The European Union and Azerbaijan signed a long-awaited agreement on natural gas supplies on January 13, 2011. The agreement requires Azerbaijan to make gas available to the EU's Southern Corridor energy-import route but is vague about which pipeline would carry the gas.
Azerbaijan's main natural resources are petroleum and natural gas. In 2007, estimated oil production rose to over 1 million bbl/d and net oil exports exceeded 900,000 bbl/d. For 2006-2007, Azerbaijan was the largest contributor to non-OPEC supply growth. The country has also seen an extraordinary turnaround in its production of natural gas, changing from a net importer in 2006 to a net exporter, thanks to large-scale investment and the discovery of new gas reserves. In 2009 natural gas production was estimated at 812 billion cubic feet, with domestic consumption at only 357 bcf (2008). Taken together, Azerbaijan's hydrocarbon and mineral economy represents roughly 53% of the country's GDP and 92% of merchandise exports.
Eighty-five percent of the country's oil output comes from the Azeri-Chirag-Guneshili (ACG) offshore fields, which have been credited as the main contributor to Azerbaijan's production growth over the past decade. Azerbaijan's oil revenues increased in 2008, as the government's share in the ACG project rose by 80 percent.
The ACG fields are operated by the Azerbaijan International Operating Company (AIOC), an international consortium composed of BP, Chevron, SOCAR, Inpex, Statoil, Exxon Mobile, TPAO, Devon, Itochu and Delta/Hess.
Azerbaijan's oil and gas production, refinery operations and pipeline systems are managed by the State Oil Company of Azerbaijan (SOCAR). SOCAR is a shareholder in all international consortia developing new oil and gas projects in-country, while the Ministry of Industry and Energy oversees the issuance of all exploration licenses and production agreements with foreign companies. Revenues are generated by the government's profit oil, SOCAR's profit oil, taxes paid by international companies on their profit oil and bonus payments. In addition, all contracts are subject to a separate tax regime as defined in the articles of their contract.
The completion of the Baku-Tbilisi-Ceyhan (BTC) pipeline in May 2005 had a seismic effect on the export and transit infrastructure in Azerbaijan and for the entire region. At a cost of almost $4 billion, the BTC pipeline is operated by a BP-led consortium. The pipeline bypasses the Black Sea and the Bosporus Straits thereby avoiding tanker congestion. It also increases the capacity for oil export to meet rising output, and bypasses Russian territory, eliminating Azerbaijan's exclusive dependence on the Russian export route.
One of the sector's most notable recent developments has been the adoption of international financial reporting standards (IFRS) by SOCAR in 2008. SOCAR's financial report for 2009 was released according to IFRS and it for the first time included official auditor comments (from the firm Ernst&Young).
The government of Azerbaijan continues to seek new ways to expand into the European natural gas market. In January 2001, the European Union and Azerbaijan signed a long-awaited natural gas agreement under which Azerbaijan will supply gas available to the EU's Southern Corridor, though it does not clarify which pipeline would carry the gas.
