SUCCESSFUL INVESTMENT

This year marks the 15th anniversary of the State Oil Company of Azerbaijan (SOCAR) in Türkiye. The period is quite significant in the life of the organisation, a stage when it is possible to present some accomplishments.

Being the majority shareholder of the country's largest petrochemical complex, SOCAR has significantly strengthened its presence in the fraternal country over the years. It has constructed and launched the STAR refinery, Aegean Container Terminal l, and a wind farm. SOCAR also owns the gas distribution companies Kayserigaz and Bursagaz, as well as the telecommunications company Millenicom. In addition, it supplies gas to the domestic market and petroleum products to aircraft refuelling points at airports in several major cities in Türkiye.

It is the first company to be granted special industrial zone status in Türkiye in the Aliaga region, where the bulk of SOCAR's investments are made.

Elchin Ibadov, General Director of SOCAR Türkiye Enerji, as well as Anar Mammadov, President of SOCAR Türkiye Refining and Petrochemical Business Unit and General Director of Petkim, told us about the progress in the Turkish market.

"Mr. Ibadov, how would you rate SOCAR's activities in Türkiye in 2022?"

"SOCAR Enerji Türkiye AŞ (SOCAR Tükiye) is a Turkish subsidiary of the State Oil Company of Azerbaijan and began operations back in 2008 by purchasing a 51% stake in Petkim Petrokimya Holding from the Privatisation Department. Its development and implementation of large-scale projects such as the STAR refinery, the TANAP gas pipeline, the Petkim wind farm and the SOCAR Termina container terminal, the largest in the Aegean Sea region, made the company the largest foreign investor in Türkiye.

"SOCAR Türkiye contributes to the country's economic development in all areas of activities. The company plays a leading role in the energy sector through the value added and the production of raw materials that affect all aspects of life. Over 15 years of operation, our total investment in the Turkish economy has reached about $18b, with 5,300 employees.

"As to our performance in 2022, global geopolitical events in the second half of the year triggered global inflation as well. On top of that, there was still the impact of the coronavirus pandemic. Nevertheless, in 2022, we made great efforts. It was a record year for SOCAR Türkiye in terms of profitability as well as efficient use of assets.

"For example, the Petkim petrochemical complex increased the sales by 70% last year, with net profits reaching ₺6.6b, or about $400m.

"Also, thanks to high engineering technology, we could increase the capacity of the STAR refinery from 10 to 11.3 million tonnes of oil without additional investment.

"The STAR refinery, which operates as part of the Petkim petrochemical complex, currently covers 25% of Türkiye's domestic demand for petroleum products.

"The same indicator for Petkim is 12%. You may wonder why it decreased from 18% to 12%. This is due to the growth of the petrochemicals market and demand, which we cannot meet with existing production capacity. But the good news is that we are thinking about additional steps we can take to develop further."

"Are there any new areas that SOCAR Türkiye intends to develop? Most of the world's leading countries and companies are changing their development strategies, shifting the focus onto decarbonisation and green energy to reduce climate change..."

"There are several promising areas which we intend to develop. First of all, it is digitalisation, i.e., doing business using various digital tools, robotics and even drones. By the way, $70m have already been provided for the digitalisation of SOCAR Türkiye.

"In fact, we are going to take measures for the sustainable development of human resources, environmental protection and society. These include decarbonisation of production and transition to green economy in the first place. In terms of green investments, we have three main priorities: reduction of hydrocarbon emissions, recycling and producing new products from waste, and securing financing from green funds.
"I would like to note that our targets have specific figures: we aim to reduce hydrocarbon emissions to 40% by 2035 and to reduce them completely to zero by 2050.

"Today, SOCAR Türkiye sells most of its products in the Turkish market. At the same time, we have an impressive export component. In 2021, we were ranked as the 8th largest Turkish exporter."

"Türkiye has recently started the gas production in the Black Sea. Can this affect the volume of gas purchases from abroad and the operation of the Southern Gas Corridor? "

"Türkiye is taking certain steps to become a gas hub.  Production of first gas in the Sakarya field in April 2023 is the logical outcome of these efforts. However, the production volumes are still low and cannot fully cover domestic demand. For the past seven years, since 2016, Türkiye has been purposefully working on increasing its gas supply from domestic sources. This includes the construction of new LNG plants, gas storage facilities and the laying of new gas lines. At the same time, the development of gas production in Türkiye will allow us to use the capacity of the Trans-Anatolian gas pipeline (TANAP) more effectively.

"TANAP was launched by the presidents of Azerbaijan and Türkiye in 2018 and is part of the Southern Gas Corridor. It is of great strategic importance. It makes it possible to increase the natural gas resources in our country and in Europe, as well as to turn Türkiye into an energy corridor.

"The TANAP pipeline has delivered more than 21.5bcm of gas to Türkiye since June 30, 2018 and 23.3bcm to Europe since December 31, 2020. Thus, a total of about 45bcm of Azerbaijani gas was exported to Türkiye and the EU.

"The issue of expanding the capacity of the TANAP pipeline is now under consideration. We hope that it will be agreed and resolved in accordance with the national interests of both states."

"Are you planning to implement new energy projects in Türkiye, particularly RES projects?"

"This is a priority area for us and is the foundation of our sustainability strategy. Since 2014, we have built 17 wind turbines with a total capacity of 51MW. We are working on increasing this number. We have already received permission from the relevant Turkish authorities.

"In addition, we are working on the provision of solar power to some of the installations at our facilities. SOCAR Türkiye Research and Innovation Centre, which cooperates with Sabancı University, has launched a project for the development of unique anodes for hydrogen production using bipolar membrane electrolysers. The objective is to develop unique electrodes containing new generation catalysts for the production of green hydrogen from water."

"Mr. Mammadov, this year is the 5th anniversary of the STAR refinery. How would you describe the refinery's performance? What is the progress of repayment of loans attracted for this project?"

"Total investment in the STAR refinery together with the loans reached $6.3b. With the investment in the construction of additional oil and petroleum storage tanks, the invested amount increased to $6.7b. In general, I can say that the STAR project has been very effective and profitable.

"As to loan repayments, the process is on schedule. Certainly, market conditions have also influenced our progress. In general, 2022 was a successful year for the refining sector. Projects implemented by our team members as part of the Create Added Value initiative have also contributed to our overall success.

"Last year, the STAR refinery produced 11.3 million tonnes of oil; this year, we intend to increase this indicator to 12 million tonnes. The results for the first quarter of 2023 show that we are very likely to hit this target.

"In addition, we will carry out a planned shutdown of the STAR refinery in 2024. This is a necessary procedure after each four-year period of operation. This will be the first time for the refinery. Our primary objective is to ensure the inspection and maintenance of equipment and cleaning of certain units, which will increase the refinery's capacity by 3%. Secondly, we plan to extend the period between subsequent scheduled shutdowns from four years to five. This will result in annual savings of $40 million.

"In terms of percentages, our current production volume is 118.5%. We are aiming to increase this volume by 3% to 121-121.5%."

"What about oil imports for the refinery? Do you plan to expand the range of your products?"

"As the refinery is located in the Mediterranean, we prefer to import oil from nearby regions - the Black Sea, the Mediterranean, North Africa, West Africa; those grades suit us best. STAR is a unique refinery, one of the latest built in the world, capable of refining the cheapest and lowest quality grade of oil and creating added value. The yield of light products at our refinery is around 90%, which means we do not produce dark products such as fuel oil and tar.

"Diesel fuel accounts for 55-60% of the total volume of petroleum products produced. Our plant is designed so that most of the petroleum products it produces remain in Türkiye (jet fuel, naphtha, etc.).

"In the long term, we plan to organise the production of paraffin from renewable sources. We are not producing the product yet, but it is a reality. We have certain developments in this area.

"We believe in Türkiye's future and potential. To date, we have received an incredibly high level of support from the Turkish state, and we greatly appreciate this attitude."