increase from 15% to 20% by 2026. Considering the tendency of growth in consumption of liquefied gas in regions where it is impossible to construct the pipeline, SOCAR also decided to have its stake in this market.

In particular, SOCAR Trading has already implemented the first LNG project. According to Togrul Kocharli, the head of Project Development and Investment Department, it is a question of the construction of a terminal for regasification of LNG and a €500-million power plant in Malta.

“We have launched a gas terminal and a power plant in Malta. This is our first combined project. The power plant will provide 40% of Malta's electricity needs,” said Kocharli adding that the project was implemented jointly with Siemens and the Maltese investment company GEM.

At the same time, this project has increased interest in SOCAR Trading in the area of ​​LNG trade.

“We are focused on LNG liquefaction projects. These are cheaper projects without direct contact with gas sources. If the LNG liquefying terminal costs about $2-3 billion, then the regasification terminal is an order of magnitude lower,” said Mr. Kocharli.

The company has already started the project of another LNG terminal in Côte d'Ivoire jointly with Total and Shell. As T. Kocharli specified in his interview with R+, SOCAR is trying to launch a €120-130-million project in this country aimed at regasification of LNG and its transfer to the local company CI Energy, which intends to direct the gas not only to the needs of the country, but also to export it to other nearby countries of Africa. In the future, the sides can also consider the possibility of building a power plant.

Pakistan shows an interest in the capabilities of SOCAR for the supply of liquefied gas. The country proposed to build a terminal in the port of Gwadar. “We have an agreement with Pakistan, which allows Azerbaijan to discuss the construction of an LNG terminal. Commercial teams are working on this issue. Pakistan has signed a similar agreement only with Qatar, which is the world leader in the export of LNG. Pakistan is ready to buy LNG because the country is developing very fast, gas consumption is also growing rapidly, and gas production is carried out in small quantities,” said Kocharli underlining that despite the existence of several projects on the supply of pipeline gas from Iran and Turkmenistan, there are no real achievements in this area yet.

In general, SOCAR’s strategy is aimed not only at the supply of hydrocarbon resources of Azerbaijan but also on getting additional earnings through oil and gas trades in third countries. Considering that SOCAR is the largest taxpayer in Azerbaijan, there is a greater effectiveness of this strategy for the country.

Azerbaijan is a reliable partner of transnational companies in the development of oil and gas fields, as well as a supplier of oil and gas in regional and global scales. According to Vitaly Baylarbayov, during the entire period of independence, Azerbaijan has not changed the terms of any oil contracts, which encourages investors and encourages new companies in this sector.

The reliability of SOCAR in the regional market has been recently expressed by the representative of the Georgian Oil and Gas Corporation Liana Jervalidze: “Despite the monopoly position of the company in this market, we have witnessed no cases of abuse.” In the current world situation, when oil and gas often become an instrument of political games, this is a worthy assessment.