Azerbaijan's Oil Wealth: A Country's Black Gold Fortune

Azerbaijan is rich in oil and natural gas resources, with proven oil reserves of 7 billion barrels (as of 2020) and an annual production of 843,546.25 barrels per day (as of 2016). The country has a long history in the oil industry, dating back to the 3rd and 4th centuries when petroleum was used in trade. Today, Azerbaijan's oil sector is dominated by the State Oil Company of the Republic of Azerbaijan (SOCAR), which contributes significantly to the country's economy. However, the country is diversifying its streams of economic sustenance, with a focus on developing its transportation, agriculture, and tourism sectors.

Azerbaijan's oil reserves

Azerbaijan is rich in oil and natural gas resources. As of 2016, the country held 7 billion barrels of proven oil reserves, ranking 20th in the world. This accounted for about 0.4% of the world's total oil reserves. Azerbaijan's oil reserves are equivalent to nearly 200 times its annual consumption, meaning that, without net exports, there would be about 200 years of oil left at current consumption levels.

The Azeri-Chirag-Deepwater Gunashli (ACG) field, located about 100 km east of Baku, is the largest oil field in the Azerbaijan sector of the Caspian Basin. It was discovered in the early 1970s when Azerbaijan was part of the Soviet Union and comprises a series of individual reservoir horizons located 2,000 to 3,500 metres beneath the Caspian seabed.

Oil production in Azerbaijan takes place both onshore and offshore in the Caspian Sea, with offshore production accounting for about one-quarter of the total. In 2022, the petroleum industry in Azerbaijan produced about 33 million tonnes of oil. The country has several major oil pipelines, including the Baku-Tbilisi-Ceyhan (BTC) pipeline, which began operations in 2006 and has a capacity of 1.2 million barrels per day. Azerbaijan has also been a major exporter of oil, with 78% of its oil production being exported in 2016.

In recent years, Azerbaijan has extended its "Contract of the Century" with a BP-led consortium, ensuring continued development of the ACG block of oil and gas fields until 2050. This project is expected to bring in $13 billion in investment and has been dubbed the "Contract of the New Century" by BP's group chief executive, Bob Dudley.

Oil production in Azerbaijan

Azerbaijan is rich in oil and natural gas resources, with oil produced both onshore and offshore in the Caspian Sea. In 2016, the country produced 843,546.25 barrels of oil per day, ranking 24th in the world. As of 2016, Azerbaijan held 7 billion barrels of proven oil reserves, ranking 20th globally and accounting for about 0.4% of the world's total oil reserves. This means that, without net exports, there would be around 200 years of oil left at current consumption levels.

Azerbaijan's oil industry has a long history, dating back to the 3rd and 4th centuries when petroleum was used in trade. The country is considered one of the birthplaces of the modern oil industry, with early descriptions of oil production in the region by explorers such as Marco Polo and Evliya Çelebi. The first detailed account of the Baku oil industry was made by Engelbert Kaempfer in 1683.

In the 19th century, the Russian Empire took control of oil production in Baku, leading to the development of primitive oil extraction methods and the establishment of a small petrochemical industry. By the late 19th century, large companies began employing geologists to map prospective structures, and the first successful oil tanker in the world, the Zoroaster, was built by the Nobel Brothers in 1877.

The early 20th century saw a decline in oil production due to constant strikes, violence, and ethnic strife during the Russian Revolution. However, by the late 1920s, production had stabilised, and by 1940, Azerbaijan's oil production reached a historical record of 23.5 million tons.

After gaining independence, Azerbaijan attracted foreign investment and signed the "Contract of the Century" in 1994, a major oil deal with a consortium of 11 foreign oil companies. The country has continued to invest in modernising its energy infrastructure, and today, the Azeri-Chirag-Deepwater Gunashli (ACG) field is the largest oil field in the Azerbaijan sector of the Caspian Basin. In 2022, the petroleum industry in Azerbaijan produced about 33 million tonnes of oil and 35 billion cubic meters of gas.

Oil consumption in Azerbaijan

Azerbaijan is a country rich in oil and natural gas resources. In 2016, the country consumed 96,000 barrels of oil per day, ranking 81st in the world for oil consumption. This accounted for about 0.1% of the world's total consumption. In terms of per capita consumption, Azerbaijanis consumed 0.41 gallons of oil per person per day, or 149 gallons per person per year (approximately 4 barrels).

Azerbaijan's oil consumption is relatively low compared to its production and reserves. As of 2016, the country produced 843,546.25 barrels of oil per day, ranking 24th in the world. Additionally, Azerbaijan holds 7 billion barrels of proven oil reserves, ranking 20th in the world and accounting for about 0.4% of the world's total oil reserves. This means that Azerbaijan has proven reserves equivalent to almost 200 times its annual consumption, suggesting that oil reserves are not a significant concern for the country.

In recent years, Azerbaijan's oil consumption has continued to grow. In 2021, the country's oil consumption was reported to be 4.85 million metric tons. This increased to 5.7 million metric tons in 2022, representing a 7.55% year-over-year increase.

The State Oil Company of the Republic of Azerbaijan (SOCAR) is a major player in the country's oil industry and a significant source of income for the government. However, the company has been criticised for its opaque operations and the enrichment of the country's ruling elites.

The history of oil in Azerbaijan

Azerbaijan has a long history with oil, with evidence of petroleum being used in trade as early as the 3rd and 4th centuries. The country is one of the birthplaces of the oil industry and has been a producer of hydrocarbons for almost 150 years.

The first detailed description of the Baku oil industry was made by Engelbert Kaempfer, Secretary of the Swedish Embassy to Persia (Iran) in 1683. In his notes, Kaempfer describes the existence of places where natural gas discharges to the surface.

In 1803, Haji Kasimbey Mansurbekov began sea oil extraction in Bibi-Heybat bay, which was the first instance of sea oil extraction in the world. However, this endeavour was abandoned in 1825 when a strong storm destroyed the wells. In 1806, the Russian Empire occupied Baku Khanate and took control of oil production, creating a monopoly.

In 1837, the Russians built an oil-distilling factory in Balaxani. During this time, oil extraction methods were primitive, relying on hand-dug wells drilled to shallow depths.

In the 1840s, drilling for oil rather than digging pits by hand was proposed, and in 1846, an engineer named Nikolay Matveyevich Alekseev drilled a 21-metre deep well in Bibiheybət, resulting in the discovery of oil.

The world's first paraffin factory opened in Azerbaijan in 1823, and the country's first oil field was drilled in 1846. In the late 19th century, the Baku Petroleum Association was formed to prevent the exportation of crude oil.

In the early 20th century, the Nobel brothers played a significant role in the development of the oil industry in Baku. They added infrastructure, including Russia's first pipeline system, and founded the Nobel Brothers Petroleum Production Company in 1877.

In the 20th century, Azerbaijan continued to be an important oil-producing country, with foreign companies investing in the Baku oil fields. The country experienced oil crises and civil unrest, which impacted production. After the occupation of Azerbaijan by Bolsheviks, all oil assets were nationalized, and the Azneft State company was formed.

In the post-World War II era, oil production from existing fields declined, but new discoveries were made offshore. The Neft Dashlary, the first offshore oil field and platform in the world, was completed in 1951 in the shallow waters of the Caspian Sea and is still in production today.

In the late 20th century, Azerbaijan gained independence and began attracting foreign investment. The "Contract of the Century" in 1994 marked a significant milestone, with the potential for large oil reserves. The Baku-Tbilisi-Ceyhan pipeline, which opened in 2006, transformed the country's oil industry by allowing for the export of lighter and sweeter crude oil.

Today, Azerbaijan remains an important oil and natural gas supplier, particularly for European markets, and continues to develop its oil and gas infrastructure.

Azerbaijan's oil exports

Azerbaijan exports a large amount of oil, with it being the country's main export product. In 2022, Azerbaijan exported $19.4 billion worth of crude petroleum, making it the 18th largest exporter of crude oil in the world. The main destinations for these exports are Italy, Israel, India, Spain, and Croatia. In 2016, Azerbaijan exported 78% of its oil production, or 654,629 barrels per day.

Azerbaijan has a long history of oil production, dating back to the 3rd and 4th centuries when petroleum was used in trade. The country is also one of the birthplaces of the modern oil industry, with the first detailed description of the Baku oil industry made in 1683. In the 19th century, Russian control of Baku led to the development of more oil wells and the creation of a state monopoly on oil production. By the early 20th century, Baku was producing more oil than the United States, and by 1901, it accounted for more than half of the world's oil production.

Today, Azerbaijan continues to be a major player in the oil industry, with the State Oil Company of the Republic of Azerbaijan (SOCAR) serving as a major source of income for the government. The country has an estimated 7 billion barrels of proven oil reserves as of 2016, ranking 20th in the world. Oil is produced both onshore and offshore in the Caspian Sea, with offshore production accounting for about one-quarter of the total. The Azeri-Chirag-Deepwater Gunashli (ACG) field, located about 100 km east of Baku, is the largest oil field in the Azerbaijan sector of the Caspian Basin.

In addition to oil exports, Azerbaijan is also a net exporter of natural gas, with the Shah Deniz gas field being one of the world's largest. The country has an estimated 1.3 trillion cubic meters of proven natural gas reserves, and gas extraction is expected to contribute significantly to the economy in the coming decades.

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