"Contract of the Century" - a future-oriented strategy
Caliber.Az review

ANALYTICS  20 September 2022 - 16:46

Twenty-eight years ago, a solemn ceremony of signing the "Contract of the Century", involving the development of the Azeri-Chirag-Guneshli (ACG) block of oil fields, was held at the Gulistan Palace in Baku. Thus, September 20, 1994 marked the start of the revival of the Azerbaijani economy and, in fact, the strengthening of state independence.

It is gratifying that today the national oil sector implements capital-intensive projects in the oil and gas sector, develops a powerful petrochemical complex, and participates in swap operations with neighbouring countries.

The long-term oil strategy worked out by the national leader of Azerbaijan Heydar Aliyev has been the main driver of the national economy for three decades, developing not only the energy sector but also many other branches of industry and services. According to approximate estimates, one job created in the oil industry leads to at least seven vacancies in related industries. Only the development of ACG fields during the period of its active exploitation employed about 15,000 people. Simple calculations show that the total number of jobs created in this field alone has exceeded 100,000.

In total, Azerbaijan has signed 35 contracts with foreign companies to develop onshore and offshore oil and gas fields since 1994 to date. In particular, since the signing of the first production sharing agreement, some $43 billion has been invested in the development of the ACG fields alone, and the same amount of investment is planned for the next 30 years. From the start of ACG development in 2001 to September of this year, 560.2 million tonnes of oil and 199 billion cubic metres of associated gas were produced, which brought the total returns from the field, including bonus payments, to $162bn.

Today, against the background of continuing energy crisis and growth of prices for hydrocarbons, production from ACG still enables Azerbaijan to hold a stable position as a strategic supplier of energy resources to the EU and other regions of the world markets. And this activity continues, as experts estimate that today Azeri-Chirag-Guneshli has some 500 million tonnes of unexploited hydrocarbon reserves.

Among the most important initiatives currently underway is the development of the Central-Eastern Azeri field, a project under the second phase of the Contract of the Century, which has been extended until 2050. To this end, a new offshore platform has been under construction in the Central-Eastern Azeri area since 2019, with a production capacity of around 100,000 barrels of oil per day. Construction work on the project, estimated at $6 billion, is nearing completion, and the first oil is expected here approximately in 2023.

And this is far from everything planned, since Azerbaijan's energy strategy based on the "Contract of the Century" in subsequent years was embodied in the development of two stages of the Shah Deniz gas condensate field, the construction of the Baku-Tbilisi-Ceyhan oil pipeline, the laying of the South Caucasus gas pipeline and the Southern Gas Corridor pipeline network, as well as dozens of others, already implemented energy projects.

As a result, between 2000 and 2020, it was possible to attract 109.5 billion investments in the energy sector of the country that contributed to the rapid development of oil and gas, petrochemical, transport, and service sectors and had a huge multiplier effect on other sectors of the economy and social sphere of the country. Due to such a powerful financial boost, oil-gas contracts concluded by Azerbaijan directly or indirectly provided the opening of several hundreds of thousands of workplaces in the country, providing the initial capital for modernisation of the non-oil industry, agrarian and transport sectors, etc. Among other things, the successful oil and gas strategy has contributed to the development of related industries: a modern petrochemical industry has been formed in the country in recent years - a polymer plant, a methanol plant, a urea fertiliser plant, the Baku refinery, etc. have all been put into operation.

Azerbaijan's long-term export policy, formed after the Contract of the Century, confirms its historic significance and strategic depth every year. In particular, in July 2022 a "Memorandum of Understanding on Strategic Energy Partnership between the EU and Azerbaijan" was signed, and now shareholders of the Trans Adriatic Pipeline (TAP), which has a capacity of 10 billion cubic metres, are discussing the possibility of increasing its capacity because of high demand for Azerbaijan's gas. At the same time, the Trans-Anatolian Pipeline (TANAP) will be expanded, with its current capacity of about 16 billion cubic metres per year. As a result, it is planned to develop new fields and increase gas production in Azerbaijan with the expectation that by 2027 it will double exports to Europe via the Southern Gas Corridor to an estimated 20 billion cubic metres/year.

At the same time, the recent turbulent geopolitical changes have dictated new decisions in the energy sphere, including the formation of new routes and schemes for the transportation of hydrocarbons. To this end, since January 2022, supplies of 5-6 million cubic meters of Turkmen gas per day to the north-eastern regions of the Islamic Republic of Iran have been launched, and then the corresponding volume of gas is transferred to Azerbaijan under a swap scheme. In the first half of the year Baku received about 1.5 billion cubic metres of Turkmen gas, and today the technical possibilities for doubling supplies are being agreed upon. Meanwhile, according to the Iranian news agency Fars, the possibility of another transit project is being studied today - supplies of about 15 million cubic metres of gas per day from Russia to Iran, and Azerbaijan is also considered a swap partner here.

Thus, in the nearly three decades since the signing of the "Contract of the Century" Azerbaijan has not only become the largest producer and exporter of hydrocarbons but has also acquired the status of a major regional hub, a transit country with a strong and sustainable oil and gas transportation infrastructure.

All the above-mentioned once again confirm the importance of the oil, gas, and petrochemical industry for our country - today these directions are system-forming and exclusive for long-term stable development and state security. These arguments urged the national leader Heydar Aliyev to sign the decree on August 16, 2001, on the establishment of the Oil Workers Day which became the most important professional holiday of the republic. On Oil Workers Day, the achievements and future tasks in the oil-gas sector are traditionally discussed, and oil workers are awarded with honorary titles, orders, and medals for their contribution to the development of the industry. Today's address by Azerbaijani Energy Minister Parviz Shahbazov on his Twitter account, congratulating all workers of the oil and gas industry on their professional holiday, was dedicated to this important date. "In connection with September 20 - Oil Workers Day, I congratulate our oil workers, who wrote the history of the development of the oil industry of Azerbaijan, worthily carrying the values of this glorious profession from the past to the present, and wish them success in life and activity," the head of the Ministry of Energy said in his address to the oil workers of Azerbaijan.

Caliber.Az