The rightfully hailed “Contract of the Century” has seen the Azeri-Chirag-Guneshli (ACG) field become the country’s primary source of oil wealth. As the field came on stream in 2006, Extractive Industries Transparency Initiative (EITI) reports estimated that the Azeri-Chirag-Guneshli contract alone would fetch up to $170 billion in revenues for the country before 2025, provided that the crude price remained at a conservative $45 per barrel.
Since former President Heydar Aliyev signed the Production Sharing Agreement on September 20, 1994, billions of oil dollars have poured into the country, and as the contract enters its 17th year, the field where it all began is still going strong.
Not only has the agreement ensured the re-establishment of the oil and gas industry in Azerbaijan, but it has elevated its geostrategic importance in the region. ACG’s arrival on stream seven years later and the subsequent opening of the Baku-Tbilisi-Ceyhan (BTC) pipeline in 2006 further underlined Azerbaijan’s potential as a major energy exporter.
The ACG field, which lies approximately 120 kilometers southeast of Baku in the Caspian Sea, has estimated oil reserves in excess of 5.4 billion barrels and is currently producing nearly 800,000 bbl/d. Covering an area of 432 square kilometers with water depths in the area ranging from 100 to 400 meters, the field provides up to 80% of all Azerbaijani oil and gas.
Currently, the world-class Baku-Tbilisi-Ceyhan (BTC) pipeline carries only ACG oil and Shah Deniz condensate. In the future, volumes will include those from the North Caspian. The pipeline travels from the Sangachal terminal near Baku through Azerbaijan, Georgia, and on to the Ceyhan marine terminal on the Turkish Mediterranean coast. The pipeline, which is buried along its entire length, is 1,768 kilometers in total, with 443 kilometers lying in Azerbaijan, 249 kilometers in Georgia, and 1,076 kilometers in Turkey, with a capacity of 1 million bbl/d.
Development of the ACG fields has undergone a series of separate phases. Production in the Chirag field began in 1997, the Central Azeri field in early 2005, the Western Azeri field in early 2006, and the East Azeri field in late 2006. Production at the deep-water portion of the Guneshli field was launched in mid-2008. BP, which holds a 37.4% share of the operations, leads the Azerbaijan International Operating Company (AIOC) consortium of fellow global players; Chevron, operates with a 11.3% share, SOCAR, with 11.65%, INPEX, with 11%, Statoil, with 8.6%, ExxonMobil with 8%, TPAO with 6.7%, ITOCHU, with 4.3%, and Hess, with 2.7%.
On average, the Chirag, Central Azeri, West Azeri, East Azeri, and Deep Water Guneshli platforms produced 785,500 bbl/d, or 70.74 million barrels during the first quarter of 2011.
The AIOC partners further aim to increase production with the next major phase of development. The $6 billion investment into the Chirag Oil Project (COP) plans to increase oil production and recovery from the ACG field through a new offshore facility, which is designed to fill a critical gap in the field infrastructure between the existing Deep Water Guneshli (DWG) and Chirag-1 platforms. Some $4 billion of the total project value will be spent on the construction of facilities and the pre-drilling program, and the balance of the sum will be spent on platform development and well drilling during the production period. First oil from the Chirag Oil Project, the latest stage in ACG’s development, is expected in late 2013, with the gross capacity to produce an estimated 185,000 bbl/d.
In addition, the State Oil Company of the Republic of Azerbaijan (SOCAR) intends to invest between $12 million and $13 million in building its own oil and gas refinery. It is expected the new refinery will be put into operation gradually over 2018-2020, led by the gas sector running at a capacity of 10 billion cubic meters. This is to be followed by petrochemicals production and finally an oil refinery with a capacity of 10 million tons to process gas from fields developed by SOCAR independently from its share in the Azeri-Chirag-Guneshli and Shah Deniz fields. The plant will produce A-92, A-95, and A-98 grade petrol, jet fuel, and diesel, and global companies, including Technip, Foster Wheeler AG, and UOP are involved in drawing up the feasibility study for the new complex.
Azerbaijan’s largest oil field has a second string to its bow. While BP reports producing 374 million standard cubic feet per day of ACG associated gas to SOCAR, there is up to 6 billion cubic meters deep gas per annum lying underneath ACG. SOCAR is understood to be in discussions with its ACG partners and output could begin in five to six years. It is this potential that planners of the Nabucco gas pipeline are keenly monitoring, as an extra Azerbaijani gas supply would be a welcome addition to the reserves of condensate gas from Shah Deniz.
© The Business Year