The countries surrounding the Caspian Sea are the object of growing international attention. This area has rich deposits of oil and gas, and to the world’s oil industry the independent republic of Azerbaijan is more and more likely to return to its once key role of supplying the West with a huge proportion of its oil demand.
Azerbaijan was part of the Soviet Union from 1920, but regained its independence when the union was dissolved in 1991. It has borders with Russia in the north, Armenia and Georgia in the west and Iran in the south. The country is the same size as Portugal and has around eight million inhabitants, at least 2.3 million of whom live in the capital, Baku.
The 1992-94 war resulted in major losses for Azerbaijan, and its economy is still recovering. Oil is the key to putting the country on its feet again. Azerbaijan has large deposits of oil and gas, and long traditions of extracting this black gold. The inhabitants started to extract oil from the ground in 1820, and commercial onshore production was started in 1870. At the turn of last century, Baku was producing half of the worlds oil. Offshore oil production started in 1948. In 1994, the production rights to the oil from the Azeri-Chirag field were granted to an international consortium of primarily British, American, Turkish, Azerbaijani and Russian oil companies.
Norways interests
The Norwegian state-owned oil company Statoil is also a member of this consortium, and started up in Azerbaijan in 1991. Statoil shared an office with a British company for the first few years, but opened its own local office in January 1999. ABB and Kværner are other Norwegian companies with interests in the country, and DNV opened a permanent office in Baku in 1996. One of its early contracts was an environmental impact assessment of the Chirag field. Through their presence, foreign investors are now applying pressure to achieve social development and political stability.
This has provided an important contribution to developments that are described as positive and future-oriented. Harald Finnvik, senior vice president of Statoils office in Azerbaijan, shares this optimism regarding the future, despite a number of serious national and international obstacles slowing down further development. Erling Sæbø, head of DNVs Baku office, expresses the same views.There is no doubt, he explains, that our certification services, and of course our long-standing function as a classification society, will be of immense value in moving the country forward as an oil provider.
Planning to move the oil
One problem to be solved is the choice of route for a new oil pipeline for carrying oil to the international market. The key countries are promoting their preferences, either individually or in various coalitions, and three different alternatives are being discussed. The western countries want the oil pipeline to be laid through Georgia and Turkey; analysts believe the question of the choice of route will be resolved in a couple of years. Another obstacle to development is corruption, which is a serious problem for Azerbaijani society.
The country is run by a legally elected president and government. Facing them is the question of how to determine principles for the dividing lines between the individual states that have rights and interests in the area. In principle, all the states have agreed to the sector principle, but negotiations between a number of countries to have binding agreements adopted are at a standstill. However, the negotiations between Azerbaijan and Turkmenistan regarding this issue are going through a positive phase.
This reinforces Erling Sæbøs belief that it is possible to find a solution for the entire region. He can also see clear signs that the companys economy is improving and its social developments are positive. Inflation, which was at four per cent in 1999, is under control. The growth in gross domestic product is expected to be seven per cent this year. The country has started to earn money on its oil.
Azerbaijan has a high level of expertise and long traditions of extracting oil. It is also of major regional and international strategic importance as a counterweight to Russian and Iranian influence a major advantage in its attempts to achieve a stable, oil-based economy.
Date: 15 August 2000