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Energy Diplomacy

SOCAR – Energy Giant of the Republic of Azerbaijan: Gasprom Case

State Oil Company of Azerbaijan Republic, which constitutes the core of the oil and natural gas industry of State, has a great history. Before, its predecessor, AzerPetrol has been entitled as an “AzerPetrol-Committee”, “AzerPetrol-Combine”, “AzerOil Extraction Association” etc. and subordinated to Azerbaijan SSR Council of People Commissars, USSR Supreme Council of National Economy, USSR Ministry of Heavy Industry and Azerbaijan SSR Council of National Economy.

In 1954-1959 years, Azerbaijan SSR Ministry of Oil Industry was established on basis of “AzerPetrol”, and then it was followed by the establishment of Azerbaijan SSR Ministry of Oil Extracting Industry in 1965-1970 years, then this organization again entitled as an “AzerPetrol”. After the restoring its independence in 1991, “AzerPetrol State Concern” was established according to the Presidential decree dated on 03.12.1991, and it was followed by the establishment of State Oil Company of Azerbaijan Republic on the basis of “AzerPetrol State Concern”and “AzerPetrolChemistry” Production Association according to the Presidential decree dated on 13.09.1992.

Information on the oil production in Azerbaijan and its benefits has been mentioned in the diaries of the medieval scholars and travelers. But during those periods, oil was utilized as a fuel, medical and military purposes. The script on the stone found in Balakhani oil well proves that this well has been drilled by master, Allahyar Mohammed Nuroglu in 1594. In XIX century new era began for oil industry and for the first time in the world oil wells have been drilled by engineering methods in Bibiheybat and Balakhani in 1847. This huge production provided victory for USSR in the World War II. The first offshore oil-extraction was applied in Azerbaijan. Hereafter, with the finding out of “Gurgan-Deniz”, “Pirallahi”, “Chilov Island”, “Azeri”, “Chiraq”, “Kepez”, and “Guneshli” in the Azerbaijani sector of Caspian Sea, Azerbaijan became outstanding oil-producing country in the world.

SOCAR is engaged in exploration, development of oil and natural gas field in Azerbaijan, production, refining and transportation of oil and natural gas condensate, selling of oil, oil-chemical products and natural gas in the domestic and external markets, and provision of people and industry with natural gas in the country. SOCAR has several joint ventures (in Turkey and Georgia), alliances, and operational companies in the oil and natural gas industry. SOCAR also has branches in Georgia, Turkey, Romania, Austria, Switzerland, Kazakhstan, Great Britain, Iran, Germany and Ukraine, and trading companies in Switzerland, Singapore, Vietnam and Nigeria.

If we analyze the activities of SOCAR, we can surely claim that, second energy giant in the region following Gasprom, is SOCAR. One can notice it in the latest activities and projects of SOCAR in which it was lately involved. After restoring its independence, Azerbaijan restored its energy policy as well and implemented numerous of energy projects. The most noteworthy step in the energy history of Azerbaijan is the signing of Baku-Tiflis-Ceyhan pipeline project remembered as “Contract of Century” which constitutes the core of energy performance of Azerbaijan. As a result of active efforts by government this success followed by the implementation of Baku-Tiflis-Erzurum pipeline project, Baku-Supsa pipeline, and Baku-Novorossiysk pipeline. Currently, government conducts negotiation on the implementation potential projects.

Financial capacity of SOCAR let him to participate in different tenders and implement new projects and increase its assets. For example, SOCAR and Exxon Mobile have signed an agreement on purchasing of Esso Scheweiz Company in 11 November, 2011 and SOCAR-Trading (branch of SOCAR) tries to buy the Swiss Oil Refinery of Petroplus Holding.

Furthermore, SOCAR and BOTAS and TPAO (Turkey) recently have signed a Memorandum of Understanding on the construction of Trans-Anatolia Pipeline. 80% of project costs are undertaken by SOCAR, remaining 20% undertaken by Turkish companies. This project will be the essential part of Southern Gas Corridor, including itself NABUCCO, ITGI and TAP. All those projects emphasize the importance of the energy resources of Azerbaijan for European markets. One of the alternative pipeline projects to transport the Azeri gas to Europe, is AGRI. This project considers the transportation of Azeri gas to Georgia and then, after the liquefaction in special terminals, through Black Sea to Romania.

One of the international achievements of SOCAR is the signing of the Memorandum of Understanding between SOCAR and German Northern Rein Westphalia Development Agency and NanoMicro Werkstoff Company, on the establishment of Nanotechnology Research and Production Center of SOCAR. Main trend of SOCAR is the future training of its personnel. In this regard SOCAR cooperate with Texas A&M University on this issue. SOCAR representatives met the Texas A&M University professors in Huston and discussed the opportunities for future cooperation on the establishment of Baku High Oil School under the SOCAR according to the Presidential decree. SOCAR leadership also met with Aberden University (Scotland).

SOCAR’s international activities do not stop. Recently, SOCAR will participate in the tender announced for selling of the state-owned shares of PetKim Holding of Turkey. As it is known, SOCAR-Turcas Alliance of SOCAR has certain share in PetKim Company and intends to buy all the shares of PetKim and IGDAS (natural gas distribution company) in Istanbul. SOCAR also intends to construct the fuel filling stations in Turkey. Moreover, Turkey and Azerbaijan has signed an agreement on the construction of “START” Oil Refinery in 25 October, 2011.

One must mention the significance of railway between Chaladidi and Kolkheti Railway Stations (Georgia) constructed by SOCAR in Black Sea Terminal Ltd. of Kulevi Oil Terminal of SOCAR. This railway will facilitate the transportation process in Terminal. Since, locomotives of railway will be set with electricity, consequently, they will not impact on the environment. The noteworthy nuance is being of SOCAR-Georgia-Oil Company the biggest tax-payer in the oil industry of Georgia.

One of the new plans of SOCAR is the purchasing of 50% share of Galizh Oil Company by SOCAR-Ukraine-Energy. At the present time, SOCAR owns 15 fuel filling stations in the different regions of Ukraine and theirs numbers planned to be increased up to 40. Besides Azerbaijan, SOCAR has fuel filling stations in Georgia and Romania as well. Furthermore, Azerbaijan and Ukraine governments met in 28 January, 2011 to sign the Memorandum of Understanding to establish Joint Venture for transportation of LNG to Ukraine. Memorandum of Understanding will express the political willingness of both parties. However, Ukraine also needs to construct the new terminal in the cost of Black Sea for transportation of LNG. Other alternative for both countries is the construction of pipeline starting from Azerbaijan running through Georgia, Turkey, Bulgaria and Romania to Ukraine. But both countries are working on the protocols considering the exporting of gas and it needs to avoid some technical problems.

So, SOCAR continues to broaden it scale. Recently, announced that, SOCAR plans to buy stakes of Greece Company DEPA. One should mention that, DEPA is one of the important shareholders of ITGI project. In 23 March, 2001, Hellenic Republic approved the “Privatization Program” of company. In this regard, SOCAR can strength it position in the ITGI project.

Russia remains as a main energy partner of Azerbaijan. During the Sochi visit of President Ilham Aliyev, SOCAR and Gasprom signed the agreement to increase the natural gas volume (from 2 bcm to 3 bcm) will being exported to Russia up to the end of 2013. First agreement on the transportation of natural gas from Azerbaijan to Russia was signed in 14 October, 2009 for 2010-2014 years and terms of contract are still valid. According to the initial agreement Azerbaijan should export to Russia 500 million cm natural gas and according to the amendment to the contract, export volume for natural gas was determined as 1 bcm in September of 2010, 2 bcm in 2011, and more 1 bcm in 2012 and contract is considered to be extended.

Recently, SOCAR planning the construction of new platform in the Guneshli field of Caspian Sea up to the end of 2012. We have to mention that, contribution of SOCAR to the State Budget is in the highest level. According to the Statistical calculation of 2011, SOCAR transferred 124.000 million AZN in December, 124.979 million in November to the State Budget.

To sum up, all those successes and initiatives taken by SOCAR, proves its increasing role in CIS and Caucasus region.


Ilgar Gurbanov

Expert on Russia, Caucasus and Energy Studies

Strategic Outlook Research Organization

You can find the original article at:  http://en.caspianweekly.org/component/content/article/41-articles/4140-socar–energy-giant-of-the-republic-of-azerbaijan-gasprom-case.html



2 thoughts on “SOCAR – Energy Giant of the Republic of Azerbaijan: Gasprom Case

  1. Very usefull article!!! I think u should publish it in foreign newspapers!

    Posted by lalaaa87 | 21/02/2012, 11:01
  2. It will be soon 🙂 thanking you!

    Posted by Monsieur | 21/02/2012, 11:03

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