Azerbaijan BKGD
Azerbaijan BKGD
Azerbaijan BKGD
Overview
Azerbaijan has a mature oil and gas sector and has produced hydrocarbons for almost 150
years. The country is one of the Caspian Sea region's main export routes to the West.
Azerbaijan, one of the oldest oil-producing countries in the world, is an important oil and natural gas
supplier in the Caspian Sea region, particularly for European markets. Although traditionally it has been
a prolific oil producer, Azerbaijan's importance as a natural gas supplier is increasing because of field
development and new export infrastructure. Overall, Azerbaijan is a net energy exporter.
The country's largest hydrocarbon basins are located offshore in the Caspian Sea, particularly the Azeri-
Chirag-Gunashli (ACG) fields. 1
Sector organization
The State Oil Company of the Azerbaijan Republic is involved in all segments of the oil sector.
SOCAR produces about 20% of Azerbaijan's total oil output, and international oil companies
produce the remainder. 2
The Ministry of Energy formulates state energy policy and regulates the national oil company—the State
Oil Company of the Azerbaijan Republic (SOCAR). In addition, the Ministry works to attract foreign
investment and conducts negotiations on pipelines and production-sharing agreements.
SOCAR is involved in exploring and producing oil and natural gas in Azerbaijan. SOCAR also operates the
country's Heydar Aliyev Baku Oil Refinery, the country's pipeline system, and the country's oil and
natural gas imports and exports. Much of Azerbaijan's oil is marketed by the SOCAR’s Geneva-based
subsidiary—SOCAR Trading—which has been operating since 2008.
Azerbaijan's main producing field is the Azeri-Chirag-Gunashli (ACG) complex. The ACG fields are
operated by BP, the largest shareholder in the Azerbaijan International Operating Company (AIOC) that
was formed to develop the fields. Other companies with an interest in the ACG fields include Chevron,
Inpex, Statoil, Turkiye Petrolleri, ExxonMobil, SOCAR, ITOCHU, and ONGC Videsh. 3 The stakeholders
have extended their ACG production-sharing agreement (PSA) with the Azerbaijani government through
2049. 4
Field developers originally expected peak petroleum production from ACG to reach 1 million b/d, but
ACG production peaked in 2010 at 823,100 b/d before falling to 664,400 b/d in 2012 (Figure 4). 5 Since
2012, production has continued to modestly decline.
ACG has been developed in phases; the newest platform—West Chirag—is part of the Chirag Oil Project
and began producing oil in January 2014. The platform has a capacity of 183,000 b/d. 6
Most of the oil produced in Azerbaijan, including oil from the ACG fields, is medium-light, sweet crude.
Most of Azerbaijan’s oil is exported through the Baku-Tbilisi-Ceyhan (BTC, Figure 2) pipeline and is
marketed as BTC blend (36.6° API gravity, 0.15% sulfur). 9 The smaller Baku-Supsa pipeline carries a
similar grade of oil that is marketed as Azeri light (35.2° API gravity, 0.14% sulfur). 10 Small volumes of
lower-quality oil are exported through the northern export pipeline to Russia. This oil is blended in
Russia and marketed as Urals blend. The quality of Urals blend can vary, but the oil is generally a
medium, sour crude.
Source: U.S. Energy Information Administration based on IHS Markit Midstream Database (IHSM EDIN)
Azerbaijan has three crude oil export pipelines (Table 1). 11 The country also exports small amounts of oil
by rail. Most of its oil is exported through the BTC pipeline. The construction of the BTC pipeline
transformed the country’s oil industry, because it allowed for exports of lighter and sweeter crude oil
than Russia's Urals blend and provided transportation capacity out of the Caspian that did not rely on
transiting the congested Turkish straits or crossing Russian territory.
Capacity
(thousand Total
barrels per length
Facility Status day) (miles) Origin Destination Details
Most of the oil transported through the BTC pipeline is from Azerbaijan’s ACG fields, but BTC blend also
includes condensate from the Shah Deniz field as well as crude oil or condensate from fields in
Turkmenistan, Kazakhstan, and Russia. The BTC pipeline originates at Azerbaijan’s Sangachal terminal,
which can receive oil by tanker from any of Azerbaijan’s Caspian neighbors.
In July 2010, near the peak of ACG production and Azerbaijani exports, the BTC pipeline transported
slightly more than 1 million b/d of oil. Since then, the pipeline has run with significant spare capacity, on
average exporting less than its capacity of 1.2 million b/d. 12 SOCAR has proposed reversing part of the
Northern Route pipeline—from Baku, Azerbaijan, to Makhachkala, Russia—to bring more Russian oil to
Baku for transport through the BTC pipeline to Ceyhan. This change would allow the Russian oil to
bypass the crowded Turkish straits.
Refining sector
Azerbaijan has a crude oil refining capacity of 120,000 b/d, according to the OGJ. 13 Modernization of the
SOCAR-owned and operated Heydar Aliyev Baku refinery by 2021 will expand the facility’s capacity from
120,000 b/d to 150,000 b/d. 14 This project will also allow SOCAR to operate the refinery for at least
another 15 years. The Oil and Gas Processing and Petrochemical Complex (OGPC)—another part of
SOCAR’s expansion plan—will include the construction of a new refinery, natural gas processing, and a
petrochemicals plant to replace much of the country’s aging facilities. The OGPC will be built in phases,
and the new refinery is scheduled to come online after 2030 with a capacity of about 170,000 b/d. 15
Natural gas
Azerbaijan’s Shah Deniz natural gas and condensate field in the Caspian Sea is one of the
largest in the world, presenting a significant opportunity to supply Europe’s Southern Gas
Corridor.
Most of Azerbaijan’s reserves are associated with the Shah Deniz field, which forms the beginning of the
Southern Gas Corridor (SGC). The SGC will bring natural gas from the Caspian to southern Europe via the
Baku-Tbilisi-Erzurum (BTE) and to the Trans-Anatolian and Trans Adriatic pipelines. The SGC has
significantly increased Azerbaijan's importance as a natural gas producer and exporter.
Natural gas plays a central role domestically, accounting for about two-thirds of total energy
consumption. About half of the country’s natural gas consumption is used for power generation.
Sector organization
SOCAR and its wholly-owned subsidiaries are responsible for natural gas processing, transport,
distribution, and storage in the domestic market. Prices for these services are regulated by the Tariff
Council of Azerbaijan Republic. SOCAR is also responsible for the domestic transportation of natural gas
exported to Iran, Georgia, and Russia.
The ACG fields provide associated natural gas to the Azerigaz system for domestic use through an
undersea natural gas pipeline to the Sangachal terminal at Baku. The Sangachal Terminal, located south
of Baku, is one of the world's largest integrated oil and natural gas processing terminals, and it will
expand to incorporate the additional 565 Bcf per year from Shah Deniz 2. The terminal receives, stores,
and processes crude oil and natural gas from the ACG fields and from Shah Deniz.
Most of Azerbaijan's natural gas exports via the SCP are destined for Turkey, but small volumes also go
to Greece through the Turkey-Greece interconnector. Under a previous arrangement, Turkey re-
exported Azerbaijani natural gas to Greece, but a new agreement allows Azerbaijan to directly export
volumes to the European Union. Of Shah Deniz 2’s anticipated 565 Bcf, Turkey is contracted to take 212
Bcf, and Italy is contracted to take 283 Bcf. Bulgaria and Albania are each contracted to take 35 Bcf.
Deliveries to Turkey began in mid-2018, and deliveries to southeastern Europe are scheduled to start by
2020. 18
From 2007 to 2014, Azerbaijan also exported small volumes of natural gas to Russia through the
Hajiqabul-Mozdok pipeline. In addition, small volumes of natural gas are shipped to Iran through the
Hajiqabul-Astara pipeline. In exchange, Iran ships natural gas to Nakhchivan, Azerbaijan's exclave
situated between Iran and Turkey. The exclave is wholly dependent on natural gas supplied by Iran.
Azerbaijan has two underground natural gas storage fields with total working gas storage capacity of
almost 180 Bcf, 19 which is more than enough capacity to handle the country’s own seasonal swings in
consumption. Azerbaijan resumed importing natural gas from Russia following a renewed agreement in
late 2017; it had previously proposed importing natural from Russia or Iran in the spring and summer,
generally the low-demand periods in the region. Azerbaijan plans to use the natural gas to fill storage
and to increase enhanced oil recovery operations. Azerbaijan could also return some of the natural gas
to Iran in the winter, when northern Iran often needs natural gas to cover peak demand periods.
First deliveries to Turkey in 2007, follows the route of the BTC oil
South Caucasus Pipeline Shah Deniz field, pipeline from Azerbaijan through Georgia, and connects to Turkey's
(SCP) Operating 310 430 Azerbaijan Georgia and Turkey domestic transmission pipeline system
Hajiqabul (Gazi-
Magomed)-Mozdok Originally completed in 1983; in 2000, the town of Gazi-Magomed,
Pipeline Operating Bidirectional 460 Azerbaijan, was renamed Hajiqabul
Hajiqabul (Gazi-
Magomed)-Astara
Pipeline Operating Bidirectional 170 Originally completed in 1972
Hydropower is also a small source of power generation, and the government of Azerbaijan encourages
investment in generation from renewable energy sources in the country, including small-scale wind and
solar facilities. Of the small amount of waste, wind, and solar electricity generation, most generation
comes from a power plant in Baku that opened in 2012 and burns municipal waste.
Sector organization
Azerenerji—Azerbaijan's state power utility— is responsible for the generation, dispatch, and
transmission of electric power. Azerenerji, along with the Nakhchivan Energy Authority, operates most
of the country’s power stations. 21 A much smaller amount of generation capacity is operated by the
State Agency for Alternative and Renewable Sources and by independent power producers.
Azerbaijan's power sector has no competition among its power producers. Electricity prices are
regulated, and power producers are required to supply their power to the central dispatch system for
transmission and distribution.
Notes
• In response to stakeholder feedback, the U.S. Energy Information Administration has revised
the format of the Country Analysis Briefs. As of December 2018, updated briefs are available
in two complementary formats: the Country Analysis Executive Summary provides an
overview of recent developments in a country's energy sector and the Background
Reference provides historical context. Archived versions will remain available in the original
format.
• Data presented in the text are the most recent available as of December 2018.
• Data are EIA estimates unless otherwise noted.
Endnotes
1
BP, Azeri-Chirag-Deepwater Gunashli, (accessed September 10, 2018); and BP, 2017 year-end results (accessed
September 10, 2018).
2
SOCAR, Economics and Statistics, (accessed September 10, 2018)
3
BP, Azeri-Chirag-Deepwater Gunashli, (accessed September 10, 2018).
4
BP, “The Azerbaijan government and co-venturers sign amended and restated Azeri-Chirag-Deepwater Gunashli
PSA,”(September 14, 2017)
5
BP, “Year end results,” 2009, 2010, 2011, 2013, 2014, 2015, 2016, and 2017; and “BP in Azerbaijan Sustainability
Report 2016,” (accessed September 10, 2018), p. 8.
6
BP, Azeri-Chirag-Deepwater Gunashli, (accessed September 10, 2018).
7
BP, Shah Deniz, (accessed September 10, 2018).