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Azerbaijan: The Birthplace of Oil & the Future of Energy Security
Energy has made Azerbaijan a place of wonder and opportunity since antiquity.
So much oil lies below the earth that thousands of years ago some began bubbling to the surface. And gas near the surface caught on fire, sending flames into the sky near the capital of Baku. The “Land of Fire” captivated poets, historians, travelers and engineers for centuries.
Azerbaijan is truly the birthplace of the oil industry. It’s also been a cradle of innovation.
Between its oil bounty and its technological achievements, the country has played a key role in global development.
In the 19th century, Azerbaijan produced over half the world’s oil and was a center of technological and architectural innovation. A pioneering country, it operated oil wells years before the United States discovered its own oil in 1846.
From 1885 to 1920, an unprecedented oil boom in Azerbaijan attracted world-class chemists and geologists, including Russia’s Dmitry Mendeleyev and Germany’s Carl Engler, while later fostering homegrown talent such as engineers Peter Shumilov and Eyyub Taghiyev. New industry techniques including gas-lifts and rotary drilling were first tested in Azerbaijan.
Azerbaijan remains a major player in providing energy to Europe, acting as a vital guarantor of the continent’s energy security through the Baku-Tbilisi-Ceyhan and South Caucasus pipelines. New projects capitalizing on the Shah Deniz gas reserves, such as the Trans-Anatolian and Trans Adriatic pipelines, will ensure that it remains on the radar of the world’s energy powerhouses. Given its legacy of energy innovation, it’s a good bet that Azerbaijan will achieve milestones in renewable energy as well. The country is determined to maintain its reputation for fostering a bold, innovative energy industry – and its reputation as a secure energy source for its partners.
Here is a glimpse of its oil industry history:
3rd and 4th centuries: Persian manuscripts mention oil in Baku.
9th century: Al Belazuri Ahmad, an Arabian traveler, mentions the Absheron Peninsula’s deep-rooted economic and political connections to oil. The peninsula is part of Azerbaijan.
10th century: Masudi-Abdul-Hussein, an Arabian historian, describes Absheron’s oil as coming in two categories – white (kerosene) and black (crude oil). Istahri-Abu Iskhak, another Arab historian, writes about Azeris using soil soaked in oil as a fuel.
13th century: Arab historian Muhammad Bekran writes about those in the oil business using shafts to extract oil in the Balakhani field.
14th century: Marco Polo notes that Azerbaijan is exporting oil from Baku to Near Eastern countries. In his book “The Travels of Marco Polo,” he also mentions oil being used for therapeutic and healing purposes.
17th century: Evliya Chelebi, a Turkish scientist and traveler, mentions that the Baku fortress was “surrounded by 500 wells, from which white and black acid-refined oil was produced.”
1683: Engelbert Kaempfer, secretary of the Swedish Embassy to Persia, writes the first detailed description of Azerbaijan’s oil industry.
18th and 19th centuries: Many European travelers, scientists, business people and officials make written references to Baku, referring to the oil and gas region as the “Fire Temple.”
1803: Gasimbey Mansurbeyov of Baku begins extracting oil from off-shore wells at Bibi-Heybat Bay. One was 30 meters off shore, the other 18 meters.
1806: Russia occupies the Baku Khanate, seizing control of oil production. Exclusive rights to produce oil are given to selected individuals under the otkupchina -- or buy- off – system.
1837: The first oil-distilling factory on the Absheron Peninsula begins operating in Balakhani.
1842: The Caspian Chamber of the Department of State’s Property Ministry estimates the number of wells in the Absheron area at 136. The wells produce 3,760 cubic meters of oil annually, most of it exported to Persia.
1846: A 21-meter-deep well is drilled in the Bibiheybet field with the assistance of Vasili Semyonov.
1859: Baku’s petrochemical industry thrives, thanks to demand for kerosene for lamps. The boom prompts a Tiflis pharmacist to build Azerbaijan’s – and the world’s -- second paraffin-producing factory on Pirallahi Island in the Caspian Sea. Azerbaijan built the first in 1823.
1872: The otkupschina system is abolished. Oil lands are parceled out to local and non-local investors through an auction.
1873: Large-scale drilling begins in the Balakhany field. This leads to the Vermishevsky gusher in June. It sends 2,600 barrels of oil per day skyrocketing upward for 13 days.
Baku begins constructing what is still called Gara Shahar, or Black City.
1875: Robert and Ludvig Nobel become involved in Azerbaijan’s oil industry.
Oil fields begin to be developed on the Absheron Peninsula, specifically in the Sabunchi, Zabrat and Romani areas. The name Romani came from the Romans living on the peninsula.
1877: The Nobel brothers design the world’s first oil tanker. They name it Zoroaster, after the founder of the Zoroastrianism religion, who lived from 628 to 551 BC. The Nobels also build the world’s first oil pipeline between Sabunchi and Black City.
By 1890, 345 tankers are sailing the Caspian Sea.
1884: Baku’s oil barons establish the Oil Extractors Congress Council to discuss industry issues. Increased production spurs innovation. The wealth the industry generates stokes Baku’s development, one sign of which is architectural splendor.
1898: International companies receive permission to explore Azerbaijan for oil. A number of British firms begin investing millions of Russian rubles in the industry.
France’s Rothschilds – the brothers heading one of the world’s biggest banking empires -- found the Mazut Transportation Society. By 1912, it has 13 large tankers in the Caspian Sea, plus auxiliary ships.
1899: The Nobel Brothers Company, Baku’s largest, produce 1.5 billion kilograms of oil during the year. This is 17.7 percent of Russia’s production and 8.6 percent of the world’s.
1899-1901: Baku tops the world in oil production -- 11.5 million tons a year. The United States is second with 9.1 million tons.
1901: Baku produces more than half the world’s oil. Together, the Russian General Oil Company, Royal Dutch Shell and the Nobel Brothers Petroleum Company account for 60 percent of production.
1904: The Nobels establish a Russian Nobel Prize in honor of Immanuel Nobel. The prize of 1,000 gold rubles will be awarded for significant achievements – including inventions -- in the oil industry.
1905: Domestic turmoil in Russia spreads to Azerbaijan, decreasing oil production in Baku.
1914: The start of World War I leads to a further decrease in production.
1913: Azerbaijani engineer Fatulla Rustambeyov improves well designs, boosting efficiency. The innovations include replacing wooden derricks with metal ones and using electricity in drilling operations. Another Rustambeyov innovation is compressing oil and gas during transport.
1918-1920: The Democratic Republic of Azerbaijan is formed as part of the Soviet Union. It’s the first secular regime in the Muslim world. Oil production continues to lag due to the tense post-WWI international situation.
1920: Azerbaijan creates the State Oil Academy to train specialists. Students travel to Pennsylvania, Oklahoma, California and Texas to acquire cutting-edge experience.
1929: A decade-long government effort to revive the oil industry is successful.
1933: After Baku engineer M.M. Skvortsov invents the first automatic moving chisel, electric logging tools are used in the Surakhany field. ***
1936: The oil industry begins to use multi-stepped turbo drills without reducers -- devices invented by the renowned Baku engineers Peter Shumilov and Eyyub Taghiyev.
1942: The Supreme Soviet awards commendations for outstanding performance to 500 Azerbaijani oil workers and supervisors.
1944: Oil workers flood to the front, with women taking their positions. Before long, women fill half the industry’s jobs. Adolf Hitler’s staff gives him a slice of cake depicting Baku. It is part of a cake depicting all of Azerbaijan – a symbol of the oil production the Nazis plan to capture for their war effort. They never make it to Azerbaijan.
1945: As oil production begins to decline on-shore due to over-production and lack of investment, the concept of off-shore drilling takes shape. Oil engineers Sabit Orujev and Yusif Safarov propose tubular collapsible off-shore bases.
1947: Baku engineers develop the trestle method of linking rigs and processing facilities. A year later, causeway construction begins in the Pirallahi and Oil Rocks off-shore areas.
1949: The first offshore exploration starts at Oil Rocks.
1960s and 1970s: Two decades of intensive geological and geophysical study identify other oil fields, such as Darwin Bank, Gum Deniz, Hazi Aslanov and Peschany.
1979: Modern drilling methods helped locate four new multi-reservoir fields with a depth of 200 meters – Gunashli and Cirag in 1985, Azeri in 1988 and Kapaz in 1989. The last Soviet-era off-shore complex, Azeri-Cirag-Guneshli, operates to this day.
1992: The State Oil Company of the Azerbaijan Republic, or SOCAR, is established by presidential decree. It involves the merger of the state companies Azerneft and Azneftkimiya.
September 20, 1994: Azerbaijan signs the Contract of the Century with companies from the United States, United Kingdom, Japan and other countries in the West. The goal is to take the country’s oil development to a new level. The 20 production sharing agreements will generate $60 billion in investment. They include the Azeri-Cirag Deepwater Gunashli contract.
1995: The Azerbaijan International Operating Company consortium is formed to spearhead oil development. It consists of 11 companies: BP, Amoco, LukOil, Pennzoil, UNOCAL, Statoil, McDermott, Ramco, TPAO, Delta Nimir and SOCAR.
1998: Azerbaijan, Georgia and Turkey agree to construct the Baku-Tbilisi-Ceyhan or BTC Pipeline to deliver Azerbaijan oil to Europe via the Mediterranean Sea.
1999: BP discovers the Shah Deniz Field. Gas will begin being produced there in 2007, making Azerbaijan an international gas powerhouse.
2003: The Azerbaijan South Caucasus Pipeline company is established as a SOCAR affiliate.
It is one of the shareholders of the South Caucasus Pipeline Company, or SCPC, which is responsible for operating the pipeline. The company has seven corporate shareholders. BP and Statoil are the largest shareholders and operators.
The Swiss energy company EGL Group, also known as Axpo, announces the Trans Adriatic Pipeline project, or TAP, to carry natural gas from Azerbaijan to Greece through Albania, and on to Italy under the Adriatic Sea.
2004: Construction begins on the South Caucasus Pipeline to carry natural gas to Europe. Planners decide to construct it at the same time as the BTC pipeline to save money and minimize the environmental and social impacts.
2006: The 1,760-kilometer-long BTC becomes operational on July 13. Since then it has carried about 2 billion barrels of crude oil to world markets.
SCP’s construction also is completed. December marks the inaugural flow of natural gas from the Shah Deniz field through the pipeline.
A feasibility study of the TAP pipeline is concluded, with a route through Greece and Albania deemed the most feasible.
2007: Natural gas begins flowing to Turkey through the SCP pipeline, marking the completion of Stage 1 of the Shah Deniz development. The pipeline is 691 kilometers long -- 443 kilometers in Azerbaijan and 248 kilometers in Georgia.
2008: EGL Group and the Norwegian energy company Statoil sign an agreement to build the TAP pipeline.
2009: A TAP project team conducts a marine survey in the Adriatic Sea to determine an offshore route for the pipeline and begins conducting an assessment survey in Albania.
In March, the governments of Italy and Albania sign an energy cooperation agreement that declares TAP a key project.
2010: The TAP team opens country offices in Greece, Albania and Italy. The team asks Italian authorities to allow TAP to become part of the Italian gas network.
E.ON becomes a partner in the project. TAP begins a route refinement survey in preparation for an environmental impact assessment.
2011: The French company Total discovers a major gas field 100 kilometers southeast of Baku in the Absheron region. With an estimated 300 billion cubic meters of gas, the field increases Azerbaijan’s gas reserves from 2.2 trillion to 2.5 trillion cubic meters.
The Trans Anatolian Natural Gas Pipeline project, or TANAP, is announced at the Third Black Sea Energy and Economic Forum in Istanbul. Later in 2011, Azerbaijan and Turkey sign a memorandum of understanding to establish a consortium to construct the pipeline.
TAP submits an EU Third Party Access Exemption application to all three host countries. This will allow it to conclude long-term ship-or-pay gas transportation agreements with shippers of Shah Deniz II gas.
2012: Azerbaijan President Ilham Aliyev and Turkish Prime Minister Recep Erdogan sign an agreement to build the TANAP pipeline. It will be part of the Southern Gas Corridor that sends natural gas from the Caspian Sea to Europe.
BP, SOCAR and Total sign a financing agreement with TAP‘s shareholders in August, including an option to obtain up to 50% equity in the project.
In November, the TAP consortium and TANAP partners sign a memorandum of understanding on cooperation.
2013: The South Caucasus Pipeline consortium approves the South Caucasus Pipeline Expansion project, which will be needed to transport an increase in gas that’s planned from Stage 2 of the Shah Deniz development.
Shah Deniz Stage 2 will include two bridge-linked offshore platforms, 26 gas production wells, 500 kilometers of underwater pipelines to link wells with an on-shore terminal, upgrading offshore construction vessels and expanding the Sangachal terminal with new gas processing and compression facilities.
The TAP project is granted an EU Third Party Access Exemption.
The Shah Deniz II consortium chooses TANAP over the competing Nabucco West project to carry natural gas from the Caspian Sea to Europe. Later in 2013, BP, SOCAR, Total and Fluxys become TAP shareholders.
2014: Work begins in Georgia on the South Caucasus Pipeline expansion.
Renewable Energy2009: The Baku office of the Organization for Security and Cooperation in Europe holds a two-day conference on “Renewable Energy -- International Best Practice and Prospects for the Development of Azerbaijan.”
In July, the government establishes an Agency for Alternative and Renewable Energy Sources. It is part of the Ministry of Industry and Energy.
2011: SOCAR announces that it’s building an Ecological Park in the Khazar district. Forty percent of the park’s energy needs will come from alternative sources, including wind and solar.
In September the State Agency on Alternative and Renewable Energy Sources of Azerbaijan and the Caspian European Club hold a joint business forum in Baku.
2020: Azerbaijan plans to have renewable energy sources accounting for 9.7 percent of its consumption by 2020 – a three-fold increase.