To turn an independent Azerbaijan into a modern, powerful state with sustainable economic development, national leader Heydar Aliyev determined the oil strategy, which would lie at the heart of the fundamental transformation of the future political and economic reforms. This strategy ensured the involvement of foreign investors in the development of Azerbaijan's oil fields, diversification of routes of transportation of crude oil, effective management of oil revenues and Azerbaijan's entry into a new stage of development.
Under the leadership of national leader Heydar Aliyev, one of the landmark agreements in Azerbaijan's 20th-century history due to its political, economic and strategic importance - the Agreement on the Joint Development and Production Sharing for the “Azeri” and “Chirag” Fields and the “Gunashli” Field in the Azerbaijani Sector of the Caspian Sea - "The Contract of the Century" was signed on 20 September 1994.
The $7.4 billion agreement involved 11 international oil companies (AMOCO, BP, McDermott, UNOCAL, SOCAR, Lukoil, Statoil, TPAO, Pennzoil, Ramco, Delta) representing seven countries (Azerbaijan, USA, UK, Russia, Turkey, Norway and Saudi Arabia) as contractor parties. They soon established several working structures - the Steering Committee, Azerbaijan International Operating Company (AIOC) and the Advisory Council.
“The Contract of the Century” was ratified on 12 December 1994 by the Parliament of Azerbaijan.
Although according to initial evaluations, “Azeri”, “Chirag” fields and the deep-water part of “Gunashli” field had 511,000,000 tons of crude oil, further evaluations set oil reserves at 1,072,000,000 tons.
These large blocks of oil fields have been developed in three phases. The first oil from the "Chirag" platform was produced on 7 November 1997, and the following stages were successfully implemented.
New oil pipes were built and commissioned to implement the provisions of the contract on time and ensure transportation of the growing volumes of oil to the international markets:
- In late 1997, oil started to be exported to the Black Sea by Baku-Novorossiysk pipeline;
- In 1999, a pipeline from Baku to another Black Sea port – Supsa – was commissioned. The first tanker carrying Azerbaijani oil was sent to the world markets in December 1999;
- In 2002, the foundation of the Baku-Tbilisi-Ceyhan main oil pipeline was laid thanks to the continuous efforts of national leader Heydar Aliyev. Although provided for in the Contract of the Century, the pipeline was once considered a myth, and many believed it would remain on paper. The globally significant pipeline was a crucial step towards making Azerbaijan an energy corridor. The Baku-Tbilisi-Ceyhan oil pipeline was inaugurated with the participation of the President of the Republic Azerbaijan Ilham Aliyev on 25 May 2005. The first Azerbaijani oil was shipped from the Turkish port of Ceyhan in 2006.
In general, to deliver the Azerbaijani oil from the Caspian Sea to the world markets, pipelines with a total length of one-tenth of the length of the equator were constructed: Baku-Novorossiysk (1330 kilometers), Baku-Supsa (833 kilometers) and Baku-Tbilisi-Ceyhan (1768 kilometers).
As of the beginning of 2022, more than $41 billion has been invested in developing the “Azeri-Chirag-Gunashli” fields. The block produced 546 million tons of oil and more than 49 billion cubic meters of associated gas, which were handed over to the government of Azerbaijan.
Under the Decree signed by President of the Republic of Azerbaijan Heydar Aliyev on 29 December 1999, the State Oil Fund of the Republic of Azerbaijan was established to ensure effective management of hydrocarbon revenues and fair distribution of oil among generations and to channel oil revenues into the development of priority areas. Thanks to the efficient and transparent management of revenues, the State Oil Fund has quickly become one of the world's most transparent funds and ensured long-term financial profits for the present and future generations.
On 14 September 2017, the amended and restated Azeri-Chirag-Gunashli Joint Development and Production Sharing Agreement was signed in Baku. That marked a new stage in the development of the “Azeri-Chirag-Gunashli” field. The new agreement was signed by officials of the Azerbaijani government, SOCAR, BP, Chevron, IMPEX, Statoil, ExxonMobil, TP, ITOCHU and ONGC Videsh companies. BP remained the project's operator under the amended and stated agreement, which was extended until 2049. SOCAR's shares increased from 11 to 25 percent, and Azerbaijan's direct share in profitable oil amounted to 75 percent. Subsequent to the new contract, an agreement was reached in 2019 on constructing an additional production platform in the contract area of the “Azeri-Chirag-Gunashli” fields' block.
The signing of the Contract of the New Century marked a new stage in Azerbaijan's oil strategy. It means the start of a new era in the history of modern Azerbaijan, additional guarantees for the country's political and economic security, new investments, GDP growth, new jobs and improvement of social welfare.
By 2021, 37 "Production Sharing Agreements" have been signed with foreign oil companies.
Although the “Azeri-Chirag-Gunashli” fields were initially estimated to have 500 million tons of oil, the current assessment exceeds 1 billion tons.
On 18 October 2018, an inauguration ceremony of the Star Oil Refinery was held in the city of Izmir, Turkey. President of the Republic of Azerbaijan Ilham Aliyev and President of the Republic of Turkey Recep Tayyip Erdogan attended the ceremony. The processing capacity of the Star Oil Refinery is 10 million tons of crude oil per year. The refinery will produce diesel, jet fuel, light naphtha and other refined products. The plant can also fully meet Turkey's need for jet fuel.
Over the past period, Azerbaijan has become not only a supplier but also a reliable transit country. Countries on the eastern shores of the Caspian Sea transport their hydrocarbon resources to international markets through Azerbaijan. Russian companies also prefer to transport the oil produced from the Russian sector of the Caspian Sea to international markets via the Baku-Tbilisi-Ceyhan pipeline. Azerbaijan also has the largest fleet in the Caspian Sea.
Azerbaijan's greater participation in international markets further increases the country's power.
In 2020, the “Karabakh” field went down in history as the first oil field discovered in the years of independence. The initial estimated geological reserves of the field are more than 60 million tons of oil.
On 21 January 2021, the Memorandum of Understanding was signed between the Government of the Republic of Azerbaijan and the Government of Turkmenistan on joint exploration and development of hydrocarbon resources of the “Dostlug” field in the Caspian Sea.
One of the world's largest gas fields - “Shah Deniz”, was discovered by Azerbaijani geologists in the middle of the 20th century. However, due to the unavailability of the necessary technology, the exploitation of the field was halted, and its potential was not identified.
In 1996, a consortium established by SOCAR and international oil companies discovered large reserves in the gas field, and the result exceeded expectations. The field is estimated to contain gas reserves of 1.2 trillion cubic meters, and it is considered one of a few vast gas fields in the world.
In the following years, the discovery of “Umid” and “Absheron” fields confirmed Azerbaijan's possession of large gas fields. It opened a new page in the history of the natural resources of Azerbaijan.
In 2011, Azerbaijan and the European Commission signed a Joint Declaration on the Southern Gas Corridor project, which marked the initial stage of the project.
To start the second phase of the development of the “Shah Deniz” field, members of the consortium made another historic decision in Baku on 17 December 2013. The signing ceremony was held with the participation of official representatives of a number of countries at the Heydar Aliyev Center. By the end of November 2021, approximately $ 21 billion had been spent on the second phase of development of the “Shah Deniz” field, including the costs incurred prior to the final investment decision.
The idea of the Southern Gas Corridor became a reality thanks to Azerbaijan’s determination and leadership. On 29 October 2013, President of the Republic of Azerbaijan Ilham Aliyev signed an Order to establish a State Commission to protect Azerbaijan's interests in the Southern Gas Corridor project and provide state support to the project participants.
The ceremony of laying the foundation of the Southern Gas Corridor took place in Sangachal on 20 September 2014 - on the 20th anniversary of the Contract of the Century - with the participation of heads of state and government, ministers of Southeastern European countries, and chief executives of international companies.
Azerbaijan has become the initiator, shareholder and host country of the strategically important Southern Gas Corridor project. Turkey and Georgia were the first to join the initiative, and they were subsequently followed by Italy, Greece, Bulgaria and Albania. Currently, new and potential partners include Bosnia and Herzegovina, Croatia and Montenegro.
Azerbaijan is already exporting its gas to neighboring countries, and new pipelines have been built to start exporting it to the European market:
- In 2007, the Baku-Tbilisi-Erzurum gas pipeline (South Caucasus Gas Pipeline) was commissioned, and gas produced under the first phase of the Shah Deniz project is exported to Georgia, Turkey and Greece;
- In 2012, Azerbaijan and Turkey signed TANAP (Trans-Anatolian Natural Gas Pipeline) project on the initiative of President of the Republic of Azerbaijan Ilham Aliyev and then Prime Minister of the Republic of Turkey Recep Tayyip Erdoğan;
-In 2013, the Shah Deniz consortium chose the TAP (Trans Adriatic Pipeline) project, which will link the Turkey’s border to the south of Italy to deliver the Azerbaijani gas to the European markets, the construction of the pipeline was completed in 2020.
These projects enable the implementation of the Southern Gas Corridor project by connecting the “Shah Deniz” gas field to the south of Italy.
TANAP, an essential part of the Southern Gas Corridor, officially inaugurated on 29 May 2018 at the Sangachal terminal, is an indispensable infrastructure project to address energy security issues.
Following the completion of the South Caucasus Pipeline Expansion project, one of the critical components of the Southern Gas Corridor, the transportation of commercial gas to Turkey within the framework of Shah Deniz-2, began on 30 June 2018.
On 12 June 2018, a grand ceremony was held in Eskisehir, Turkey, marking the launch of TANAP, Trans-Anatolian gas pipeline.
On 30 November 2019, the official opening of the TANAP-Europe connection was held in Ipsala settlement of Edirne province of Turkey, marking the completion of its construction.
Since 2015 an annual meeting of the ministers of the Southern Gas Corridor Advisory Council has been held.
Transportation of commercial natural gas has started on 31 December 2020 via the TAP pipeline, which transports Azerbaijani natural gas to Europe. Thus, Azerbaijan's rich gas reserves are delivered to the Turkish and European markets in diversified, short, and secure ways.
Azerbaijan's proven gas reserves are 2.6 trillion cubic meters, and estimated reserves are about 3 trillion cubic meters. The potential of the “Umid” field alone is more than 200 billion cubic meters. It will enable Azerbaijan to be regarded as a reliable supplier of hydrocarbon resources for the next 100 years.
Work on developing the D230 block and the “Shafag-Asiman” gas field is underway together with BP, the operator of the “Shah Deniz” and “Azeri-Chirag-Gunashli” projects. From 2023, Total will start gas production from the “Absheron” field, which has a gas potential of more than 300 billion cubic meters.
Azerbaijan's purposeful activity in the energy field has transformed the country into a regional energy hub.