Azerbaijan’s energy diplomacy:

European political cooperation

Presentation of Turab Gurbanov,

at Sciences-po/CERI
Paris, 19.05.2011
Opinions or points of view
expressed are those of the author
and do not necessarily reflect
the official position or policies of
the Government of Azerbaijan.
“Oil is not a target, but a tool to reach
the main target”

Ilham Aliyev
President of Azerbaijan
Azerbaijan’s oil tradition

  First industrial oil production in Azerbaijan started in

1847, 11 years prior to oil discovery in Pennsylvania.
  A number of the world’s richest dynasties, including
Rockefellers, Rothschilds and Nobels expanded their
capitals in Azerbaijan.
  In 1901, Azerbaijan produced 50% of the world oil.
  During the WWII, Baku produced 80% of fuel, 96% of
different lubricants all over the former Soviet Union.
Reason to exploit Caspian sea energy
resources

  When the Soviet Union collapsed, Azerbaijan, as

all former Soviet Union countries, faced serious
economical problems.
  The only way to insure the country’s
development was to attract foreign investment.
  From this point of view, Caspian sea energy
resources were a good means

But, it was not so easy……

Socio-political and economical background of the
year 1994 in Azerbaijan

  Geopolitical risks of the region

  Previous internal civil war
  War with Armenia and occupation of the Azerbaijani
territories by Armenia
  Economic crises with only some 10 million US dollars
at the state budget
  Inflation calculated with some hundreds percent
  Uncertainty on Caspian Sea energy reserves
  Uncertainty on technical possibility to explore off-shore
reserves
  Caspian Sea legal status
  Itinerary problem for the pipelines
Azerbaijan’s oil strategy

  Freedom to decide and to sign a bill

  Opening to the world
  Regional and National Security
  Regional cooperation
  Impact on socio-economical development
  Diversification of world oil supply
  Solution of the conflict with Armenia
Logics for Westernization/Europeanization
of Azerbaijan’s energy diplomacy

Azerbaijan’s choice for West has several reasons:

1. Strategic/Geopolitical dimension:
•  To use energy factor to create a good
cooperation climate in the Caspian/South-
Caucasus region, by inviting many rival/
antagonist countries;
•  Integration to the European Institutions.
Logics for Westernization/Europeanization
of Azerbaijan’s energy diplomacy

2. Political dimension:

  70 years of soviet totalitarian regime created

a strong will for democracy and freedom;
  West was viewed as a symbol for justice and
human rights.
Logics for Westernization/Europeanization
of Azerbaijan’s energy diplomacy

3. Economical dimension:

To use Western countries’ knowledge,

experience, as well as, financial and
technical resources to exploit Caspian
energy resources
Logics for Westernization/Europeanization
of Azerbaijan’s energy diplomacy

4. Social dimension:

To restore a secular society (Azerbaijan was

first Muslim and Eastern country in the world
to establish a secular democratic republic (in
1918), to create opera and ballet (1905), to
recognize right to vote for women (1918))
Result

  In 1994, Azerbaijan signed the first major oil

contract, ACG, called the Contract of the Century,
and this allowed the country to attract billions in
foreign capital.
  A new spirit of cooperation was created in the
Caspian Sea.
  For the first time, the Caspian Sea was opened up to
international capital.
  Since 1994, 27 oil agreements have been signed
with more than 43 oil companies from 21 countries.
ACG Shareholders

  BP (UK): 34.1367%
  Chevron (USA): 10.2814%
  Devon Energy (USA): 5.6262%
  Statoil (Norway): 8.5633%
  TPAO (Turkey): 6.75%
  Amerada Hess (USA): 2.7213%
  SOCAR (Azerbaijan): 10%
  ExxonMobil (USA): 8.006%
  Inpex (Japan): 10% (from Lukoil in 2003)
  Itochu (Japan): 3.9205%
Shahdeniz Shareholders

  BP (UK): 25.5%
  Statoil (Norway): (25.5%)
  SOCAR (Azerbaijan): (10%)
  Total S.A. (France):(10%)
  LukAgip (Eni & LUKoil): (10%)
  NIOC (Iran): (10%)
  TPAO (Turkey): (9%).
Azerbaijan’s off-shore fields
Countries involved in PSA

  US   Iran
  UK   Turkey
  France   Norway
  Italy   Japan
  Germany   China
  Russia   Canada
  Saudi Arabia   …
 Companies involved in PSA

  BP   Chevron
  Unocal   Mitsui
  LUKoil   Repsol
  Statoil   Sooner
  ExxonMobil   Commonwealth
  Pennzoil   Shell
  ITOCHU   Alberta
  TPAO   Ramco
  Delta Hess   Frontera
  Agip   INPEX
  Total   JAPEX
  OIEC   Teikoku
  Amoco   Conoco
  Wintershall   Moncrief
  Eni   Petoil
Azerbaijan’s Oil and Natural Gas
Overview

1. OIL
  Reserves (2010) : 7 billion barrels
  Production (2009): 1.01 million b/d
  Consumption (2009): 100 thousand b/d

2. NATURAL GAS
  Reserves (2010): 30 trillion cubic feet
  Production (2009): 583 billion cubic feet
  Consumption (2009): 374 billion cubic feet
Active Pipelines:
1. Baku-Tbilisi-Ceyhan (BTC) Oil Pipeline

  Opened on May 25, 2005, it has a

capacity to transport up to 1 million
barrels of oil per day a distance of 1,768
km from an expanded terminal at
Sangachal on the Caspian Sea in
Azerbaijan, through Georgia to the
Mediterranean port city of Ceyhan,
Turkey. The total project costs are
estimated at USD 3.6 billion.
  Kazakhstan has a contract with
Azerbaijan and the BTC Pipeline
Company to supply 500,000 bbl/d of oil
per day via the BTC pipeline. Currently,
Kazakhstan ships oil by tanker to Baku
and from there it goes either into the BTC
pipeline or by rail to Batumi, Georgia.
BTC Shareholders

  BP (United Kingdom): 30.1% (Operator)

  SOCAR (Azerbaijan): 25.00%
  Chevron (USA): 8.90%
  Statoil (Norway): 8.71%
  TPAO (Turkey): 6.53%
  Eni (Italy): 5.00%
  Total (France): 5.0%
  Itochu (Japan): 3.4%
  Inpex (Japan): 2.50%
  ConocoPhillips (USA): 2.50%
  Hess Corporation (USA) 2.36%
Active Pipelines:
2. Baku-Novorossiysk Oil Pipeline (Northern Route Export
Pipeline /Northern Early Oil Pipeline)

  1,330-kilometre (830 mi) long oil pipeline, which runs from the
Sangachal Terminal near Baku to the Novorossiysk terminal at
the Black Sea coast in Russia with the capacity of annual
transfer equal to 5 million tons.
  The Azerbaijani section of the pipeline is operated by the
SOCAR and the Russian section is operated by Transneft.
  In 2011 SOCAR is planning to export 2 million barrels of oil by
the pipeline which is 250 thousands ton less than that last year.
Active Pipelines:
3. Baku-Supsa Oil Pipeline (Western Route Export Pipeline /
Western Early Oil Pipeline)

  833-kilometre long oil

pipeline, which runs from the
Sangachal Terminal near
Baku to the Supsa terminal
in Georgia.
  It transports oil from the
Azeri-Chirag-Guneshli field.
  The pipeline is operated by
BP.
  The capacity of the pipeline
is 145,000 barrels per day
with proposed upgrades to
between 300,000 to 600,000
b/d.
Active Pipelines:
4. South Caucasus Pipeline (BTE)

  Natural gas pipeline to transport natural

gas from the Shah Deniz gas field to
Turkey. It runs parallel to the Baku–
Tbilisi–Ceyhan pipeline. It is 692
kilometres long.
  The initial capacity of the pipeline is 8.8
billion cubic meters (bcm) of gas per
year, and after 2012 its capacity could
be expanded to 20 bcm per year.
  The pipeline has a potential of being
connected to Turkmen and Kazakh
producers through the planned Trans-
Caspian Gas Pipeline.
  Via the pipeline Azerbaijan exports 1.4
billion cubic meter (bcm) of its gas to
Georgia, about 5 bcm to Turkey.
BTE Shareholders

  BP (UK): 25.5% (Operator)

  Statoil (Norway): 25.5%
  SOCAR (Azerbaijan): 10%
  Lukoil (Russia): 10%
  Total S.A. (France): 10%
  Naftiran Intertrade Co. (Iran): 10%
  TPAO (Turkey): 9%
Active Pipelines:
5. Baku-Novo Filya gas pipeline

  In 2009, Azerbaijan began exporting

500 million cm gas to Russia. It is
exporting 1 bcm from 2010, and will
export 2 bcm from 2011 onward
through pipeline, for use in Russia’s
North Caucasus territories.
  Azerbaijan might increase its exported
gas volume to Russia in the future at
its discretion.
  The total original volume capacity of
the pipeline is 13 bcm annually,
whereas the operating capacity is
around 5 bcm. Novo-Filya is a part of
Mazdok-Makhachkala-Gazimahomed
pipeline, of which the Azerbaijani side
is being prepared for possible reverse-
use as a gas export pipeline to Russia.
Active Pipelines:
6. Qazimammad-Astara gas pipeline

  Azerbaijan and Iran are connected via the

pipeline at a length of 1474.5 kilometers. Its
maximum capacity is 10 billion cubic meters
per annum.
  Since 2004, Azerbaijan has been realizing a
natural gas swap with Iran, transferring about
1 million cubic meters of gas from Azerbaijan
through Iran to the Nakhchivan Autonomous
Republic daily for 25 years.
Planned Pipelines:
1. Kazakhstan Caspian Oil Transport System Project

  It aims to export the oil from Kazakhstan’s Kashagan

oil field through a transportation system to
Azerbaijan.
  The project is expected to come on stream after
2014-2016.
Planned Pipelines:
2. Odessa-Brody oil pipeline

  Azerbaijan proposes pumping 8 million tons

of oil a year through the Odessa-Brody
pipeline to Ukraine. The 419-mile pipeline
had been operated toward Russia following
supply concerns.
  Also, on swap principles the Odessa-Brody
pipeline would transport oil from Azerbaijan.
A trader company (SOCAR Trading)
registered in Switzerland and owned by
SOCAR buys oil from Venezuela. The
trader sells the oil to its customers, while
SOCAR supplies the Urals oil from
Novorossiysk to Odessa by tankers. Then
the oil is supplied to the Mozyr oil refinery in
Belarus by pipeline (730 km long). The
pipeline's straightforward work has been
tested with Azerbaijani oil.
Planned Pipelines:
3. Nabucco gas pipeline

  It is a proposed natural gas pipeline from Erzurum in Turkey to Baumgarten an der March
in Austria.
  The project is developed by the consortium
  The final investment decision is scheduled to be made in 2011. Pipeline is expected to be
operational by 2015 and it will carry 31 billion cubic meters of natural gas per year.
  On 11 June 2008, the first contract to supply gas from Azerbaijan through the Nabucco
pipeline to Bulgaria was signed.
  The President of Azerbaijan Ilham Aliyev confirmed on 29 January 2009, that Azerbaijan
was planning to at least double its gas production in the coming five years to supply the
pipeline.
  Azerbaijan is committed to supply 10 bcm of gas for the first stage of the project.
Planned Pipelines:
4. ITGI gas pipeline

  The Intergovernmental Agreement for ITGI was signed in Rome in

2007, and is currently at the stage of negotiating the respective shares
of the companies party to the project.
  The pipeline annually will transport 11,6 bcm, with maximum
anticipated capacity of 12 bcm. The exploitation of the pipeline will start
in 2015.
  The project will also cover the modernization of the currently operating
Turkey-Greece Pipeline and the construction of a new Greece-Italy
Pipeline via the Poseidon sub-sea pipeline, which will cross the Adriatic
Sea and will be united into a single system afterwards.
Planned Pipelines:
5. Trans-Adriatic Gas Pipeline

  The 520 kilometer long Trans-Adriatic Pipeline in the Southern

Gas is designed to deliver gas from the ITGI pipeline starting in
Greece near Thessaloniki, crossing Albania and the Adriatic
Sea and then coming ashore in Italy near Brindisi.
  The pipeline will carry some 10 bcm annually with the possibility
of doubling the capacity in the future, depending on throughput.
Planned Pipelines:
6. AGRI Gas pipeline

  AGRI is the LNG gas project designed to

transport gas through Romania’s
pipeline system further to the
neighboring states.
  The project envisages the construction
of a liquefaction plant for LNG export in
the Azerbaijani-owned oil export terminal
of Kulevi in Georgia, as well as the
construction of a terminal for importing
liquefied gas to a re-gasification plant in
Romania.
  The project is capable of handling 7 to
20 billion cubic meters (bcm) annually.
Total cost of the project will range
between € 1,2-4,5 billion, depending on
the volume of transported gas.
Impact on economy:
Poverty level in Azerbaijan
Impact on economy:
GDP growth of Azerbaijan
Impact on economy:
Inflation rate in Azerbaijan
Legal status of the Caspian sea
Legal status of the Caspian sea

  During Soviet Union time, usage of the Caspian sea and its
bottom was controlled by only two countries - the Soviet Union
and Iran, by Astara-Hasangulu (Astara-Gasankuli) line. And this
delineation was determined by where each respective country
bordered the sea.
  Azerbaijan wants to resolve this problem according to
international norms and experience. This means that the
Caspian Sea should be divided into sectors according to the
median line, and each country should work freely in its own
respective sector. These days, both Russia and Kazakhstan
have joined Azerbaijan in this position.
  Iran wants the sea to be divided into five equal portions.
  Turkmenistan's position is close to Iran's
Different areas of cooperation with the
West

1. Transport.
  The East-West corridor, often called the
modern Silk Road, is not limited to energy
alone and includes the ambitious Kars-
Akhalkalaki-Baku railway project jointly
championed by Azerbaijan, Georgia and
Turkey. Upon its completion, the railway will
provide a crucial link between the European
and Asian rail networks.
Different areas of cooperation with the
West

2. International security and Global War on Terrorism.

  Azerbaijan was amongst the first countries to offer the West

unconditional support in the war against terrorism, providing its
airspace and the use of its airports for Operation Enduring
Freedom in Afghanistan. And sending its troops to serve under
the ISAF in Kabul.
  Peacekeeping platoon of Azerbaijan’s Armed Forces
participated in peacekeeping operations in Kosovo within
KFOR.
  Azerbaijan was the first Muslim nation to send its troops to
serve with Western forces in Iraq.
Azerbaijan’s discontent toward Europe

1.  Azerbaijan is only former Soviet Union country that did all its
best for the interests of the West, but the West ignores
Azerbaijan’s interests
2.  West is so passive for the solution of the conflict and it means
West’s latent support to Armenia
3.  West did everything to force Turkey and Azerbaijan for the
opening of Turkish-Armenian border but nothing to stop
Armenian aggression on Azerbaijan and nothing to force
Armenia to liberate Azerbaijan’s occupied territories while
occupation of Kalbajar region became the main and only reason
of closing of the Turkish-Armenian border and it remains in
such condition till today. Naturally, after elimination of this
reason, the border can be opened.
Results of Armenian aggression

  20% of the territory (Nagorno Karabakh and 7 others

regions witch have no link with NK) occupied
  1 million Azerbaijani citizens become refugees and
IDPs
  buildings and infrastructure destroyed and museums
looted
  occupied lands turned into a dead zone
  Armenia was only country excluded from all projects,
because of its aggression.
International community's reaction

  International community reacted to the occupation of

Azerbaijani lands by 4 UN SC resolutions, (
S/RES/822, S/RES/853, S/RES/874, S/RES/884)
demanding withdrawal of Armenian forces from the
occupied territories.
  NATO, OSCE, PACE, EU and other international
organizations also repeatedly called for restoration of
Azerbaijan’s territorial integrity, which were ignored
by Armenia.
Thank you