In order to turn a young independent Azerbaijan into a modern, powerful state with sustainable economic development, national leader Heydar Aliyev determined the oil strategy, which would lie at the heart of fundamental transformation of the future political and economic reforms. The new oil strategy ensured the involvement of foreign investors in the development of Azerbaijan’s oil fields, diversification of routes of transportation of crude oil, effective management of oil revenues and Azerbaijan`s entry into a new stage of development.
Under the leadership of national leader Heydar Aliyev, one of the landmark agreements in Azerbaijan`s 20th-century history was signed. The Agreement on the Joint Development and Production Sharing for the Azeri and Chirag Fields and the Deep Water Portion of the Gunashli Field in the Azerbaijan Sector of the Caspian Sea was signed on September 20, 1994. Due to its political, economic and strategic importance, the agreement was dubbed “the Contract of the Century”. The agreement provided a basis for Azerbaijan`s oil strategy, opened up new prospects for the country and transformed it into a major global energy supplier.
The $7.4 billion agreement had 11 international oil companies (AMOCO, BP, McDermott, UNOCAL, SOCAR, Lukoil, Statoil, TPAO, Pennzoil, Ramco, Delta) representing 7 countries (Azerbaijan, USA, UK, Russia, Turkey, Norway and Saudi Arabia) as contractor parties. They soon established several working structures - the Steering Committee, Azerbaijan International Operating Company (AIOC) and the Advisory Council. Those structures were given the legal power and started their activities under a special Decree signed by the President of Azerbaijan on December 2, 1994. On December 12, 1994, the Contract of the Century was ratified by the parliament of Azerbaijan.
Although according to initial evaluations Azeri, Chirag and Deepwater part of Gunashli had 511,000,000 tons of crude oil, further evaluations set oil reserves at 1,072,000,000 tons.
The Contract of the Century paved the way for the signing of another 26 contracts with 41 oil companies from 19 countries.
The fields have been developed in three phases. First oil from Chirag platform was achieved on November 7, 1997.
In order to implement the provisions of the Contract on time and ensure transportation of the growing volumes of oil to the international markets, new oil pipes were built and commissioned:
- late 1997, oil started to be exported to the Black Sea by Baku-Novorossiysk pipeline;
- in 1999, a pipeline from Baku to another Black Sea port – Supsa – was commissioned. The first tanker carrying Azerbaijani oil was sent to the world markets in December 1999$
- in 2002, the foundation of Baku-Tbilisi-Ceyhan main oil pipeline was laid thanks to continuous efforts and dedication of national leader Heydar Aliyev. Although provided for in the Contract of the Century, the pipeline was once considered as a myth and many believed that it would remain on paper. The globally important pipeline was a crucial step towards making Azerbaijan an energy corridor. The Baku-Tbilisi-Ceyhan oil pipeline was inaugurated with the participation of the President of the Republic Azerbaijan Ilham Aliyev on May 25, 2005. Frist Azerbaijani oil was shipped to the Turkish port of Ceyhan in 2006.
In general, in order to deliver the Azerbaijani oil from the Caspian Sea to the world markets, pipelines with a total length of one-tenth of the length of the equator were constructed: Baku-Novorossiysk (1330 kilometers), Baku-Supsa (833 kilometers) and Baku-Tbilisi-Ceyhan (1768 kilometers).
Nearly $33 billions were invested in the development of off-shore oil reserves in Azerbaijan and 3.2 billion barrels of oil were produced from the Azeri-Chirag-Gunashli fields until 2017. Also, a total of 30 billion cubic meters of associated gas were produced from Azeri–Chirag–Gunashli oil field and given to the Azerbaijani government.
On December 29, 1999, President of the Republic of Azerbaijan Heydar Aliyev signed Decree No. 240 on the establishment of the State Oil Fund of the Republic of Azerbaijan in order to ensure effective management of hydrocarbon revenues and fair distribution of oil among generations and to channel oil revenues into the development of priority areas. Thanks to the effective and transparent management of revenues, the State Oil Fund has quickly become one of the world`s most transparent funds and ensured long-term financial profits for the present and future generations.
On September 14, 2017, the amended and restated Azeri-Chirag-Gunashli Production Sharing Agreement was signed in Baku. This marked a new stage in the development of Azeri-Chirag-Gunashli field. The new agreement was signed by officials of the Azerbaijani government, SOCAR, BP, Chevron, IMPEX, Statoil, ExxonMobil, TP, ITOCHU and ONGC Videsh companies. Under the amended and stated agreement, which was extended until 2050, BP remained the operator of the project, while SOCAR`s shares increased from 11 to 25 per cent and Azerbaijan's direct share in profitable oil amounted to 75 per cent. Subsequent to the new contract, SOCAR and its co-venturers also agreed to progress engineering development work to evaluate an additional production platform in the ACG contract area.
The signing of the Contract of the New Century marked a new stage in Azerbaijan’s oil strategy. This means the start of a new era in the history of modern Azerbaijan, additional guarantees for the country’s political and economic security, new investments, GDP growth, new jobs and welfare.
An inauguration ceremony of the Star Oil Refinery was held on October 18, 2018 in the city of Izmir, Turkey. President of the Republic of Azerbaijan Ilham Aliyev and President of the Republic of Turkey Recep Tayyip Erdogan attended the ceremony. The processing capacity of the Star Oil Refinery is 10 million tons of crude oil per year. The refinery will produce 5 million tons of diesel. The plant is also capable to fully meet Turkey's need for jet fuel.
One of the world`s largest gas fields, Shahdeniz was discovered by Azerbaijani geologists in the middle of the 20th century. However, due to unavailability of the necessary technology the exploitation of the field was halted and its potential was not identified. In 1996, a consortium established by SOCAR and international oil companies discovered large reserves in the gas field, and the result exceeded expectations. The field has gas reserves of 1.2 trillion cubic meters. This is considered one of a few huge gas fields in the world.
The discovery of ‘Umid’ and ‘Absheron’ fields in the following years confirmed Azerbaijan’s possession of large gas fields. This opened a new page in the history of natural resources of Azerbaijan.
In order to start the second phase of the development of Shahdeniz field, members of the consortium made another historic decision in Baku on December 17, 2013. The signing ceremony was held with the participation of official representatives of a number of countries at the Heydar Aliyev Center. The agreement provides for the attraction of $28 billion of investment.
The idea of the Southern Gas Corridor became a reality thanks to the will and leadership of Azerbaijan. On October 29, 2013, President of the Republic of Azerbaijan Ilham Aliyev signed an Order to establish a State Commission with the purpose of protecting Azerbaijan’s interests in the Southern Gas Corridor project and provide state support to the project participants.
The ceremony of laying the foundation of the Southern Gas Corridor took place in Sangachal on September 20, 2014 - on the 20th anniversary of the Contract of the Century - with the participation of heads of state and government, ministers of southeastern European countries, and chief executives of international companies.
Azerbaijan is already exporting its gas to neighboring countries and new pipelines have been built to start exporting it to the European market:
- in 2007, Baku-Tbilisi-Erzurum gas pipeline (South Caucasus Gas Pipeline) was commissioned, and gas produced under the first phase of Shahdeniz project is exported to Georgia, Turkey and Greece;
- in 2012, Azerbaijan and Turkey signed TANAP project on the initiative of President Ilham Aliyev and then Prime Minister Recep Tayyip Erdoğan;
- in 2013, Shahdeniz consortium chose TAP (Trans Adriatic Pipeline) project, which will link the Turkish border to the south of Italy, to deliver the Azerbaijani gas to the European markets, and the construction of the pipeline is now ongoing.
These projects enable implementation of the Southern Gas Corridor project through connecting the Shahdeniz gas field to the south of Italy.
Since 2015 Baku has been hosting an annual meeting of the ministers of the Southern Gas Corridor Advisory Council.
TANAP, an important part of the Southern Gas Corridor, which was officially inaugurated on May 29, 2018, is an indispensable infrastructure project to address the energy security issues.
On June 12, 2018, a solemn ceremony was held in Eskisehir, Turkey, marking the launch of TANAP, Trans-Anatolian gas pipeline.
TAP project will also be completed by 2020. Thus, Azerbaijan's rich gas reserves will be delivered to the Turkish and European markets in a diversified, short and secure way.
Azerbaijan`s purposeful activity in the field of energy has transformed the country into a regional energy hub.