"Contract of the Century": 29 years of non-stop development
Azerbaijan marks glorious day of Oil Workers

ECONOMICS  20 September 2023 - 17:36

It is not a coincidence that Azerbaijan marks Oil Worker's Day on September 20. It was on this day 29 years ago that the solemn ceremony of signing the "Contract of the Century" on the development of the Azeri-Chirag-Guneshli oil field (ACG) took place. Since then, the country's rapidly developing oil and gas sector has become the engine of economic prosperity, maintaining macroeconomic stability at the expense of export profits, replenishing gold and foreign exchange reserves, and promoting the development of non-resource industries. It is gratifying that even today the energy sector is implementing capital-intensive projects, developing a powerful petrochemical complex, and measures are being taken for the digital and "green" transformation of the industry.

Thanks to the long-term oil strategy developed by Azerbaijan's national leader Heydar Aliyev, the "Contract of the Century" signed in 1994 has turned into a kind of flywheel, spinning not only the oil sector, but also many other related industries, transport and services. Agreements on the development of the Azeri-Chirag and deep-water Gunashli offshore fields were signed for thirty years between the State Oil Company of Azerbaijan (SOCAR) and a consortium of 11 oil companies representing the world's leading countries - Great Britain, the USA, Russia, Norway, Türkiye and Saudi Arabia. The "Contract of the Century" was the first large-scale investment contract that attracted capital from Western transnational companies to the post-Soviet region, and this far-sighted move allowed Azerbaijan to bolster its geopolitical position, turning the country into a key energy and transport hub for the region.

Subsequently, the Azerbaijan International Operating Company (AIOC) was established to implement the contract, and in the following years, other agreements were concluded for the development of a number of other fields. In general, from 1994 to the present day Azerbaijan has inked about four dozen contracts with foreign companies for the development of oil and gas fields at sea and onshore. It is worth mentioning here the development of two stages of the Shah Deniz gas condensate field, the construction of the Baku-Tbilisi-Ceyhan oil pipeline, the South Caucasus gas pipeline and the Southern Gas Corridor (SGC) pipeline network, as well as dozens of other energy projects already implemented.

As a result, in 2000-2020 alone, the energy sector attracted 109.5 billion investments, which contributed to the rapid development of the oil and gas, petrochemical, transport and service sectors, and had a huge multiplier effect in the rest of the country's economic and social sectors. According to rough estimates, one job created in the oil industry leads to the creation of at least seven vacancies in related industries. About 15 thousand people were involved in the exploitation of ACG deposits during the period of active development of the field. Simple calculations show that the total number of jobs created in this field alone exceeded 100 thousand.

In particular, since the first production-sharing agreement was signed, about $43 billion has been invested in the development of the ACG block of fields alone, and approximately the same amount is planned to be invested in the next 30 years. Thus, from the start of the first oil production at ACG in 2001 until September 1 of this year, 579 million tonnes of oil and 212 billion cubic metres of associated gas have been produced here, bringing total revenues to $168.6 billion. Despite some decline in well flow rate due to the depletion of a certain part of raw material reserves, this field is still quite profitable: for example, only from the beginning of 2023 and up to September 1, ACG brought a profit of $4.728 billion. And the total amount of bonuses paid by AIOC to the State Oil Fund of Azerbaijan to date was $2.8 billion.

It is noteworthy that the work on the development of ACG reserves continues, as according to experts' estimates there are at least 500 million tonnes of unproduced oil reserves in this field today. In particular, on September 14, 2017, the Azerbaijani government and consortium partners signed an updated agreement on joint development and production sharing from ACG until 2050. As part of the work under the second contract, the Central-East Azeri (CEA) segment of ACG is authorised for development in 2019; this project is well underway, with drilling operations starting in October and the first oil from the new platform expected early next year.

The $6 billion CEA project has already installed the topsides of the platform, which is expected to produce up to 100,000 barrels of oil per day and will produce up to 300 million barrels over the life of the project. All processes on the platform will be maximally automated and its operation will be controlled remotely from the Sangachal terminal through the introduction of an innovative computer control system.

In general, oil and gas contracts concluded by Azerbaijan 29 years ago directly or indirectly ensured the opening of several hundred thousand jobs in the country, providing start-up capital for the modernisation of the non-oil industry, agricultural and transport sectors, etc. Among other things, the successful oil and gas strategy has contributed to the development of related industries: in recent years, the country has developed a modern petrochemical industry with the commissioning of polymer and methanol plants, a urea fertiliser production facility, modernisation of the Heydar Aliyev Baku Refinery, etc.

Formed after the signing of the "Contract of the Century", Azerbaijan's long-term export policy confirms its historical significance and strategic depth with each passing year. In particular, the "Memorandum of Understanding on the EU-Azerbaijan Strategic Energy Partnership" was signed between Azerbaijan and the EU in July 2022 and currently, the shareholders of the Trans Adriatic Pipeline (TAP), which has a capacity of 10 billion cubic metres, are negotiating to increase its capacity due to the high demand for Azerbaijani gas. At the same time, the capacity of the Trans-Anatolian Gas Pipeline (TANAP) will be expanded, its current capacity is about 16 billion cubic metres per year. As a result, it is planned to develop new fields and increase gas production in Azerbaijan in order to double gas exports through the South Gas Pipeline to Europe by 2027, approximately up to 20 billion cubic metres per year.

Thus, with the conclusion of the "Contract of the Century" on September 20, 1994, a new stage of Azerbaijan's economic revival and strengthening of state independence began. It was these arguments that prompted national leader Heydar Aliyev to sign a decree on August 16, 2001, to establish Oil Worker's Day, which has earned the right to be considered one of the most important professional holidays of the republic.

Caliber.Az