Overview

Rich in hydrocarbons, Azerbaijan held 900 billion cubic metres, or 0.5%, of the world’s total proven gas reserves as of the end of 2013, according to the BP Statistical Review of World Energy 2014. Azerbaijan gained independence from the Soviet Union in 1991. However, the country relied on imported gas from Russia until 2006, when it began producing enough oil and gas of its own to meet domestic demand and become a net exporter.

The country has experienced strong economic growth since 2005 as a result of revenue from oil exports through the Baku-Tbilisi-Ceyhan crude oil pipeline; gas exports started in 2007 via the South Caucus pipeline. Baku has concentrated attention on future exports from the Shah Deniz 2 pipeline in the Caspian Sea, but analysts have said this is to compensate for declining oil production and falling revenues.

Azerbaijan is counting on increasing gas exports from Shah Deniz and other fields to continue to support the country’s economy over the next decade. The country has potential as a transit country for gas from Iraq, and possibly Iran or Turkmenistan.

Fitch Ratings expects oil production will remain broadly stable for the next five years. According to BP it was 46.2 mt in 2013, which was an increase of 1.2% year on year and brought an end to a steep decline seen since the 2010 peak. New wells and a possible extension of the production sharing agreement between the BP-led Shah Deniz consortium and the government will mitigate natural output decline rates, the agency expects. The country’s growth and fiscal projections are sensitive to oil production and prices.

The gas export outlook is looking more certain since stakeholders in the Shah Deniz 2 chose an export route to Europe in December 2013. Production has been rising steadily, with some fluctuations, since 2003. It was 16.2 bcm in 2013, according to BP. Shah Deniz will see 16 bcm/y of gas produced and exported, in addition to the current 9.6 bcm/y. Of that, 6 bcm/y will go to Turkey and 10 bcm/y to Europe. First gas from Shah Deniz 2 is targeted for 2018.

Profile first uploaded: 29/10/2012
Page updated: 21/07/2014