During 2004, Azerbaijan exported approximately 211,000 bbl/d, but exports are expected to more than double to 478,000 bbl/d in 2006 and reach as high as 1.1 million bbl/d by 2008 according to Azeri government estimates. Implicitly, the government estimates assume additional production from new offshore discoveries as well as the modernization of old fields. On May 25, 2005 Azerbaijan began filling the Azeri section of the long-awaited Baku-Tblisi-Ceyhan (BTC) pipeline that runs 1,040 miles from the Azeri capital city of Baku, via Georgia, to the Mediterranean port of Ceyhan. At a cost of almost $4 billion, the BTC pipeline allows oil to bypass the crowded Bosporus andDardanellesStraits.. Test filling began in early May 2005, and the BP-led consortiumloaded its first tanker on July 13, 2006. Currently, Azerbaijans other export routes are the Baku-Novorossiysk pipeline (northern route), which sends approximately 50,000-90,000 bbl/d of Azeri (and exclusively SOCAR) crude oil to the Russian Black Sea. The Baku-Novorossiysk pipeline closed briefly in late June 2004 after oil thieves set off an explosion when they attempted to steal oil from the pipeline. The Azeri state company began reducing oil exports via the Baku-Novorossiysk pipeline in August 2005 in order to divert crude to the BTC line, once it becomes operational. Some Azeri government officials have hinted that SOCAR will stop using the Novorossiysk route once BTC becomes fully operational because it will no longer be economic to have higher quality Azeri crude oil mixing with Russian-based Urals blends. The crude oil mixing has decreased the price of pure Azeri light at the port of Novorossiysk by as much as $4-5 per barrel. AIOC will, however, continue to export oil via pipeline and rail from Baku to Supsa (also called the Western early oil pipeline) and to Batumi on the Georgian Black Sea coast. (see Map 2, PDF, high Res). The Baku-Supsa line has an estimated capacity of 155,000 bbl/d and the Exxon and Azpetrol rail links to Batumihas 120,000 bb/d of transport capacity. Early in June, a small pipeline was completed to allow Exxons share of ACG production to be pumped direct from BPs Sangachal terminal to the nearby Azpetrol rail tank-car terminal in Azerbaijan. Before the startup of BTC, Batumi offers shippers like Exxon the ability to keep their Azeri Light crude oil streams isolated in the rail system and maintain their price premium over the regional Russian Urals blend. ExxonMobil launched shipments in June 2005 and has since committed itself to supplying over 70 million barrels of oil over five years (roughly 40,000 bbl/d) via Batumi. The company will continue to use its 8 percent share of Baku-Supsa to which it is entitled to as an ACG shareholder. Since it is not a member of the BTC consortium, it will avoid paying some of the capital costs of the pipeline. During the summer of 2004, Iranian president Mohammad Khatami visited Baku and discussed a North-South transport corridor stretching from Russia to Iran. Although relations between Azerbaijan and Iran remain tense, Khatamis visit may lead to improved trade and economic cooperation and oil export options. During the first half of 2005, gasoline shipments averaged around 10,000 bbl/d. As more crude oil export options become feasible, Azerbaijan plans to decrease refined product shipments beginning in June to a level of around 2,800 bbl/d.
Azeri crude oil is refined domestically at two refineries: the Azerineftyag (Baku) refinery, with a capacity of 239,000 bbl/d; and the Heydar Aliev (formerly called Azerneftyanajag) refinery, which has a capacity of 160,000 bbl/d. Overall refinery utilization rates are as low as 40 percent. Middle distillates (e.g. diesel fuel, gasoline, kerosene) comprise the majority of Azeri refinery output.
Azerbaijan also produces liquefied petroleum gasses (LPGs) at the Heydar Aliev refinery. In 2005 the plant produced 1.8 million barrels, 127,000 of which was exported. SOCAR forecasts production growth of around 1.6 percent in 2006. At a cost of $120-140 million, Azerbaijan plans to build two high-quality gasoline production units at the Baku Heidar Aliyev refinery (formerly known as Azerneftyanajag refinery) between 2006 and 2008, boosting production by almost 50 percent. Azerbaijans automobile gasoline output rose 6.4% on the year to 7.7 million barrels in 2005. Both of the countrys refineries are in need of modernization and pollution control equipment. Under a $500 million modernization project approved in 2004, new equipment will be installed at both refineries and at the specialized port of Dubendi to increase throughput to 260,000 bbl/d by 2010.
According to the Oil and Gas Journal, Azerbaijan has proven natural gas reserves of roughly 30 trillion cubic feet (Tcf), and BP estimates the country has 48 Tcf of proven reserves. In 2004, state statistics showed that the country extracted 177 billion cubic feet (Bcf), a 4.4 percent increase from 2003. Roughly 77 percent of natural gas production in Azerbaijan is produced by Azneft, a SOCAR subsidiary, and the rest is produced by joint ventures (the largest of which is AIOC). State officials project that Azerbaijan will produce up to 390 Bcf by 2008. But until the requisite infrastructure is completed (see Natural Gas Trade), natural gas is being flared off instead of being piped to markets. As a result, Azerbaijan is currently importing roughly four times more natural gas than it was in 2001. Besides higher economic growth rates, one main cause of the newfound natural gas dependency is that oil-fired power plants have been converted into gas-fired ones. This has forced Azerbaijan to import roughly 160-175 bcf per year from Russia at a price of $1.70 per 1,000 cubic feet (mcf), up from $1.47 per mcf in 2004. Virtually all of Azerbaijans natural gas is produced from offshore fields. The countrys leading natural gas producer, the Bakhar oil and gas field, is located off the southern tip of the Absheron Peninsula and currently accounts for slightly over half of the countrys natural gas output. Output at Bakhar has been declining in recent years, and according to press reports, SOCAR has begun efforts to develop a new deposit, known as Bakhar-2 located adjacent to Bakhar. SOCAR reportedly has plans to utilize some of the Bakhar-2 natural gas production for export in the near future. In just the past year, SOCAR completed construction of a $29 million Bakhar-Neftyaniye Kamni pipeline, which it hopes will help double gas transport from the Gunashli field by 2010. Planned capacity is roughly 194 million cubic feet/day (mmcf/d). Production from the Gunashli field accounts for approximately 50 percent of the natural gas produced in the country. Over the next 10 years, SOCAR plans to invest $224 million to expand natural gas production (see Fig. 2) in Azerbaijan by drilling 23 gas wells in the shallow-water Gunashli field, by expanding existing platforms, and by building underwater gas pipelines. The company hopes this will help increase production to around 330 bcf/y by 2010.