Market Trends of Azerbaijan Oil and Gas Upstream Industry
This section covers the major market trends shaping the Azerbaijan Oil & Gas Upstream Market according to our research experts:
Offshore Segment to Dominate the Market
Azerbaijan has been one of the top countries to start crude oil production from offshore platforms. It has prolific hydrocarbon potentials in its offshore region for crude oil and natural gas.
Azerbaijan's Azeri-Gunashli (ACG), the largest oilfield in the Caspian Sea with a development area of 432.4 sq. km. and 5-6 billion barrels of recoverable reserves, attracted investment from foreign operators such as BP, Equinor, Total, etc. Most of the country's natural gas is also produced offshore from the Shah Deniz field, with reserves estimated at 1.2 trillion cubic meters, or the ACG complex.
Production of natural gas increased in the country, rising by 22.77% from 25.9 billion cubic meters in 2020 to 31.8 billion cubic meters in 2021. Consumption of gas in Azerbaijan increased by 2.4%, from 12.4 billion cubic meters in 2020 to 12.7 billion cubic meters in 2021. The increase in production is expected to boost the growth of the upstream market.
In April 2022, EnerMech and Oil & Gas Proserv (OGP), an affiliate of Nobel Energy Group in Azerbaijan, entered into a joint venture (JV) and secured two contracts totaling USD 3 million. The first award is a USD 2 million contract to deliver engineering, lubricant oil flushing, accumulator charging, and N2 He leak testing to support the construction of an offshore platform that facilities will process up to 100,000 barrels of oil per day and 300 million barrels over the lifetime of the project. The second campaign is a USD 1 million campaign to support the development of the Absheron gas-condensate field. In July 2022, the European Commission signed an agreement with Azerbaijan to increase imports of Azeri natural gas to at least 20 billion cubic meters a year by 2027, helping reduce the EU's dependence on Russian energy.
With sustained growth in the consumption of natural gas, petroleum, and petrochemical products, the country plans to increase the exploration and production from its offshore region, driving the oil and gas upstream market's growth.
Increased Investments from Foreign Companies to Drive the Market
Azerbaijan has been a hotspot for many foreign companies such as BP, Equinor, Total, Chevron, and others to invest in oil and gas exploration and production in the country. The State Oil Company of the Azerbaijan Republic (SOCAR) produces about 20% of Azerbaijan's total oil output, while international oil companies produce the remainder.
Azerbaijan's main producing field is the Azeri-Chirag-Gunashli (ACG) complex, which is operated by BP, the largest shareholder in the Azerbaijan International Operating Company (AIOC) that was formed to develop the fields. Other companies interested in the ACG fields include Chevron, Inpex, Statoil, Turkiye Petrolleri, ExxonMobil, SOCAR, ITOCHU, and ONGC Videsh. The stakeholders have extended their ACG production-sharing agreement (PSA) with the Azerbaijani government till 2049.
In November 2022, the optimization stage engineering services contract for the delivery of an unmanned compression platform in Azerbaijan was awarded to a joint venture between US services company KBR and Azerbaijan's state oil company Socar BP. In the Azerbaijan sector of the Caspian Sea, the Shah Deniz compression project is under a pre-final investment decision. It aims to start construction by the end of the year. SOCAR-KBR will provide class-3 engineering services under the contract and support optimization. BP's net-zero goals require engineering to enable integration of the new platform into the existing system and shore power to reduce its carbon footprint.
In December 2021, the British oil and gas company BP planned to increase its stake in the Shah Deniz gas field offshore Azerbaijan by purchasing a 1.16% stake for USD 168 million from Malaysian oil and gas company Petronas. In Azerbaijan, there has been an increase in oil production by 4.39% in 2021, rising from 35 million tons in 2020 to 35.1 million tons in 2021. The consumption of oil has risen by 4.2%, increasing from 91 thousand barrels per day in 2020 to 95 thousand barrels per day in 2021.
Government policies and support related to the exploration and production of oil and gas are also expected to play a role in the industry and encourage the companies to boost oil and gas investments in Azerbaijan. Therefore, increased investment is expected to drive the oil and gas upstream market's growth.
