AZERBAIJAN - Part 1 - The Prospects & Geology.

Azerbaijan is one of the world's oldest oil exporters. Development of the country's petroleum reserves remains central to its economic future. Through various agreements with foreign companies Azerbaijan has opened its petroleum industry to foreign participation as a way to fund its development and, through agreements with nearby countries, to promote regional stability

Azerbaijan is producing about 340,000 b/d of crude oil, up from 310,000 b/d in mid-2002, 192,000 b/d in 1997 and 259,300 b/d in 1990. Its oil production peaked at about 500,000 b/d during World War II. But the country's oil output should reach 1.2m-1.3m b/d by 2010 and could peak at 2m b/d by 2020.

The state oil company Socar and its minority partners produce 195,000 b/d, down from 285,000 b/d in 1987. Azerbaijan International Operating Co. (AIOC), a BP-led consortium, is producing 145,000 b/d and aims to raise this to a plateau of 1m b/d by 2010 (see the producing ventures in Part 2).

Judging by the number of foreign companies involved in E&P ventures and their strong lobbying in the West, including US majors, Azerbaijan should be able to have adequate oil and gas export pipelines from 2005/06. So far, Baku has signed 23 oil and gas production sharing agreements (PSAs) with more than 35 companies from more than 15 countries (see Gas Market Trends of this week).

To a great extent, Azerbaijan's economic and geo-political prospects will depend on a viable solution to the issue of sharing the Caspian Sea with its neighbours (see Downstream Trends). Azerbaijan is suffering from a shortage of energy (see DT No. 2). The new President of Azerbaijan, Ilham Aliyev, personally signs the PSAs. His aides are eager to see the country become a major oil exporter (see Part 3 in OMT No. 3, and profiles of Azerbaijan's decision makers & executives of the main JVs in Downstream Trends No. 3).