Azerbaijan’s substantial energy resources and reliable infrastructure enable it to meet domestic energy demand and provide broad opportunities for energy export. The State Program on development of the fuel-energy complex (2004-2015) establishes the policy framework for developing the country’s energy sector. The Ministry of Industry and Energy is responsible for addressing these issues.
Oil and gas
Azerbaijan is duly considered as one of birthplaces of petroleum industry. By the late 19th century Azerbaijan provided for approximately half of global oil supply.
In 1847, more than a decade before US discovered oil in Pennsylvania (August 27, 1859) Azerbaijan drilled its first oil well in Bibi-Heybat. The first industrial oil production also began in Azerbaijan in 1872. It is remarkable that much of oil technology used nowadays was invented in Baku. In 1877 the first oil tanker “Zoroaster” was built to reduce oil transportation costs and later in 1897-1907 the world's largest 885 km-long kerosene pipeline was built between Baku and Batumi (Georgia).
When the Nobel Prize was established in 1901, roughly 12% of the prize money was drawn from Alfred Nobel’s shares in the Nobel Brothers’ Petroleum Company in Baku.
Following its 2nd independence in 1991, Azerbaijan re-opened its oil and gas industry for international cooperation. The Government invited leading global energy companies to jointly develop hydrocarbon resources of the Caspian basin on the basis of Production Sharing Agreements (PSAs). To date, 31 PSAs have been signed between the Government of Azerbaijan and oil companies. These PSAs have been incorporated into Azerbaijan’s legislative system and take precedence over Azerbaijani laws of general application. 34 companies from 15 countries are engaged in operations in 30 fields in Azerbaijan. The State Oil Company of Azerbaijan (SOCAR) is a partner in all international energy development projects.
Successful exploration of energy resources has led to the development of the regional system of pipelines. Along with the two pipelines (the Baku-Supsa and the Baku-Novorossiysk pipelines) traditionally used to export Azerbaijani oil, the major export pipeline – the Baku-Tbilisi-Ceyhan (BTC) pipeline, – was inaugurated in May 2006. The BTC pipeline that stretches for 1768 km and carries crude oil from the Azeri-Chirag-Guneshli (ACG) oil field connects the Caspian offshore fields with the Turkish Mediterranean port of Ceyhan. The pipeline’s throughput capacity is 1.2 million barrels a day.
Simultaneously with the oil sector, the country’s gas industry received a boost when the South Caucasus Pipeline became operational in September 2006. The 692 km-long pipeline runs parallel to the BTC and carries natural gas from the Shakh-Deniz oil field to Turkey with a possible extension further to the South-Eastern Europe. The pipeline’s current capacity is over 7 bcm.
The BTE and BTC pipelines not only deliver Azerbaijan’s energy resources to world markets but they also provide commercially viable opportunities for other Caspian basin countries to reach consumers in Europe and beyond.
Development of offshore Caspian oil and gas resources made Azerbaijan an important player of the global energy market. The country’s extensive pipeline infrastructure provides commercially viable opportunities for other Caspian basin countries to reach international markets. <
The issue of effective management of oil revenues for the benefit of future generations has been a constituent element of Azerbaijan’s oil strategy. The State Oil Fund (SOFAZ) was established in 1999 with a major goal of ensuring the equitable distribution of the oil wealth and safeguarding the interests of the generations to come. In 2007, the SOFAZ received a UN public service award for exceptional contribution towards improving the effectiveness, efficiency and quality of public service. As at August 2011, SOFAZ assets stand USD 30.4 bn.
Following World Bank President Robert Zoellick’s call for sovereign wealth funds to engage in investment activities in the Africa, Latin America & Caribbean (ALAC) region, SOFAZ contributed $100 million to the ALAC Fund of the International Finance Corporation to finance investment projects in banking, insurance, construction materials, hotels and transportation. This made Azerbaijan the first developing country to co-invest with the World Bank in other emerging economies.
Azerbaijan is an active participant of the Extractive Industries Transparency Initiative (EITI) launched by the former UK Prime Minister T.Blair at the World Summit for Sustainable Development in Johannesburg in 2002 and recognized as an international brand of transparency in extractive industries. Azerbaijan has been the first country to obtain an EITI-compliant country status.
Electricity
With 19 power plants, Azerbaijan’s power system is the oldest and most developed in the South Caucasus. It has an installed generating capacity of about 6400 MW. Thermal and hydro power plants account for 90% and 10% of annual electricity output, respectively. The government-owned company Azerenerji JSC is responsible for power generation and distribution.
Renewables
Endowed with rich wind, solar and hydro-energy as well as bio-fuel potential, Azerbaijan possesses enormous opportunities for developing international partnerships in renewables. Azerbaijan’s wind power generation capacity is estimated at 800MW annually which translates into 2.4bn kWh of electricity. While in US annual average sunshine is between 2500 and 3000 hours, Azerbaijan receives 2400 - 3200 hours of sunshine a year. This enables Azerbaijan to generate 1500-2000 kWh/m2. Azerbaijan’s hydropower potential is estimated at 40bn KWh.
Considerable thermal water resources in Azerbaijan are found in the Greater and Lesser Caucasus Mountains, Absheron Peninsula, Talish Mountains, Kur Lowland and Guba region. Rapid development of agriculture and related sub-sectors opens up opportunities for cooperation in biomass power generation.
The State Agency for Alternative and Renewable Sources of Energy is responsible for developing the legal framework for domestic and foreign investments in the field of alternative energy. The State Program on development of alternative and renewable energy sources (2005-2013) is a major policy document in this area.
