Oil & gas

From the history of Azerbaijan oil

Oil played a major role for Azerbaijan during all history. The first mention on oil production on Absheron peninsula is attributed to the V century. In ancient times oil was used in various fields - in construction, medicine and in the military purposes. By information of the XII century there was unique medical oil in Naftalan, curing skin diseases, anchylosis and gynaecological diseases. It was carried in wineskins through territory of present Georgia to the Black Sea shores and from there to other countries of the world. Approximately before the year 1848 oil was produced by primitive methods from several wells. In 1848 as a result of advance of boring principles there was a possible oil production from more plutonic beds. Broad distribution of new boring methods, a weak tax climate and increase of demand at oil products in the 80-s of the XIX century had reduced to intensification of process of oil production in Azerbaijan. In 1873 exploration and drilling on Ramany, Balakhany, Sabunchi and Bibi-Heybat fields had begun. Oil reserves of these fields exceeded 500 million tons. In the beginning of the XX century in Azerbaijan was produced over 10 million tons annually, that made half of extracted oil in the world. During oil boom there was built several oil refineries, where the off-the-shelf technologies were applied. The pipeline connecting oil pools with factories were constructed also. Pipeline Baku-Batumi constructed in the beginning of the XX century with 833-km length could pass about one million tons of processed oil per year.

As a result of oil boom Baku turned into the international investment center. By the end of the XIX century oil producing company of the Nobel Brothers and Rotshilds company controlled more than 40% of the oil market. 20 years later Royal Dutch Shell and Russian Petroleum Company were added to them which jointly possessed 60% of all wells. Then the leading foreign banks had opened in Baku overseas representations to control the international capital. At the same time the first Azerbaijan banks were established on the basis of the capital of local oil producers. The larger were Hadji Zeynalabdin Tagiyev, Aga Musa Nagiyev, Murtuz Mukhtarov, Isabek Gadjinsky, et al.

The development of oil sphere had caused growth of other branches of economy, that had reduced to public advance. By crossing borders of oil sphere it reflected in construction and architecture, education, science and culture. After a falling of Azerbaijan Democratic Republic (1918-1920) and establishment of a communist formation under the Soviet rulement the oil production in Azerbaijan kept on developing and in 1943 reached the record mark - 23 million tons (70% of oil produced in former USSR). But it had not reduced to increase of a living standard of the population.

The first offshore oil field of Azerbaijan was prospected in 1949. For its operation the unique city on piles “Neft Dashlari” was built. It was the first experience of offshore oil production in the world. At the same time there was a development of oil science and engineering in Azerbaijan, which were and remain one of leading in the world. Azerbaijan oilmen participated in development of oil sector not only within former USSR, but also abroad.

However, absence of proper financing, obsolete equipment had led to stagnation of oil production in Azerbaijan. For this reason such prospective offshore fields as Gunashly, Chirag and Azeri were not maintained though were prospected.

After establishment of independence in Azerbaijan in 1991 policy of engaging of the foreign capital in oil sector was persuaded. In the middle of the 90-s Azerbaijan has gone through the second oil boom and revival of oil branch has began. Main event for Azerbaijans has become signing in September, 1994 of the agreement with twelve oil companies on development of oil fields Gunashly, Chirag and Azeri. This agreement has received a title "Contract of the Century". The developmental contracts of other oil fields on territory of Azerbaijan afterwards were signed. At present over 20 companies from 12 countries of the world operate in Azerbaijan. In the XXI century the oil production in Azerbaijan is forecasted at a rate of 30-50 million tons.