THE CENTURY LONG OIL CORRIDOR

 

The last century saw Azerbaijan and Turkey entering into a strategic partnership. Today, when on April 5, 2007 the 100-millionth barrel of crude oil was shipped at Ceyhan Terminal in Turkey, delivered through the Baku-Tbilisi-Ceyhan pipeline, there will be few to recall the commissioning of the Baku-Batumi kerosene pipeline at the onset of the previous century, on March 26, 1907.

 

Oil production in Absheron Peninsula commenced in the middle of the XIX century. In 1872, new regulations were approved that stipulated renting state-owned oil wells to private entities through auctions. The cancellation of the redemption system has given a boost to the entire oil industry. The oil rush to have taken place was comparable to Klondike golden rushes. An intensive development of Baku oil fields commenced, leading to an enormous inflow of capital from foreign oil companies.

Over a short period of time, offices and representations of Swedish, American, British, French, Belgian and German companies opened in Baku. The most famous among them were companies of Nobel brothers and Rothschilds.

From 1873, the ‘oil belt' of Baku, known as Black City, began to develop. A while later, Baku Industrial Area appeared that included ‘oil villages' Surakhani, Bibi-Eybat, Balakhany, Sabunchi. The world's first oil well was drilled in 1848 and first oil tankers were launched (1880-1885) here.

However the main obstacle to rapid growth of the oil industry in Baku was lack of developed infrastructure and means of petroleum products transportation. Up to 1880 oil was delivered by cartages to Dagestan, Iran, and Georgia, and in barrels by sailing vessels to Astrakhan.

The oil production industry in Azerbaijan gave rise to the development of pipeline transport. In 1878 the first 9km and 76mm external diameter pipeline  e was installed from Balakhany fields to plants of Nobel Brothers Company.

Coming to Baku in 1877, US businessman Herbert Twidle familiarized with the local oil industry and after provisional calculations offered Russian authorities a concession design for installation of Baku-Batumi pipeline that came down in history as "Twidle's Concession" to give way to overall growth of oil industry.

There was no doubt that such a major project would bring huge profits not only to the Americans. During this time, time it was supported by Dmitry Mendeleyev.

Nonetheless, Twidle's suggestion raised big issues among industrialists. Twidle could not obtain authorizations due to the redtape in governmental circles. In 1877 through 1879 the concession terms were revised three times. After the next ‘rejected' of several times revised design Twidle left Baku and returned to his concession just in 1883. He upgraded the design, removed all privileges but failed anew. In 1884 tsar administrators rejected the new design of concession, burying the idea that could have brought enormous profit to oil industry and Azerbaijan's economy alike. However Twidle's idea lived. Its bringing to reality was just the question of time. Installed later, Baku-Batumi oil pipeline proved correctness and actuality of American design.

By late 1890 the operations at the end station of Transcaucasian railroads were significantly revived.

For some financial reasons it was possible to commence installation of kerosene pipeline just by fall 1896, following State Board of the Russian Empire approving the design and expense estimate for the construction of pipeline from Khasuri (Mikhailovo) to station of Batumi. On March 1, 1900 the pipeline was completed and brought online on July 2. But the experience of pipelines installation and operation has already been acquired.

Baku was producing a half of world's oil at the onset of ХХ century. In July 1901 it was decided to install a kerosene pipeline between Baku and Ag-Tagla to get tied up to sections of kerosene pipeline Baku-Batumi under construction: Khashuri-Batumi, Ag-Tagla-Khashuri, Baku-Eybat.

The Baku-Batumi kerosene pipeline was put into operation March 26, 1907. That was the world's largest trunk pipeline of those days.

 

 

 

Extension of field development resulted in construction of new oil infrastructure. In 1930s, 250-300mm outside diameter Baku-Yevlakh oil pipeline was designed and installed to transfer oil to oil refineries in Batumi. Baku-Batumi trunk pipeline was completed in 1935. During the World War II this pipeline was dismantled and transported as pontoons by the Caspian Sea and Volga to Stalingrad (Volgograd). These pipes were installed to transfer oil and petrochemical products from oil refineries of Kuibishev (Samara) to Stalingrad. Alibayramli-Baku and Dashgil-Puta-Baku oil pipelines were installed in 1964 to transfer oil from Shirvan field and offshore Sangachal to oil refineries of Baku.

Considerable works were performed in 1960s to stop polluting Baku Bay with oil and petrochemical products. The project was implemented in 1972 through 1974 and resulted in erection of Dubendi Oil Terminal.

Last years Russia installed Grozny-Baku oil pipeline to deliver Tumen oil to oil refineries of Baku: it was put into operation in August 1983.  

During Soviet times Baku received nearly 5MT of oil per annum from the north via Baku-Tikhoretsk pipeline, but after the collapse of the Soviet Union it was shutdown.

 

 

 

Third time in oil industry history, Baku becomes the center of international Oil Rush. Independent Azerbaijan commences a complicated process of negotiations aiming at subsoil development and on September 20, 1994 under the supervision of Azerbaijan's national leader Heydar Aliyev the Joint Development and Production Sharing Agreement on Azeri, Chirag and Deepwater Gunashli fields was signed with a consortium of foreign companies. Three years later - first oil produced in October 1997, and on November 7, 1997 the first offshore oil was celebrated. A bit earlier, in late 1996 commenced operations for rehabilitation of a part of Sumgayit-Samurchay pipeline under the intergovernmental agreement between Azerbaijan and Russia concerning oil delivery to port of Novorossiysk. These operations were completed in October 1997.

On October 25, 1997 Azerbaijan launched crude oil export to world markets through the upgraded Baku-Grozny-Tihoretsk-Novorossiysk northern pipeline and from there via the bypass route from the Dagestan's frontier to Russia. The first tanker left Novorossiysk on December 12. The northern route was mainly intended for "early" oil transportation under the terms of the Contract of the Century.

In November 1996 AIOC issued a tender on construction of the western route, Baku-Supsa oil pipeline.

The Shah Deniz Exploration & Production Sharing Agreement was signed on June 1996 in Baku. Nine more Joint Exploration & Production Sharing Agreements (JEPSA) were signed in 1997- early 98, whereas others were still being talked. European (European companies and one Iranian company), American and Japanese consortiums emerged one after another due to the favourable geopolitical situation and maximum observance of the Azerbaijan's interests. Investors in Baku had to "accept a real battle".

The 830-km 530-mm Baku-Supsa oil pipeline was commissioned in April 1999. H.E. President of Azerbaijan Heydar Aliyev, H.E. President of Georgia Eduard Shevarnadze and H.E. President of Ukraine Leonid Kuchma solemnly started up the pipeline.

 

 

 

The enhanced oil production initiated the idea to construct a main export pipeline. Various routes of the oil pipeline's construction were under consideration at that time. National leader of Azerbaijan Heydar Aliyev took the decision to build the export main pipeline along the Baku-Tbilisi-Ceyhan route. The thorny negotiating process, low oil prices, disagreements of the AIOC shareholders were only a minor list of issues Azerbaijan had to solve that time.

The period of 1998-1999, turned to be, perhaps, one of the most difficult ones for both Azerbaijan and foreign companies. The negotiations reached a deadlock. Azerbaijan "pressed" between the two largest producers, Russia and Iran, had to show firm political will to move forward the Baku-Tbilisi-Ceyhan mega-project that had sank in the collisions of talks. On the initiative of President of Azerbaijan Heydar Aliyev on October 29, 1998 in Ankara Presidents of Azerbaijan, Georgia, Kazakhstan, Turkey and Uzbekistan signed the Ankara Declaration, which fixed the necessity to make a decision on BTC without delay.

The proved reserves of the Shah Deniz mega-field (1 trillion m3 of gas and approximately 100 million tonnes of condensate) once again attracted the attention of the world petroleum community to Azerbaijan, while SOCAR was continuing the negotiations related to BTC. Since then the negotiations on transit of large volumes of Azerbaijan oil and gas were held simultaneously.

On November 18, 1999 the interstate agreements about the construction of the BTC and the Trans-Caspian gas pipeline were signed in Istanbul. On October 17, 2000 the government of Azerbaijan, SOCAR and the Sponsor Group of Petroleum Companies signed the Agreement about the construction of the Baku-Tbilisi-Ceyhan Main Export Pipeline (MEP) in Baku. The Azerbaijan-Turkish Intergovernmental Agreement and Gas Purchase-Sale Agreement were signed in spring 2001.

The official start of the Baku-Tbilisi-Ceyhan pipeline's construction took place on September 18, 2002. "Without will and persistence of Azerbaijan and Turkey it would have been difficult to implement such a grandiose oil project as Baku-Tbilisi-Ceyhan. We are turning this legend into a reality", Ilham Aliyev said while holding the office  of Prime Minister of Azerbaijan.

The new staff of BTC Co. Pipeline Company was formed in 2003. Furthermore, 15% was handed over to the companies engaged in development activity in Kazakhstan. Kazakhstan intended to export approximately 100-150 mln tonnes of oil and some part of these volumes through the BTC.

Financing of the Baku-Tbilisi-Ceyhan main export pipeline, that afterwards defined the future potential of Azerbaijan to a great extent, come an end on February 3, 2004, President of Azerbaijan Ilham Aliyev said.

Not long before the completion of the BTC construction, the negotiations on construction of the Trans-Caspian Aktau-Baku-Tbilisi-Ceyhan system got intensified. Chevron (USA) became a full partner in exploration of the largest offshore fields, Azeri-Chirag-Gunashli after purchasing one more petroleum company, Unocal (USA).

The Baku-Tbilisi-Ceyhan pipeline's commissioning marked a significant milestone in the long history of the petroleum industry. It promised to enable to deliver large oil volumes from the Caspian region to world markets, for the first time in this century. The first tanker with products supplied through the BTC left the port of Ceyhan on June 4, 2006. It marked the start of Azerbaijan oil export via the BTC oil pipeline to world markets bypassing the Turkish Straits. The official inauguration of the Turkish segment of the 1,076-km pipeline, the terminal in Ceyhan and the whole BTC system was held on July 13, 2006.

President of Georgia Mikhail Saakashvili called the Baku-Tbilisi-Ceyhan project a symbol of independence for Azerbaijan and Georgia. "BTC has united us all. It gave us new hopes for stability and security", stressed the President of Georgia.

On June 16, 2006 the President of Kazakhstan and Azerbaijan signed the Agreement between the Republic of Kazakhstan and the Republic of Azerbaijan where the parties fixed the intentions to support and promote oil transportation from the Republic of Kazakhstan through the Caspian Sea and the territory of the Republic of Azerbaijan to world markets via the Baku-Tbilisi-Ceyhan system.

 

TPG-500 platform installed at the Shah Deniz field produced first commercial gas flows on December 15, 2006. By the end of 2006 gas had been already pumped to the Baku-Tbilisi-Erzurum gas pipeline. In 2007 Azerbaijan became a country ready to export gas to Europe.

On February 6, 2007 the 100th consignment of products from the ACG fields was shipped from the Ceyhan Terminal in Turkey. On April 5, 2007 the 100-million barrel of crude oil was shipped from the Ceyhan Terminal in Turkey. ‘Seaprince' tanker took abroad the 100-millionth oil barrel. This is the 130th tanker that embarked oil in Ceyhan and sailed towards Italy.