Azerbaijan's Oil Capital: A City Built On Black Gold

Baku, Azerbaijan's capital and largest city, is the leading oil-producing centre in the country. Baku is situated on the shores of the Caspian Sea and has a population of nearly two million. The city has a long history and has benefited greatly from oil revenues, emerging as a vibrant metropolitan hub that draws significant international business interest. Azerbaijan is one of the oldest oil-producing countries in the world, and Baku, being the centre of such an extensive oil drilling industry, has been a strategic target during historical conflicts due to its vast oil resources.

Baku: Azerbaijan's capital and largest city

Baku is the capital and largest city of Azerbaijan, as well as the largest city on the Caspian Sea and in the Caucasus region. It is the sole metropolis in the country, and about 25% of all inhabitants of the country live in Baku's metropolitan area. The city is 28 metres (92 ft) below sea level, making it the lowest-lying national capital in the world and the largest city in the world below sea level.

Baku is divided into twelve administrative raions and 48 townships. The city is the scientific, cultural, and industrial centre of Azerbaijan, with many sizeable Azerbaijani institutions headquartered there. It is also a major educational centre, with Baku State University, Khazar University, and Azerbaijan Technical University, among others.

The basis of Baku's economy is petroleum. The presence of oil has been known since antiquity, and by the 15th century, oil for lamps was obtained from surface wells. Modern commercial exploitation began in 1872, and by the beginning of the 20th century, Baku was the leading oil-producing region in the world. The Baku oil field was the largest in the world, and it remained the largest field in the Soviet Union until the 1940s.

Baku's importance as an oil-producing centre has attracted significant foreign investment. Many industry majors like BP and Chevron have a share in joint ventures with local companies. The Azeri-Chirag-Deepwater Gunashli (ACG) field is the largest oil field in the Azerbaijan sector of the Caspian basin, with more than five billion barrels of recoverable reserves.

Baku is also a major tourist destination in the Caucasus, with hotels in the city earning seven million euros in 2009. The city has many popular tourist spots, including the Flame Towers, the seaside park known as the Boulevard, and the ancient Maiden Tower, which is an Azeri national emblem. Baku's vicinities feature Yanar Dag, an ever-blazing spot of natural gas.

Baku is also a very windy city throughout the year, with gale-force winds, cold northern winds, and warm southern winds typical in all seasons. This has earned the city its nickname, the "City of Winds".

Azerbaijan's oil history

Azerbaijan is one of the birthplaces of the oil industry and has been linked with oil for centuries, if not millennia. The country is known as the oldest oil-producing region in the world, with Baku, its capital, recognised as the centre of the industry.

Pre-20th Century

There is evidence of petroleum being used in trade in Azerbaijan as early as the 3rd and 4th centuries. Many Arabic and Persian authors have described the production of oil on the Apsheron peninsula in their manuscripts. The famous 13th-century traveller Marco Polo also referenced Baku oil in his accounts, noting its use in burning, salves and as a food product.

In the 17th and 18th centuries, various European travellers described Baku's oil wells, including German diplomat Adam Olearius, Turkish scientist and traveller Evliya Çelebi, and Engelbert Kaempfer, Secretary of the Swedish Embassy to Persia.

In 1803, Haji Kasimbey Mansurbekov began sea oil extraction in Bibi-Heybat bay, marking the first instance of offshore oil extraction in the world. In 1806, the Russian Empire occupied the Baku Khanate and took control of oil production, granting exclusive rights to individuals. In 1823, the world's first paraffin factory opened in Azerbaijan, and in 1837, the Russians built an oil-distilling factory in Balaxani.

In 1846, Azerbaijan drilled its first oil well in Bibi-Heybat, more than a decade before the famous discovery of oil in Pennsylvania by "Colonel" Edwin L. Drake in 1859. A small petrochemical industry emerged around Baku, with the first kerosene factory built in Surakhany by Vasily Kokorev, Peter Gubonin and German baron N.E. Tornow.

20th Century

By the beginning of the 20th century, Azerbaijan had become the leading oil-producing region in the world, producing more than half of the world's supply of oil. The country benefited from the expertise of well-known chemists and geologists from Europe and Russia during its early Oil Boom, between 1885 and 1920. Baku's oil barons sought advice from prominent figures like German chemist Carl Engler and Russian chemist Dmitry Mendeleyev, leading to the testing of innovative techniques such as rotary drilling and gaslift for the first time in Azerbaijan.

In 1873, Robert Nobel arrived in Baku and purchased an oil refinery, later founding the Nobel Brothers Petroleum Production Company in 1877. The Nobels added significant infrastructure to the region, including Russia's first pipeline system, pumping stations, storage depots, railway tank cars, and the first oil tanker, the Zoroaster. They also built Villa Petrolea, a company town that included apartments, houses, schools, and libraries for their employees.

During this period, Baku's oil industry influenced the city's architectural appearance, leading to the development of administrative, social, and municipal institutions. The city gained recognition as a modern city, with improvements in illumination, roads, buildings, telephone stations, and horse-drawn trolleys.

In the late 19th century, Baku produced more oil than the United States, and by 1901, it accounted for half of the world's oil production, with 1900 wells located within 6 square miles. The main oil-producing regions were Sabunchy, Surakhany and Bibi-Heybat.

Post-Soviet Era

After the Bolshevik occupation of Azerbaijan in 1920, all private property, including oil wells and factories, was confiscated, and the country's oil industry was directed towards the purposes of the Soviet Union. Azerbaijan's oil played a significant role during World War II, with the country producing a record 25.4 million tons of oil in 1941.

Following World War II, Azerbaijan's oil production from existing fields declined due to over-production and under-investment. However, the discovery of new offshore fields, such as the Gyurgyany Deniz field, marked the beginning of the country's offshore oil production.

In the post-Soviet era, Azerbaijan has continued to attract foreign investment in its oil industry. The country has signed production-sharing agreements with international companies and constructed pipelines, such as the Baku–Tbilisi–Ceyhan pipeline, to transport its oil to European markets.

Today, Azerbaijan's oil industry is supported by mature onshore fields and numerous offshore assets. The State Oil Company of the Republic of Azerbaijan (SOCAR) is a major source of income for the government and produces about 20% of the country's total oil output. The country remains an important oil and natural gas supplier, particularly for European markets, with its largest hydrocarbon basins located offshore in the Caspian Sea.

The State Oil Company of the Azerbaijan Republic

Baku is Azerbaijan's leading oil-producing centre and is home to the State Oil Company of the Azerbaijan Republic (SOCAR). SOCAR is a fully state-owned national oil and gas company, which was established in 1992 through the merger of the two previous Azeri national oil companies, Azerineft State Concern and Azerneftkimiya Production Association. The company is headquartered in Baku and operates the country's only oil refinery and a gas processing plant, as well as several oil and gas export pipelines.

SOCAR's activities include the exploration, preparation, and exploitation of onshore and offshore oil and gas fields, as well as the transportation, processing, refining, and sale of oil, gas, condensate, and other related products. The company has stakes in several export pipelines, including the Baku-Tbilisi-Ceyhan pipeline (BTC) and the South Caucasus Pipeline (SCP). It also has a share in the Trans-Anatolian gas pipeline (TANAP) and the Trans Adriatic Pipeline (TAP), which are meant to transmit gas to Europe and compete with Russia's South Stream pipeline.

In addition to its focus on oil and gas, SOCAR is committed to eco-friendly technology research and development and innovation. The company aims to meet the growing energy demand worldwide while also improving efficiency, increasing environmental protection, and achieving sustainable development. SOCAR operates in 20 countries and employs more than 66,000 people.

The oil industry in Azerbaijan has a long history, dating back many centuries. Baku, in particular, has been a key centre for oil production and is known as the "City of Winds" for its harsh, windy weather. Azerbaijan became the leading oil-producing region worldwide in the early 20th century, supplying more than half of the world's oil. Today, the country continues to attract significant foreign investment in the oil industry, with companies like BP and Chevron having shares in joint ventures with local companies.

Oil pipelines in Azerbaijan

Azerbaijan is known as the oldest oil-producing region in the world, with a history of oil trade dating back to the 3rd and 4th centuries. Baku, the country's cultural, political, and economic capital, is the centre of the country's oil industry. The city is home to the State Oil Company of the Republic of Azerbaijan (SOCAR), a fully state-owned national oil and gas company that serves as a major source of income for the Azerbaijani government.

Oil pipelines are a crucial aspect of Azerbaijan's oil industry, facilitating the transportation of crude oil from the production fields to refineries and export terminals. Here is an overview of the key oil pipelines in Azerbaijan:

Baku-Tbilisi-Ceyhan (BTC) Pipeline:

The Baku-Tbilisi-Ceyhan (BTC) pipeline is one of the major oil pipelines in Azerbaijan, accounting for about 80% of the country's oil exports. It commenced operations in 2006 and has a capacity of 1.2 million barrels per day. The BTC pipeline stretches over a distance of 1,768 kilometres, passing through Azerbaijan, Georgia, and Türkiye (Turkey). It transports crude oil from the Azeri-Chirag-Deepwater Gunashli (ACG) field, the largest oil field in the Azerbaijan sector of the Caspian Basin, to the Mediterranean port of Ceyhan. From there, the oil is shipped to world markets via tankers. The construction of the BTC pipeline played a significant role in diversifying Azerbaijan's export routes and contributed to the country's energy security.

Baku-Novorossiysk Pipeline:

The Baku-Novorossiysk pipeline is another important route for oil export from Azerbaijan. It runs from the Sangachal terminal on the Caspian Sea in Azerbaijan to the Novorossiysk terminal on the Black Sea in Russia. With a length of 1,330 kilometres and a capacity of 105,000 barrels per day, this pipeline has been operational since 1996. The Azerbaijani section is operated by SOCAR, while the Russian section is managed by Transneft. However, it is worth noting that the operation of this pipeline was halted in 2014 and later resumed in 2015 at lower loading levels.

Baku-Supsa Pipeline:

The Baku-Supsa pipeline, owned by SOCAR and operated by BP, follows a route similar to the BTC pipeline, passing through Azerbaijan and Georgia. It has a capacity of 145,000 barrels per day and became operational in 1999. This pipeline transports crude oil from offshore oil fields in the Caspian Sea to the Black Sea port of Supsa in Georgia, from where it continues to European markets via tankers.

Southern Gas Corridor:

The Southern Gas Corridor is a significant infrastructure project aimed at delivering Caspian gas to the European Union. It comprises multiple pipelines, including the South Caucasus Pipeline (SCP), the Trans-Anatolian Pipeline (TANAP), and the Trans-Adriatic Pipeline (TAP). The SCP, with a capacity of 7 billion cubic meters, transports gas from the Shah Deniz field in Azerbaijan through Georgia to Türkiye, parallel to the BTC crude oil pipeline. TANAP crosses Türkiye to Greece, while TAP connects Greece, Albania, and Italy. The Southern Gas Corridor is a joint project involving several major international companies, including SOCAR, and plays a vital role in diversifying gas supplies to Europe.

Azerbaijan's oil exports

Azerbaijan is known as the oldest oil-producing region in the world. Baku, the country's cultural, political, and economic capital, is the leading oil-producing centre in Azerbaijan. Baku is also the largest city in the world located below sea level and a UNESCO World Heritage Site.

The country's oil industry dates back many centuries, with evidence of petroleum being used in trade as early as the 3rd and 4th centuries. The first detailed description of the Baku oil industry was made in 1683 by Engelbert Kaempfer, Secretary of the Swedish Embassy to Persia (Iran). In the 19th century, the Russian Empire occupied the Baku Khanate and took control of oil production, granting exclusive rights to individuals and creating a monopoly.

By the beginning of the 20th century, Azerbaijan had become the leading oil-producing region worldwide, accounting for more than half of the world's oil supply. This was facilitated by the widespread use of kerosene lamps and the invention of the internal combustion engine, which required gasoline.

In recent years, Azerbaijan has continued to be a significant oil producer and exporter. In 2016, the country produced 843,546.25 barrels of oil per day, ranking 24th in the world. Azerbaijan exports 78% of its oil production, and in 2022, it was the 18th largest exporter of crude petroleum in the world, with $19.4 billion in exports. The main destinations for Azerbaijan's crude petroleum exports in 2022 were Italy, Israel, India, Spain, and Croatia.

The oil industry in Azerbaijan is supported by mature onshore fields and numerous offshore assets. The Azeri-Chirag-Deepwater Gunashli (ACG) field, located in the Azerbaijan sector of the Caspian basin, is one of the most significant shelf giants, with over five billion barrels of recoverable reserves. The field has six integrated production and drilling platforms and produces around 600,000 barrels per day.

In addition to oil, the Caspian Sea deepwater shelf assets also contain significant quantities of natural gas. The Shah Deniz gas field is the biggest producing gas field in Azerbaijan, with a yearly production of nine billion cubic meters of gas and approximately 50,000 barrels per day of gas condensate production, according to BP.

The future of Azerbaijan's oil industry remains optimistic, with the contract for the ACG field extended until 2050 and the second phase of the Shah Deniz field development underway.

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