Look at past year of Azerbaijan's energy sector marking its 30th anniversary

2024 - we bid farewell to another successful year full of energy. Like in all previous years, this year was memorable with many significant events in Azerbaijan's oil and gas sector. Azerbaijan marked the 30th anniversary of the signing of the Contract of the Century in 2024, a highly significant date for the country that gave impetus to the national economy by making Azerbaijan one of the world's main energy suppliers again.

Naturally, the past year has been intense and productive for Azerbaijan's fuel and energy complex. The year was very successful for the sector regarding oil and gas production, processing, and transportation in the country. The main events of the year in the local fuel and energy complex were the implementation of large infrastructure projects, increasing potential in renewable energy sources, and strengthening international cooperation in the energy sector. Besides these issues, agreements on gas supply cooperation cemented Azerbaijan's position as a reliable energy resource supplier and gave additional impetus to the country's economic growth. It's enough to say that the number of buyers of Azerbaijani gas reached 12 in 2024.

Report recalls the most memorable energy events that took place in 2024 and presents an overview of the main events of 2024 that determined Azerbaijan's oil and gas sector's perspectives and strategic plans for 2025 and beyond.

New contracts within the Contract of the Century

The most significant events of 2024 took place on the same day as the 30th anniversary of the Contract of the Century. This can also be considered as one of the successful steps taken in the energy sector for the coming years. Thus, the new agreements signed on the 30th anniversary of the Contract of the Century further expanded the successful strategic partnership in the energy sector between the State Oil Company of Azerbaijan (SOCAR) and BP.

Thus, one of these agreements was the signing of a Memorandum of Understanding between SOCAR and BP regarding the Karabakh oil field and the Ashrafi - Dan Ulduzu - Aypara (ADUA) area in the Azerbaijani sector of the Caspian Sea. The first block is the Karabakh oil field located 120 km east of Baku, 20-25 km from the Gunashli field, at a water depth of 150-200 meters. There is an existing Risk Service Agreement (RSA) for the development of the field, which was signed in 2018 and ratified by the National Assembly.

The second block is the Ashrafi - Dan Ulduzu - Aypara area located 90-110 km northeast of Baku, at water depths of 80-180 meters. This area covers a number of existing discovered and prospective structures. There is an existing Production Sharing Agreement (PSA) for the exploration, development, and production of the ADUA area, which was signed in 2018 and ratified by the National Assembly.

Also, SOCAR, along with BP, MOL, Inpex, Equinor, ExxonMobil, TPAO, ITOCHU, and ONGC Videsh, have signed a new amendment to the existing Production Sharing Agreement (PSA) for the Azeri and Chirag fields and the deep-water portion of the Gunashli field (ACG) in the Azerbaijani sector of the Caspian Sea. This amendment makes modifications to the ACG PSA that allow parties to proceed with the exploration, evaluation, development, and production of ACG's non-associated natural gas (NAG) reserves. The NAG reserves of the ACG field are estimated to be substantial - up to 4 trillion cubic feet, approximately 112 billion cubic meters.

The document will remain in effect until the end of the existing ACG PSA in 2049. Depending on the exploration and evaluation of NAG reserves over the next 25 years, there is potential for billions of US dollars in investment for the development of NAG reserves in the ACG field.

Also, on the same day, SOCAR and BP signed a Memorandum of Understanding confirming their intentions to explore potential cooperation opportunities in international oil and gas upstream projects to enhance energy supply security. Within the framework of the memorandum, the companies will jointly evaluate synergy potential and a number of new investment opportunities in the field of hydrocarbon exploration and production at the international level. The Memorandum also reflects the intention of these two companies to share their experience and knowledge in assessing opportunities to provide reliable and accessible energy supply to the world.

In addition, a Memorandum of Understanding on "exploration, development, and production in the Shamakhi-Gobustan area" was signed between SOCAR and Hungary's MOL Hungarian Oil and Gas company. According to the memorandum, the parties will cooperate to further increase Azerbaijan's hydrocarbon production.

Furthermore, last year Azerbaijan and Türkiye reached important agreements aimed at deepening strategic cooperation in the field of gas supply between the two countries. These agreements not only strengthen energy partnerships but also create conditions for expanding natural gas transit and ensuring more sustainable development of the region.

Thus, on June 4 of the past year, within the framework of Baku Energy Week, five agreements were signed between SOCAR and Türkiye's BOTAS company in the field of natural gas supply and transit. The signed agreements stem from the "Agreement on Cooperation in the Field of Natural Gas" signed between the governments of Azerbaijan and Türkiye on May 14, 2024. Through these contracts, Azerbaijani gas will reach Europe and Nakhchivan via Türkiye, while Turkmen gas will reach the Turkish market via Azerbaijan and Iran. Additionally, Azerbaijan Gas Supply Company Limited (AGSC) and BOTAS have extended their contract for the supply of Azerbaijani gas to Türkiye, which expires this year, until the end of 2030.

Successes in the oil sector

In January 2024, BP, as the operator of the ACG field development project in the Azerbaijani sector of the Caspian Sea, launched a new 4-dimensional (4D) high-definition seabed node seismic program. The program, which focuses on the Balakhany and Fasila reservoirs, covers an area of 740 square kilometers under source and 507 square kilometers under receivers, with a total cost of around $370 million and a duration of five years (2024-2028). This is the largest-ever seismic acquisition commitment made by BP globally by all its aspects – area size, cost, and program duration. The seismic acquisition scope planned for this year has already been completed safely and ahead of schedule; seismic processing of the acquired data is currently ongoing.

Planning for this long-term program began in 2023. The program envisions conducting 5 monitoring surveys over 5 years using seabed nodes, as well as a dual-source vessel (Murovdag) and a node vessel (Guba).

Additionally, since last April, BP has commenced oil production from the new Azeri Central East (ACE) platform as part of the field's development.

The ACE platform is the seventh oil production platform installed in the giant ACG field in the Caspian Sea. Production from ACG began in 1997. The platform and facilities are designed to produce up to 100,000 barrels of oil per day. It is projected to produce a total of 300 million barrels of oil during the project's operational period. The newly produced oil will first pass through technical processing facilities on the platform, then will be exported to the Sangachal terminal via a new infield pipeline connected to the existing 30-inch subsea export pipeline, traveling approximately 130 kilometers.

By the way, on December 13, 2024, 600 millionth ton of oil was produced from the ACG oil field. A total of 600 million tons of produced oil has been transported to world markets through the Baku-Tbilisi-Ceyhan (BTC) pipeline and the Western Export Pipeline (WREP), passing through the territories of Azerbaijan, Georgia, and Türkiye. This is a significant achievement confirming the continued success of Azerbaijan's energy sector.

The year 2024 also marked some losses for the country's oil market. On July 19, Norway's Equinor signed a final agreement with SOCAR and India's ONGC Videsh Limited to sell its 7.27% stake in the ACG project and 8.71% stake in the BTC oil pipeline to these companies. At the same time, Equinor sold 6.655% of its 7.27% stake in the ACG project to SOCAR and 0.615% to ONGC Videsh Limited. SOCAR acquired 7.96% of Equinor's 8.71% stake in BTC, while ONGC Videsh Limited acquired 0.75%. The deal, valued at $720 million, was completed on November 29. The Indian company, in turn, announced that it had allocated approximately $60 million to acquire a portion of Equinor's shares in ACG and BTC.

Taking into account this deal, the current shares of parties in the project are: BP plc - 30.37%, SOCAR - 31.655%, MOL - 9.57%, ExxonMobil - 6.79%, ONGC Videsh - 2.925%, Inpex Corp. - 9.31%, ITOCHU - 3.65%, TPAO - 5.73%. The BTC Co shareholders are: BP plc - 30.1%, SOCAR - 32.96%, MOL - 8.9%, TPAO - 6.53%, Eni and TotalEnergies 5% each, ITOCHU - 3.4%, ExxonMobil and Inpex 2.5% each, ONGC Videsh - 3.11%.

Peak level in gas production

After discussing oil, it's necessary to look at gas projects as well. Because in 2024, Azerbaijan achieved great success in the natural gas sector. In 2024, gas production reached its peak level with the drilling of wells in the Shah Deniz field, one of the largest gas-condensate fields in Azerbaijan and the world. Currently, the field's production capacity is approximately 80.7 million cubic meters per day, or about 29.5 billion cubic meters annually.

On February 13, BP, the technical operator of the Shah Deniz project, began gas production in the northeastern flank of the field as part of the second phase of development of this contract area.

The Shah Deniz consortium shareholders signed the final investment decision for the second phase of the field's development on December 17, 2013, in Baku. The total value of Phase 2 is estimated at $28 billion. Under Phase 2, the maximum annual production will be 16 billion cubic meters, of which 10 billion cubic meters are intended for export to Europe and 6 billion to Türkiye. By 2027, BP plans to gradually drill wells in the western, southeastern, southwestern, and northeastern flanks.

Since its commissioning, 234.3 billion cubic meters of gas have been produced from the Shah Deniz field.

However, the most significant event of the year for the project participants could be considered the entry of Hungary's MVM company. This naturally indicates the steady interest of foreign investors in this sector. On June 6, 2024, the company signed an agreement with Southern Gas Corridor CJSC (SGC) for the acquisition of a 5% stake in the Shah Deniz project and a contract with Azerbaijan Gas Supply Company Limited (AGSC) for the acquisition of a 4% stake. This transaction was completed on August 30.

With this significant acquisition, MVM Group will significantly expand its international presence and further diversify its natural gas value chain position. The contract was signed on August 30. With the conclusion of the agreement, SGC's share in the Shah Deniz project decreased from 21.02% to 16.02%, and AGSC's share in the South Caucasus Pipeline decreased from 21.02% to 17.02%.

Domestic Euro-5 gasoline and access to foreign markets

One of the main achievements in Azerbaijan's local oil refining sector in 2024 was SOCAR's transition to Euro-5 standard gasoline production at the Heydar Aliyev Baku Oil Refinery. While the plant began producing Euro-5 standard diesel fuel in May 2023, the company transitioned to the same standards for gasoline production in July 2024.

This year, as part of the reconstruction and modernization, an isomerization and MTBE production unit was commissioned at the Baku Oil Refinery.

Last year, an isomerization and MTBE unit was commissioned at the Baku Oil Refinery as part of reconstruction and modernization works. Currently, the Baku Oil Refinery's annual processing capacity is 6.5 million tons, and according to the modernization and reconstruction results, the plant is designed to process all types of oil from Caspian region countries. The project is planned to be fully completed by 2027.

After modernization is completed, the plant will produce 2 million tons of gasoline, 2.9 million tons of diesel fuel, 1 million tons of jet fuel, and 390 thousand tons of petrochemical products annually.

Another significant achievement in 2024 was the expansion of SOCAR's participation in international projects outside the country. On May 31 of last year, SOCAR and UAE's Abu Dhabi National Oil Company (ADNOC) signed an Agreement for the transfer of a 3% participation share in SARB and Umm Lulu fields to SOCAR. This signing ceremony serves to expand SOCAR-ADNOC cooperation based on the strategic energy partnership between Azerbaijan and the UAE.

The agreement is based on a strategic energy partnership between Azerbaijan and UAE. It continues steps towards developing successful cooperation between the two companies. In this regard, the importance of ADNOC's acquisition of a 30% participation share in the Absheron gas-condensate field in the Caspian Sea is noted, as well as the Strategic Cooperation Agreement between the companies that covers cooperation in blue hydrogen, geothermal, and carbon management.

SARB and Umm Lulu are two fields located in Abu Dhabi waters. SARB was discovered in 1969 and has been developed by ADNOC since 2010. Umm Lulu was discovered in 1981 and was initially used as part of the ADMA-OPCO contract area. According to the agreement, SARB was merged with Umm Lulu in the contract and granted a new 40-year concession. The project shares are distributed as follows: ADNOC - 57%, OMV and TotalEnergies - 20% each, and SOCAR - 3%.

Azerbaijani gas strengthens its position in Europe

In 2024, SOCAR expanded its gas market in several countries, particularly in the Balkan countries. Azerbaijan's energy company has further strengthened its position in those countries.

In February 2024, Azerbaijan began exporting gas to Serbia. The contract signed between SOCAR and Srbijagas in November 2023 provides for the supply of up to 400 million cubic meters of gas annually to this country in 2024-2026, with volumes increasing to 1 billion cubic meters from 2027. Additionally, on September 26, the two companies signed an agreement for the transportation of an additional volume of 1 million cubic meters of gas per day from November 1, 2024, to April 1, 2025. These agreements will help Serbia reduce its dependence on Russia to some extent and boost its energy security.

Since September 1, SOCAR PPD and MET Group companies have started supplying gas to this country. On November 12, the Azerbaijan State Oil Company signed a Memorandum of Understanding with ESM company for cooperation to supply natural gas to this country. The document aims to increase the sustainability of energy supply, improve access to natural gas, and ensure its provision at competitive prices in accordance with legal requirements.

In Albania, another Balkan country, SOCAR, and the country's Albgaz agreed on November 12 to implement a pilot gasification project for the city of Korca (2025-2027). The work will be carried out based on the cooperation memorandum signed by Albania's Ministry of Infrastructure and Energy, Albgaz, and SOCAR in Baku on November 12. The technical and economic feasibility study for the project is already prepared. The project aims to supply gas to both households and enterprises in Korca. The initial focus will be on creating a city-wide gas distribution network while serving local enterprises. In the future, this project will be expanded to include the cities of Pogradec and Erseka.

Last year in Bulgaria, SOCAR provided 50% of the country's gas demand and increased its share in gas distribution to 7.5%. In the summer of 2024, the company began supplying gas to Bulgaria's industrial enterprises, and in autumn, together with M-Gas company, started the gasification of social facilities in Ruse municipality. The first phase of the project includes the gasification of the school in Nikolovo village, where a compressed natural gas-based system has been installed. In the coming months, 10 more schools and kindergartens will be added to the list of gasified facilities.

Since December 1 of last year, SOCAR has begun gas supply to SPP, Slovakia's largest state energy supplier. The gas supply is being implemented within the framework of cooperation based on a short-term pilot contract between SOCAR and SPP. The companies aim to develop a longer-term energy partnership. Through these gas supplies, SOCAR continues to diversify its export directions. Thus, Slovakia has become the 12th country receiving Azerbaijani gas, along with Türkiye, Georgia, Italy, Greece, Bulgaria, Romania, Hungary, Serbia, Slovenia, Croatia, and North Macedonia.

The oil and gas company is transitioning to green energy

Also, last year, the first phase of expanding the Trans-Adriatic Gas Pipeline's transmission capacity from 10 billion cubic meters to an additional 1.2 billion cubic meters per year began to increase the supply of Azerbaijani gas to Europe. Of this volume, 200 million cubic meters will go to Albania and 1 billion to Italy.

Additionally, during COP29 held in Baku in November, an Agreement on cooperation was signed between SOCAR and Italy's Italgas. The companies will cooperate in exchanging best practices and technologies to accelerate energy transition and digitalization, as well as infrastructure decarbonization through gas leak detection using Picarro technology, and digitalization of the process through existing flexible methodology.

The document serves to strengthen strategic partnerships aimed at promoting innovation, efficiency, and sustainability in the gas distribution sector between the parties.

Thus, all these events clearly demonstrate how Azerbaijan is strengthening its position in the oil and gas industry, actively developing the extraction of natural resources, and expanding cooperation with other countries.

Along with traditional sources of hydrocarbon resources such as oil and natural gas, Azerbaijan is also actively working on developing alternative and environmentally clean energy sources.

In this regard, during COP29, a Joint Research Agreement was signed between SOCAR and the global green energy company Tree Energy Solutions (TES) to explore the development of an electric natural gas (e-NG) project in Azerbaijan. According to the document, joint activities are planned to evaluate the technical, economic, and commercial feasibility of implementing TES's advanced upstream modular technology in the region.

Azerbaijan's strategic position and SOCAR's extensive energy experience create favorable opportunities for e-NG production in the country. Additionally, e-NG produced in Azerbaijan can be delivered to Europe through the Southern Gas Corridor.

To conclude…

Azerbaijan, one of the first oil-producing countries in the world, which exported oil to 24 countries last year alone, has now become one of Europe's main natural gas suppliers. The number of countries purchasing Azerbaijani gas is increasing. This is because Azerbaijan's traditional oil and gas sector is constantly developing. However, like in other countries, all of Azerbaijan's traditional energy companies are transitioning to green energy. In other words, Azerbaijan's oil and gas companies are not falling behind the global green trend. Therefore, in 2025, when green investments are expected to increase and the transition to green energy and transformation will be realized, it will be more interesting to observe and track the parallel development of traditional energy and green energy...