AZERBAIJAN - Part 1 - The Prospects.

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 fund its development and, through agreements with nearby countries, to promote regional stability

Azerbaijan is producing almost 600,000 b/d of crude oil, up from 350,000 b/d in mid-2004, 310,000 b/d in mid-2002, 192,000 b/d in 1997 and 259,300 b/d in 1990. Its oil production had reached about 500,000 b/d during World War II. But the country's oil output should exceed 1.5m b/d by 2010 and could peak at 2m b/d by 2020.

The state oil company Socar and its minority partners produce 210,000 b/d, up from 195,000 b/d in mid-2004 but down from 285,000 b/d in 1987. Azerbaijan International Operating Co. (AIOC), a BP-led consortium, is producing about 380,000-390,000 b/d, up from 155,000 b/d in mid-2004, and aims to raise this to more than 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 make good use oil and gas export pipelines later this year. So far, Baku has signed about 25 oil and gas production sharing agreements (PSAs) with more than 35 firms from more than 15 states (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 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).