September 20
th
, 2014 Azerbaijan marked 20 years since singing of the Production Sharing Agreement (PSA) on Azeri-Chirag-Deep-water Gunashli (ACG) oil fields with international oil companies. At the time of the signing of the agreement, Azerbaijan was in a difficult political and economic situation. It is not a secret the then President Haydar Aliyev intended to get support from the West by signing this contract. The contract considered shares for neighboring countries – Iran, Russia and Turkey too. Involving these countries, with vested interest in Azerbaijan, was aimed at getting consent of all interested parties, generating profits for the country and protecting the government.
By December 1998, first oil extracted under ACG contract was conveyed via the West Export Pipeline (Baku-Supsa) to the Black sea. However the main part of oil shipment wouldn’t start until a few years later with the opening of the Baku-Tbilisi- Ceyhan Pipeline [June 2006]. This was also a period, when oil prices were rising persistently. As a result, Azerbaijan began profiting long before expected time- by November of 2006.
According to BP reports, by the end of 2013, Azerbaijan produced up to 2.3 billion barrels of oil since the start of oil extraction. Azerbaijan earned $105 billion from selling of the profit oil.
Crude oil export in Azerbaijan during 2009-2013 years
|
|
|
|
|
|
|
|
Million tons |
27.8 |
31.9 |
27.8 |
24.2 |
24.9 |
|
Million US$ |
11989.7 |
18489.6 |
22911.0 |
20232.6 |
20244.1 |
Source : Azerbaijan State Statistical Committee
Today, besides the shares from ACG project Azerbaijan also sells crude oil produced by SOCAR to foreign markets. It should be noted, in the beginning it was BP realizing the sale of crude oil under ACG agreement. The revenues were paid by BP to SOCAR and SOCAR paid it to SOFAZ (the State Oil Fund). In 2008, SOCAR established a new company – SOCAR Trading, which took over selling of Azerbaijani oil. If until then Azerbaijan was selling only to the European countries (Italy had its main share), following 2008, the outreach expanded.
In the past five years Azeri light brand was sold to more than 36 countries. The opening of SOCAR offices in Dubai and Singapore [with head office operating from Geneva], shifted division of oil sales from European only markets towards Indonesia, Thailand and India. At the moment, Taiwan and Vietnam are seeing their shares grow.
According to the reports of the Azerbaijan State Statistical Committee, Italy whose import share in 2008 was 43% dropped to 28,7% by 2013, while indicators for Indonesia grew from 3.2% in 2008 to 13,7% in 2013. Similar to Indonesia, other countries with growing interest in Azerbaijani oil in 2013 were Thailand (8.2%), India (5.4%), Taiwan (2.3%), Vietnam (1.4%) and Malaysia indicating growing imports especially in the past four years.
However, while exports to some countries grew, to others they have declined. The most notable of these are Israel, France and the US. In 2008, US imported 13,5% of Azerbaijani oil but by 2013, the imports dropped to 4.8%. Despite oil exports growing from 5.2% to 17.6% with France at some point, in the course of the next years it dropped to 5.6%. The same tendency exist with Israel where oil imports dropped from 7.7% in 2008 to 6.2% in the following years.
Crude oil export structure chart of Azerbaijan in 2008-2013 (%)
So it is obvious that in last 6 years Azerbaijan lost its main Western’s energy partner and turned to Asian countries. If the shares of Asian market were 12,2% in 2008, by 2013 it reached some 31%.
Azerbaijan not only increased sale of crude oil to the Asian markets but also its oil products. For example, as a result of security cooperation with the United States, Azerbaijan sold Afghanistan an estimated of $105 million worth of kerosene. Other than Afghanistan, Azerbaijan has two main trading partners in kerosene: Vietnam and Tajikistan.
Crude oil export structure chart of Azerbaijan according to regions in 2008-2013 (%)
One of the main factors influencing oil prices is distance. The further the distance of delivery the higher the transportation costs. This can create an assumption that Azerbaijan prefers to sell oil to the Asian markets in order to make more profit out of it. But the official statistic indicators reveal little difference in the sale prices among these regions.
Average sale rate of Azerbaijan oil in 2013 by countries
|
|
|
|
|
Italy |
809.3 |
111.32 |
|
Indonesia |
821.9 |
113.05 |
|
Thailand |
829.5 |
114.09 |
|
Germany |
828.0 |
113.90 |
|
Israel |
806.9 |
110.99 |
|
France |
804.7 |
110.69 |
|
India |
819.6 |
112.74 |
|
USA |
825.6 |
113.56 |
|
Average |
814.5 |
112.03 |
Sourse : Azerbaijan State Statistical Committee.
According to International Energy Statistics calculations correlation of metric ton to barrel for Azerbaijan is 7.24.
Given these circumstances, what is the reason making Azerbaijan change its oil strategy from Europe to Asia?
First assumption is the strained political relations with Europe and US. It seems Azerbaijan seeks new trade partners to carry on sales without including its Western partners. Second factor is Russia. Already for many years Kazakhstan and Turkmenistan cannot sell its energy resources to Europe, as Russia prevents them from doing so. Instead both Kazakhstan and Turkmenistan are using Chinese market. Perhaps Azerbaijan increasing its sales with Asia is a sign of an intention to reach an agreement on energy policy with Russia. Whatever the decision, we will all soon know where Azerbaijan is leaning the most.
