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Azerbaijan Energy
Azerbaijan has ample energy resources, including major
hydroelectric generating capacity and offshore oil reserves in
the Caspian Sea. Despite what amounts to an overall excess of
production capacity, fuel shortages and transport problems
disrupted generation in the early 1990s. In 1991 Azerbaijan
produced 23 billion kilowatt-hours, but near the end of 1992 the
country had produced only 16 billion kilowatt-hours. Electricity
is generated at major hydroelectric plants on the Kura, Terter
(in western Azerbaijan), and Aras rivers (the last a joint
project with Iran). A larger share of power comes from oil-fired
electric power plants, however. In the late Soviet period,
Azerbaijan's power plants were part of the Joint Transcaucasian
Power Grid shared with Armenia and Georgia, but Azerbaijan cut
off power to Armenia as a result of the conflict over NagornoKarabakh .
Azerbaijan has exported oil and gas to Russia since the late
nineteenth century. The birthplace of the oil-refining industry
at the beginning of the twentieth century, Azerbaijan was the
world's leading producer of petroleum. During World War II, about
70 percent of the Soviet Union's petroleum output came from the
small republic. After World War II, when oil output from the
Volga-Ural oil fields in Russia increased, Azerbaijan lost its
position as a dominant producer of Soviet oil. When the Soviet
Union disintegrated, Azerbaijan was producing 60 percent of
Soviet oil extraction machinery and spare parts but less than 2
percent of the union's oil.
Azerbaijan's four major offshore oil fields in the Caspian
Sea are Gunesli, Cirak, Azeri, and Kepez. In 1992 the Gunesli
field accounted for about 60 percent of Azerbaijani oil
production. Crude oil production has decreased in recent years,
mainly because of a weak global market, well maturity, inadequate
investment, and outdated equipment. According to Azerbaijani
estimates, for the first seven months of 1993 compared with the
same period in 1992, crude oil production declined 7.1 percent,
gasoline refining 2.8 percent, and diesel fuel production 19.9
percent. These rates of decline compare favorably, however, with
those experienced in the oil production and refining industries
of Russia, Turkmenistan, and other former Soviet republics in the
early 1990s.
Some oil is shipped by train to Black Sea ports in Russia and
Ukraine, and some is shipped by tanker to northern Iran. Pipeline
shipment has been slowed by infrastructure problems. One old oil
pipeline from Azerbaijan to the Georgian port of Batumi on the
Black Sea is inoperable, and the Russian pipeline is unavailable
because that line is already at capacity. Azerbaijan's oil
production is processed at two refineries near Baku. Because
domestic oil production has not matched refining capacity in
recent years, the refineries also process Kazakh and Russian oil.
Russia, Ukraine, and other former Soviet republics have been
involved in contentious negotiations with Azerbaijan over oil
payment. Azerbaijan has sought prices close to world market rates
for its oil as large payment arrearages have developed with
several customer states. Azerbaijanis seek "fair payment" for
their oil from Russia, pointing out that during the Soviet period
Azerbaijani oil was sold far below market prices to support the
Soviet economy.
Azerbaijan has encouraged joint ventures and other agreements
with foreign oil firms, and a consortium has been formed with
Russia, Kazakhstan, and Oman to build an oil pipeline to
Mediterranean, Persian Gulf, or Black Sea ports. In the planning
stage, Russia advocated a Black Sea route, whereas Western oil
companies, also interested in Azerbaijan's oil, preferred a
Mediterranean terminus for a pipeline used in common. In March
1993, Turkey and Azerbaijan agreed on a pipeline traversing Iran,
the Nakhichevan Autonomous Republic, and southern Turkey to reach
the Mediterranean. In 1993 other negotiations defined terms of
exploitation by eight Western oil companies in two Caspian oil
fields and established a profit-sharing ratio between Azerbaijan
and its partners. In late 1993, Russia's role in the oil industry
also increased with the signing of new bilateral agreements.
Azerbaijan has proven natural gas reserves of 2 trillion
cubic meters, and a much larger amount is present in association
with offshore oil deposits. Although the price of natural gas in
Azerbaijan has remained low compared with world prices, in 1991
about half the gas brought to the surface was burned off or
vented, while consumption of fuel oil increased. Since 1991
Azerbaijan's production has declined to a level that meets only
about 35 percent of domestic needs, which amounted to 17 billion
cubic meters per year in 1993. The major sources of natural gas
imports are Turkmenistan, Kazakhstan, and Iran. Experts consider
that exploitation of untapped natural gas deposits would enhance
Azerbaijan's domestic fuel balance and provide substantial export
income.
Data as of March 1994
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