TBY talks to Rovnag Abdullayev, President of the State Oil Company of Azerbaijan Republic (SOCAR), on the company’s growing domestic and international profile, and his thoughts on new transports options for Azerbaijani gas.
TBY What are the main directions of SOCAR’s current operations?
ROVNAG ABDULLAYEV SOCAR is one of the largest energy companies in the world. As a government-owned entity it is responsible for all aspects of the oil and gas industry, including upstream, downstream, and midstream operations. It provides natural gas supply to industry and consumers, conducts large-scale scientific exploration and project works, and sells oil, petrochemical products, and gas on the domestic and international markets. The company successfully represents Azerbaijan in regional projects such as Azeri-Chirag-Guneshli, Shah Deniz, the Baku-Tbilisi-Ceyhan (BTC) main oil and Baku-Tbilisi-Erzurum (BTE) gas export pipelines, as well as other oil and gas projects that are implemented together with foreign companies. SOCAR is one of the main participants in all production sharing agreements (PSA) projects in the country jointly developed with foreign partners. Since its foundation, SOCAR has dynamically developed, and its structural improvement was always the focus of the government. At present, 21 structural units operate under SOCAR as legal entities. At the same time, tens of joint ventures (JVs), alliances, and operation companies (OCs) jointly established by foreign companies and SOCAR successfully operate in various spheres of the oil and gas industry.
How has Azerbaijan’s oil and gas strategy developed since 1992?
It is well known that Azerbaijan encountered many difficulties after gaining its independence in the early 1990s. The break of economic relations between Azerbaijan and the Soviet republics, the unstable situation within the country, and the lack of financial and technical supply resulted in a serious crisis for the country’s energy industry. President Heydar Aliyev started work to restore and develop the oil industry under the slogan “Oil is the national wealth of Azerbaijan”. As a result of Heydar Aliyev’s Oil Strategy, a PSA on the exploration and development of the Azeri-Chirag-Guneshli fields—later dubbed the “Contract of the Century”—was signed by 11 multinational oil companies from seven countries on September 20, 1994. This international project ensured that Azerbaijan assumed possession of its natural resources and showed the whole world its resolve to protect its national, economic, and strategic interests, as well as guaranteeing the state’s independence.
How important is foreign investment to Azerbaijan’s oil and gas industry?
From 1994-2010, foreign investment accounted for about $40 billion of Azerbaijan’s oil and gas sector. Over that period, 32 PSAs were signed with multinational energy companies. Under those contracts, some $60 billion is estimated to have been invested. The Contract of the Century is considered the starting point of international cooperation in the Caspian basin, as well as for the integration of the regional economies into the global economy. Today, along with economic profit, the new oil strategy has turned Azerbaijan, which is situated at the junction of West and East, into an integral part of the world community. At present, 34 international energy companies representing 15 countries are involved in oil and gas operations carried out in 30 fields, both onshore and offshore, in Azerbaijan’s territory. Overall, 61 fields have been successfully commissioned in Azerbaijan. The implementation of this strategy has contributed to the modernization of the oil industry and taken it to a new stage of quality improvement. Since the signing the Contract of the Century, SOCAR has successfully represented Azerbaijan in joint projects implemented in the country.
Does SOCAR intend to join efforts with other foreign partners in projects abroad?
SOCAR has already achieved favorable conditions for expanding our operations. Its huge investments abroad have transformed SOCAR into a multinational company. Our new image is supported by opening enterprises and representations abroad, as well as participating in the large-scale projects implemented in those countries. SOCAR’s activities in the petrochemical sphere in Turkey are highly estimated by experts. The management of the Petkim company, the largest petrochemical enterprise in Turkey, is carried out within the SOCAR-Turcas alliance. To supply Petkim with reliable raw materials, the SOCAR-Turcas JV plans to construct the new Ege Oil Refinery in the production area of the petrochemical complex in the Aliağa region near Izmir in Turkey. The construction of the plant will contribute to Petkim’s increased productivity, meaning SOCAR’s oil products will enter the Turkish market. SOCAR is also implementing investment projects in neighboring Georgia, where it is the largest investor and taxpayer. SOCAR also conducts various projects in Ukraine, Kazakhstan, Switzerland, the UAE, and other countries. All of these projects strengthen SOCAR’s position in the international market and expand the opportunities of our export operations from the shores of the Black and Mediterranean seas.
It was announced that 2010 was the “Year of Ecology”. To what extent does SOCAR consider ecological issues in its operations and decisions?
SOCAR has taken continuous and decisive steps in environmental protection by improving our management systems of ecological safety and coordinating international requirements, solving ecological problems, decreasing the negative affects on the environment and the health of people, and the effective use of natural resources. Environmental Impact Assessments (EIAs) on the exploration and development of oil and gas fields, and the corresponding monitoring to solve ecological problems, were conducted for the first time in 2010. Throughout the year, large-scale works have been carried out to restore the natural landscape in Bibiheybatneft, Balakhanineft, Siyazanneft, Absheronneft Oil and Gas Production Departments of Azneft Production Union, oil and gas production departments named after Taghiyev, Amirov and Narimanov, Muradkhanly and Garachukhur oil-mining, as well as in the areas of JVs and OCs. About 50 hectares of polluted land has been cleaned up and re-cultivated, and artificial ponds have been drained. In addition, design estimates have been prepared for the re-cultivation of 450 hectares of oil-polluted lands. Bioremediation methods have been applied to clean up polluted lands. In 2010, 164 square meters were cleaned of oil sludge and replaced with fertile soil. Azerbaijan holds one of the leading places among the Caspian basin countries for taking comprehensive measures on the protection of the sea surface and aquatic areas from pollution. Continuous monitoring and analysis of the physical and chemical properties of the aquatic environment, oil products, and bottom sediments and the anthropogenic impact level are studied to assess the impact of oil and gas production on the Caspian Sea’s ecosystem.
Does SOCAR intend to participate in gas transportation projects such as Nabucco?
The creation of a reliable gas transit system under the second phase of the Shah Deniz project and from other fields is one of the our main priorities. Azerbaijani gas is considered one of the main sources of Nabucco, the Interconnector Turkey-Greece-Italy (ITGI), and Trans-Adriatic Pipeline (TAP) that are priority projects for the provision of energy security for EU countries. Currently, SOCAR experts are seeking favorable options for Azerbaijan’s gas supply to the EU on the basis of long-term agreements. Azerbaijan supports the modern Silk Way-Southern Corridor creating new, direct energy and transportation relations with the EU and other regions.
SOCAR sees the opening of a new gas supply corridor within this strategy as an important factor for the stability of the European gas market. We actively cooperate with the companies that propose these projects and we are trying to choose the most attractive project based on long-term transit principles including reliability and commercial benefits as well as being able to access the main European markets. We have not yet decided which project to choose.
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