1. Azerbaijan energy potential Dr. Ingilab Ahmadov Khazar University 2008/2009

2. Dr.İngilab Ahmadov2

3. 3 Azerbaijan: country profile Independence re-gained: 18 October 1991 Location: South Caucasus 86,600 km² Total area: 86,600 km² (January 1, 2008): 8,6 mln. Population: (January 1, 2008): 8,6 mln. Azerbaijani Official language: Azerbaijani Manat (AZN) Currency: Manat (AZN) 5550 USD GDP per capita: 5550 USD FDI: FDI: $3790.7 mln.

4. Dr.İngilab Ahmadov4 Main economic indicators related to oil wealth Years2002200320042005200620072008 GDP growth (%)10.611.210.226.434.525.410.810.8 Inflation rate (%)3.32.26.79.78.316.720.820.8 Budget income (mln.AZN)910.21225.51481.22055.23881.26006.610763 Budget expenses (mln.AZN)931.71234.01501.02140.73789.76086.210680 SOFAZ budget income (mln.AZN)176244185.8215.69861886.211867.4 SOFAZ budget expenses (mln.AZN)30.8243.6168.7214.6981.41061.24291.8 Transfers from SOFAZ to state budget (mln.AZN) -100130150585 3800 SOFAZ assets (bln.$)----2.975.3611.2 Poverty rate (%)46.744.740.229.320.818 - 2013.2

5. Dr.İngilab Ahmadov5 Inflation dynamics

6. Dr.İngilab Ahmadov6 Economic growth (2008) Robust economic growth in recent years, supported by high oil production and export and higher oil prices Oil sector’s share in GDP (52.8%) (2007) Oil sector’s share in Budget revenues (64%) Oil sector’s share in Investment (51%) Oil sector’s share in Export (97%)

7. Oil & gas sector Dr.İngilab Ahmadov7 Proven oil reserves: 7 billion bbl (2005) Oil production: 44.5 mln. tons (329 mln.bbl) (2008) Oil exports: 35 mln. tons (259 mln.bbl) (2008) Proven natural gas reserves: 2 trillion cu m (2008) Natural gas production: 16.3 billion cu m (2008) Natural gas export: 1.7 billion cu m (2007) Total active of the State Oil Fund- 11.2 bln.USD (January 2009)

8. Dr.İngilab Ahmadov8 Azeri oil history First oil well in the world was drilled in 1846 in Baku near “Bibi Heybat” First wagon cistern for oil transportation in the world was exploited in 1872 in Baku First tanker in the world was built in 1871 in Baku by Royal Dutch Shell company First (wooden) pipeline in the world – Baku-Batum was built in 1905

9. Dr.İngilab Ahmadov9 Crude oil proven reserves in CIS

10. Dr.İngilab Ahmadov10 Regional distribution of proven oil reserves

11. Dr.İngilab Ahmadov11 Global distribution of proven oil reserves

12. Dr.İngilab Ahmadov12 Crude oil Production in CIS

13. Dr.İngilab Ahmadov13 Oil production growth Oil production in the Caspian Sea region 533,000 210,000 870,000 1,400,000 113,000 235,000 +163% +270% +86%

14. Dr.İngilab Ahmadov14 Azerbaijan outlook Oil production outlook for Azerbaijan

15. Dr.İngilab Ahmadov15 Natural Gas reserves in CIS

16. Dr.İngilab Ahmadov16 Natural Gas reserves in CIS

17. Dr.İngilab Ahmadov17 Regional distribution of proven gas reserves

18. Dr.İngilab Ahmadov18 Global distribution of proven gas reserves

19. Dr.İngilab Ahmadov19 Azerbaijan energy sector. Oil production, consumption and reserves

20. Dr.İngilab Ahmadov20 Azerbaijan energy sector. Gas production, consumption and reserves

21. Dr.İngilab Ahmadov21 Ownership, liberalization, key players Oil sector The State Oil Company of Azerbaijan Republic (SOCAR) is the state-owned oil and natural gas corporation in Azerbaijan. It produces oil and natural gas, operates two oil refineries and the running of oil and gas pipelines through out the country.state-ownedAzerbaijanoilnatural gaspipelines SOCAR was established in September 1992 upon the merger of Azerbaijan's two state oil companies, Azerneft and Azneftkimiya. Azerneft was created after the Socialist Revolution through the nationalization of the Azerbaijani oil industry.AzerneftAzneftkimiyanationalizationAzerbaijani Gas sector Azerigas is one of three state-run companies concerned with the maintenance of Azerbaijan's energy sector. It has 100% Government ownership. Electricity AzerEnerjy – state electric company – the monopolist on power generation, the country's national electricity network is divided into five regional grids: Baku, Nakhchivan, North (Sumqayit), South (Ali Bayramli), and West (Ganja). Each of these has been opened to foreign investors via joint stock companies. Regulation: Ministry of Industry and Energy

22. Dr.İngilab Ahmadov22 Azerbaijan energy sector. Key players Oil and gas extraction and export: State Oil Company of the Azerbaijan Republic (SOCAR); British Petroleum (BP) and other foreign oil companies (Statoil, ExxonMobil, TotalFinaElf, Lukoil, Itochu and others) that are contractors in PSAs signed by the government; Oil and gas processing: State Oil Company of the Azerbaijan Republic (SOCAR); The sale of oil products on the domestic market: State Oil Company of the Azerbaijan Republic (SOCAR); Azpetrol (private company); ABU Petrol (private company)

23. Dr.İngilab Ahmadov23 Azerbaijan energy sector. Key players Power generation and distribution: Azerenergy JSC – a producer and distributor of electricity (100 per cent of shares belong to the state) Natural gas distribution: Azerigas JSC – a gas distributing company (100 per cent of shares belong to the state)

24. Dr.İngilab Ahmadov24 Oil factor short time oil boom huge revenues cash flow absorbing capture incomes

25. Dr.İngilab Ahmadov25 Azerbaijan energy sector. SWOT Analysis Strengths: Existence of oil and gas reserves (availability for at least 25 years within current development of reserves) Common border with countries that possess considerable energy reserves: Russia, Iran, Kazakhstan and Turkmenistan Location as a transit country Availability of regional oil and gas pipeline Established gas transmission network Refining capacity

26. Dr.İngilab Ahmadov26 Azerbaijan energy sector. SWOT Analysis Weaknesses: Physical obsolescence of electricity and gas transmission networks Limited gas storage A weak legislative and regulatory framework The unresolved status of the Caspian Sea with Iran and Turkmenistan

27. Dr.İngilab Ahmadov27 Azerbaijan energy sector. SWOT Analysis Opportunities: Increased production of domestic resources (oil and gas) Expansion of the transit infrastructure Increasing volumes of the transit of Central Asian hydrocarbon reserves

28. Dr.İngilab Ahmadov28 Azerbaijan energy sector. SWOT Analysis Threats: Pressures on fiscal revenue streams as a result of explicit and implicit subsidies The country’s transformation from an exporter of energy resources into an importer (in 25-30 years) Proximity to conflict zones and terrorist threats Dutch disease – potential problems of non-energy sectors of the economy

29. Dr.İngilab Ahmadov29 PSA Contracts Operating CompanyFieldsSigningOperatorStatus 1) AIOC"Azeri-Chirag- Guneshli" On 20 September 1994 BP PRODUCTION 2) BP Exploration (Shah-Deniz) Ltd. "Shah-Deniz",On 4 June 1996BP PRODUCTION 3) Salyan Oil Ltd"Kursengi" and "Garabaghly" On 15 December 1998 CNPC PRODUCTION 4) Karasu Operating Company "Kelameddin" and "Mishovdag" On 12 September 2000 Nations Energy PRODUCTION 5) Gobustan Operating Company "Southwest Gobustan" On 2 June 1998CNPC PRODUCTION

30. Dr.İngilab Ahmadov30 PSA Contracts 6) AzShengli Operating Company "Pirsaat"On 4 June 2003 Shengli Oil PRODUCTION 7) Binagadioil"Binagadi"On 18 June 2004 AZEN Oil PRODUCTION 8) Garachukhuroil"Garachukhur"On 29 September 2004 Noble Sky PRODUCTION 9) Surakhanioil"Surakhany"August 2004 RAFI Oil PRODUCTION 10) Kura Valley Company (KVC) "Padar"On 27 April 1999 Nations Energy PRODUCTION 11) Absheron Operating Company "Zykh" & "Hovsan"On 3 November 2005 “РуссНефть” PRODUCTION

31. Dr.İngilab Ahmadov31 PSA Contracts 1) BP Exploration (Alov) Ltd. Araz, Alov and Sharq On 21 July 1998 ВР DELAYED 2) BP Exploration (INAM) Ltd. "Inam" 21 July 1998ВР DELAYED 3)LUKARCO Oper ating Company "D-222" On 4 July 1997LUKoil DELAYED 1) UT Lokbatan Ltd"Umbaki", "North Karadag", "Korgoz" On 10 August 1994 BMB Oil CANCEL 2) CASPIAN INTERNATIONAL PETROLEUM COMPANY (CIPCO) ("Garabakh") On 10 November 1995 Pennzoil CANCEL 3) North Absheron Operating Company (NAOC) ("Ashrafi" and "Dan Ulduzu") On 14 December 1996 Amoco CANCEL

32. Dr.İngilab Ahmadov32 PSA Contracts 4) Elf Petroleum Lenkoran/Talysh B.V. "Lenkoran-deniz“ and "Talysh deniz" On 13 January 1997 Elf Petroleum CANCEL 5) Agip Azerbaijan B.V. "Kurdashy", "Araz- deniz" and "Gurgan" On 2 June 1998 Agip CANCEL 6) Muradkhanly Operating Company (MOC) "Muradkhanly"On 21 July 1998 Ramco Energy CANCEL 7) Oguz Operating Company "Oguz"On 1 August 1997 ExxonMobil CANCEL 8) Chevron Overseas Petroleum Azerbaijan Ltd. "Absheron"On 1 August 1997 Chevron CANCEL 9) Japan Azerbaijan Operating Company "Ateshgah", "Yanan Tava" and "Mugan- deniz" On 5 December 1998 Japex CANCEL

33. Dr.İngilab Ahmadov33 PSA Contracts 10) ExxonMobil Azerbaijan Operating Company "Nakhchivan" On 1 August 1997 ExxonMobil CANCEL 11) Exxon Azerbaijan Operating Company "Zafar" and "Mashal" On 27 April 1999 ExxonMobil CANCEL 12) LUKoil Overseas Azerbaijan Company "Zykh" and "Hovsan" On 9 January 2001 LUKoil CANCEL 13) Shirvan oil Operating Company "Kurovdag" On 5 November 2004 Caspian Energy Group CANCEL 1) OFFSHORE STRUCTURES "Lerik Deniz", "Dalga", "Savalan" and "Janub" On 27 April 1999ExxonMobil UNVALIDATED

34. Thanks for your attention!