SOCAR


The State Oil Company of the Republic of Azerbaijan, largely known by its abbreviation SOCAR, is a fully state-owned national oil and gas company headquartered in Baku, Azerbaijan. The company produces oil and natural gas from onshore and offshore fields in the Azerbaijani segment of the Caspian Sea. It operates the country's only oil refinery, one gas processing plant and runs several oil and gas export pipelines throughout the country. It owns fuel filling station networks under the SOCAR brand in Azerbaijan, Turkey, Georgia, Ukraine, Romania, Switzerland, and Austria.
SOCAR is a major source of income for the authoritarian regime in Azerbaijan. The company is run in an opaque manner, as it has complex webs of contracts and middlemen that have led to the enrichment of the country's ruling elites.

History

Soviet era

Azneft, a business that integrated the Azerbaijani oil industry was created after the Bolshevik Revolution through the nationalization of the Azerbaijani oil industry. It was subordinate to different organizations in the former Soviet Union and the Azerbaijan Soviet Socialist Republic, depending on its organizations' characteristics at different times and was known as Azerneftkomite, Azerneftkombinat, and Azerneftchikharma syndicates, and so forth. In 1954–1959, the Ministry of the Oil Industry of the Azerbaijan SSR and in 1965–1970, the Ministry of Oil Production Industry of the Azerbaijan SSR were established on the basis of Azerneft. In August 1970, it was renamed back to Azerneft.

Post-independence

As the Republic of Azerbaijan gained independence, Azerineft State Concern was established on 3 December 1991. The State Oil Company of the Azerbaijan Republic was created on 13 September 1992 by the merger of Azerbaijan's two state oil companies, Azerineft State Concern and Azerneftkimiya Production Association according to the decree of then president Abulfaz Elchibey. In 1994, the Onshore and Offshore Oil and Gas Production Association were established as part of the State Oil Company. In 2003, the Onshore and Offshore Oil and Gas Production Association were merged to form the Azneft Production Union.
On July 21, 2022, Rovshan Najaf was appointed as the President of SOCAR as based on the decree issued by Ilham Aliyev, the President of the Republic of Azerbaijan. In December 2005, the former head of the Baku Oil Refinery and a member of the Azerbaijani parliament, Rovnag Abdullayev, was appointed President of SOCAR. He replaced Natig Aliyev, who was named Azerbaijan's Minister of Industry and Energy. On the 21st of July 2022, Rovshan Najaf was appointed President of the State Oil Company of the Republic of Azerbaijan, SOCAR.
The Azerbaijan government adopted for a strategy in the 1990s to rev up oil exploration and deplete existing oil wells, with immediate economic gains. Victor Menaldo writes that recently independent Azerbaijan found "itself in a fragile and desperate situation after a war against Armenia, a huge banking crisis, and an economic collapse" and that "the government was left with no other option than to rev up oil exploration and hasten the depletion of extant wells, despite the fact that oil discoveries had peaked."
Menaldo wrote in 2016, "the days in which the Azerbaijani state can offset its underlying weakness by drilling its way out of trouble are numbered... Whether Azerbaijan can now transition to a more diversified economy is an open question." Thomas de Waal wrote in 2018, "Azerbaijan’s economy showed classic symptoms of “Dutch Disease,” the condition whereby heavy reliance on the export of one product—usually oil or gas—weakens the rest of the economy." According to De Waal, the oil wealth had enriched political and economic elites in Azerbaijan, along with underspending of the oil riches on long-term development.

Operations

Upstream operations

SOCAR's activities are exploration, preparation, exploitation of onshore and offshore oil and gas fields, transportation, processing, refining and sale of oil, gas, condensate and other related products. SOCAR's exploration activities cover the prospective offshore fields in the Azerbaijani sector of the Caspian Sea. The current largest fields being explored are Shafag-Asiman, which is explored with BP, and Absheron natural gas fields which are being explored together with BP and TotalEnergies respectively.
In 2010, SOCAR and BP signed a new production sharing agreement regarding Shafag-Asiman. In 2014, SOCAR and BP signed a joint exploration and development over the Shallow Water Absheron Peninsula. SOCAR has explored the Umid and Bulla Deniz gas fields. In 2017, SOCAR and a consortium led by BP signed a letter of intent for future development of the Azer-Chirag-Gunashli field. They signed a $6 billion contract regarding the Azeri Central East platform on the Azeri-Chirag-Gunashli field.
In 2016, SOCAR produced of gas. Azerbaijan has 57 oil fields, 18 of which are offshore, in the Azerbaijani sector of the Caspian Sea. The essential part of the company's revenue comes from the giant ACG oil field complex and Shah Deniz gas field. In September 1994, SOCAR entered into a Production sharing agreement with the foreign oil companies led by BP for the 30-year development of the ACG oil field, which was later known as the Contract of the Century. Two years later Shah Deniz PSA was signed. As of 2014, SOCAR holds 11.6% of the ACG shares and 16.7% of the Shah Deniz shares. Moreover, SOCAR operates a number of onshore fields on its own which is the main source of the domestic supply.
In 2013, 43.48 million tons of oil was produced in Azerbaijan, of which 8.31 million tons belong to SOCAR. In the same period, Azerbaijan's natural gas production reached record high of 29.46 billion cubic metre of which SOCAR shares constitute 7.14 billion cubic metre of it.
On 22 December 2023, after 30 years operating in the country’s oilfields, Norway based Equinor announced it was selling its assets in Azerbaijan to SOCAR. The sale includes an 8.7% interest in the Baku Tbilisi Ceychan pipeline, used to pump oil to Turkey’s Western coast, a 7.27% interest in the Azeri-Chirag-Gunashli oilfield, and a 50% stake in the Karabakh oilfield.

Pipeline operations

SOCAR has a share in two parallel-running major export pipelines of the country; Baku-Tbilisi-Ceyhan pipeline and South Caucasus Pipeline.
The pipelines deliver the ACG and Shah Deniz hydrocarbons from Sangachal Terminal located in 45 km south of Baku to Turkey and Europe. They pass through the borders of three countries: Azerbaijan, Georgia and Turkey. The share of SOCAR in the BTC and SCP is 25% and 16.7% respectively. In addition, SOCAR is the major shareholder with 58% ownership in the Trans-Anatolian gas pipeline and with 20% ownership in Trans Adriatic Pipeline which are meant to transmit some 16 bcma of gas produced from the second phase of Shah Deniz gas field with 10 bcma of that going to Europe and 6 bcma to Turkey. The TAP is seen as a competitor to Russia's South Stream because of diversification of gas supplies to Europe. In February 2021, SOCAR's vice president for investment and marketing, Elshad Nasirov, stated that 20% of TANAP would be able to transport hydrogen to Europe without additional investments.

The company has stakes in the relatively low-capacity Baku-Supsa Pipeline and Baku-Novorossiysk Pipeline. The Azerbaijani part of the Baku-Novorossiysk Pipeline is operated by SOCAR, whereas Baku-Supsa Pipeline's operator is BP. Moreover, SOCAR operates Dubendi Oil Terminal in Azerbaijan and Kulevi Oil Terminal in Georgia, which are important for transportation and export.
An additional supply contract was signed in May 2021, with Russia's Rosneft, to start supplying Ukraine and other countries with oil products and LPG. This came about after Swiss trader Proton Energy suspended shipments of Russian diesel to the country that April. This is the first time since 2016 that another company will be supplying Rosneft products to Ukraine. According to BM Georgia, the supply agreement will provide SOCAR with an additional 100,000 tons of diesel fuel and 12,000 tons of LPG.

Refining operations

SOCAR has two oil refineries and one gas processing plant. Azerneftyagh Oil Refinery specializes in the production of fuels and oils, producing gasoline, kerosene and diesel distillates, various oils and asphalt. All fuel distillates produced there are sent to Heydar Aliyev Baku Oil Refinery for redistillation. The refinery processes 21 out of 24 grades of the Azerbaijani crude. It meets the country's entire demand for petroleum products, and 45% of its petroleum products are exported. The Gas Processing Plant produces processed gas, liquified gas and natural gasoline. In 2010, the plant produced 4 bcm of processed gas, 24,800 tons of liquefied gas and 26,700 tons of natural gasoline.
Two subsidiaries of Maire Tecnimont S.p.A signed two EPCs with Heydar Aliyev Oil Refinery for its modernization and reconstruction in 2021. The one EPC is for the installation of a Fluid catalytic cracking gasoline hydrotreating unit, and the other for the installation of an LPG mercaptan oxidation unit and an amine treatment and LPG pre-treatment unit. SOCAR and Axens signed licensing and design agreements for the FCC unit included in the HAOR modernisation project. With this, engineers will be provided with schooling related to the units, as well as specifically aiming to develop energy efficiency skills and sustainability.

Retail station operations

The first fuel station of the company under the brand name SOCAR was opened in neighboring Georgia in 2008, before any in its home country. The fuel stations in Georgia are operated by the subsidiary of the company SOCAR Georgia Petroleum. As of 2014, there were currently more than 110 filling stations in Georgia, making it the largest retail fuel station network of SOCAR. In Azerbaijan, the company operates a few filling stations under the brand name SOCAR since 2010. It is the third-largest network of retail stations in Azerbaijan after Azpetrol and Lukoil. In 2011, the first retail station of SOCAR was opened in Ukraine. In October 2014, the number of the SOCAR stations in Ukraine reached 40.
In 2011, the company entered into the Romanian market, acquiring initially 90% and at a later stage, the rest 10% of the stake in Romtranspetrol. In September 2014, SOCAR launched its 30th filling station in Romania. In November 2011, SOCAR bought ExxonMobil's Swiss subsidiary Esso Schweiz for an undisclosed amount. Along with the acquisition, SOCAR became the owner of a network of more than 160 filling stations operating under the brand name Esso across the country. The first SOCAR premium fueling station in Switzerland after the rebranding was opened in September 2012 in Zürich. All the operations in Switzerland are managed and led by SOCAR Energy Switzerland.
In 2021, plans were announced that Alpiq, EW Hofe and SOCAR Energy Switzerland will be building an electrolysis plant in the Freienbach district, which is to produce 1,000 to 1,200 tons of emission-free mobility green hydrogen a year. The green hydrogen that is produced there will be transported in the pipelines of the former substation to the Fuchsberg motorway service station, where SOCAR will set up filling stations.