Rovnag Abdullayev President of Socar

Azerbaijan’s state-owned oil company is unlike any other in the world. Its policies have a great impact on economic planning, strategic partnerships and regional stability. For Socar President Rovnag Abdullayev, the challenge now is to guarantee supplies to Western markets.

Looking back at the history and major evolutions marking the oil and gas sector in Azerbaijan, three important dates stand out: 1880, 1994 and 2006. In 1880, Azerbaijan was one of the largest producer of oil in the world; in 1994 was the signature of the "contract of the century", that opened the country to foreign investments, and 2006, which is a remarkable year, with the opening of the BTC pipeline, and a record year for SOCAR, who aims to produce some 30 million tons of oil. To what extend do you think that this milestone marks the beginning of a new era for SOCAR and for Azerbaijan?

I would like to provide you with some additional dates:

- 1848 is the start of the industrial production of oil in Azerbaijan. The use of oil itself started long time before that, as oil fields in Azerbaijan, in Absheron peninsula were very close to the surface, the oil was used for medical reasons for instance. But 1848 marks the start of industrial oil production, 6 years earlier than the USA started their production of crude oil in Pennsylvania. Azerbaijan was the first country to start the production of oil, and as you said by 1880, Azerbaijan was quite a substantial oil producer.

- In 1900: Azerbaijan was producing half of the global production of the oil of the world.

- 1945: Baku was providing 75% of the Soviet production of crude oil, which contributed to the ally victory over fascism. It was 29 million tons in 1945, but then gradually, the production of oil in Azerbaijan started declining. In 2000 we produced only 0.4% of the world's total or even less. But every beginning of a century we have an oil boom. Therefore it is of tremendous importance that President Heydar Aliyev initiated a new oil policy that included signing of a "contract of a century" in 1994, substantial increase in oil production, construction of BTC, BTE and other pipelines.

Everything related to oil production and oil industry that first happened in the world, mostly happened here. The first ever oil tanker, the first pipeline in the world was constructed in 1901, from Baku to Batumi in Georgia on the Black Sea. It was the first and most expensive pipeline; the material used for construction was wood.

And now, the most expensive pipeline, the most sophisticated, and the second largest in the world, with 1,749 km, is the Baku Tbisili Ceyhan Pipeline. This pipeline is very important, not only because it takes the crude oil from the Caspian Sea, but also because it serves also as a tool for diversification of oil supplies to the Mediterranean market and to the rest of the world.

Several options were considered for the routes for the construction of the main export pipeline. The discussion for these various routes started back in 1992, and one of the topics for discussion during the first visit of President Aliyev to Washington DC in 1993, was construction and route of the main export pipeline.

The Baku Ceyhan is ideal and optimal route for transportation of the Caspian oil to Western markets. There are 5 markets of oil and gas in the world and all of these 5 markets have different prices, as they take into account the transportation costs of the crude. So if we had constructed a pipeline from Baku to the Persian Gulf, our revenues would have been much less. Secondly and mainly, if we had constructed this pipeline and added 1 million barrels a day to the Persian Gulf, immediately the Persian Gulf market would have reacted and the price for one barrel of crude oil would have dropped. That would mean losses for countries already pouring huge quantities of oil through the Gulf.

That is why the route for the pipeline has been built through the territory of Georgia and Turkey. And the governments in Georgia and in Turkey will always support transit of our crude.

The BTC pipeline is a unique example of a regional cooperation between three countries, and also international cooperation involving many multinational companies. To what extend do you think that this BTC corridor constitute a new model for energy development in the XXI Century?

You are right, the BTC pipeline named after President Heydar Aliyev is quite a vivid example of excellent cooperation between the governments of three countries, producing country and transit countries. But this very well balanced cooperation between international companies and Azerbaijan is not new, this is more of a tradition. In Azerbaijan, in Baku, in end of 19th century and beginning of 20th century, most of the major and noble families in Europe started their business here: Dupont, Rothschild and Nobel. Cooperation between different companies and different entities in Baku is quite a traditional thing

As you know the Azerbaijani and Kazakh governments signed a cooperation agreement for the transport of Kazakh oil through the territory of Azerbaijan. If you look at the map in Eurasia, from the Barents Sea to the Persian Gulf, the Meridian crossed only three countries: Russia, Azerbaijan and Iran. So a small strip of Azerbaijani land can serve as a transit territory for oil and gas from East Caspian.

This region of the world is often seen as instable. With the BTC and the coming South Caucasian pipeline, what do you think will be the role of Azerbaijan in improving the stability of the region, but also as a key energetic region for this coming century?

Of course Azerbaijan has to be stable to provide oil and gas to Europe or transit countries. The major factor of instability in Azerbaijan is the ongoing Armenian-Azerbaijani conflict. The European and international institutions can use their influence over Armenia, so as to guarantee stable supplies from Azerbaijan. The region is traditionally not very stable, but the higher the dependence of the world on the Caspian oil supplies, the higher level of stability needs to be guaranteed in the region. The sooner we get resolution to the Azerbaijan- Armenia conflict, the sooner these supplies to Europe, the US and South East Asia will be guaranteed.

If we consider now the gas market, Azerbaijan is a net importer of natural gas, namely from Uzbekistan and from Russia. However, your subsidiary, Azneft, which controls 77% of the production, is wisheing to increase the production and start exporting natural gas. What is your strategy to bring your gas production to its full potential?

It is true that we are importing gas, but not only from Russia and from Uzbekistan. We are importing gas which is combined, from Turkmenistan, Uzbekistan, Kazakhstan and Russia. The gas is imported through the gas pipeline of Gasprom, the total volume of imports this year will be 4.5 billion Cubic meters this year.

Our own production is about 5 billion cubic meters a year, and we are planning to construct necessary infrastructure to substantially expand the volumes to be produced. We will get also some volume of the gas from Shah Deniz gas field. The project has two stages: first stage begins October this year. Stage 2 starts in 2012. The production of gas in stage 1 will be enough to supply gas to Azerbaijan, Georgia and Turkey. And stage 2, will provide us with the opportunity to export our gas through Georgia and Turkey to Greece, Italy and further.

As you are mentioning, one of the top priorities of the government is turning the black gold in the Human gold. Azerbaijan has in the year developed a strong expertise in the oil sector. What is your contribution in turning the black gold into human gold and developing the country's human assets?

We have dozens of training institutions. Baku, in the old Eastern Europe used to be the capital of the industry. Our Oil Academy has produced numerous international figures and experts: the President of Angola for example, H.E. Eduardo Dos Santos, Vagif Alekperov, President of Lukoil, the biggest oil company in Russia. Oil discoveries in Western Siberia were in very many cases conducted by Azerbaijani Geologists. High ranking posts in the ministries of oil and gas of the Soviet Union including ministers were mostly held by Azeri specialists.

The Caspian Sea has sad records when it comes to environmental protection, and is regarded as the most polluted sea in the world. How would you define your commitment to ecology and environmental protection?

This is a very serious question. During the Soviet times, and especially during World War II, nobody thought about ecology and Moscow was demanding that Azerbaijan produce more and more crude oil… Of course the problems at that time were very different than now.

One example, when the Nazis were heading towards the North Caucasus, the oil to be transported to the Red army had to be transported not to the North of the country because the danger was that the Nazis would cut the supplies. So as we didn't have enough ships to transport the oil on the Caspian, we invented the transportation, oil in rail tank cars was and put directly into the water. Oil is lighter than water, so metal tank cars did not sink. One ship was carrying up to fifty rail tank cars. Many of these tanks were destroyed in the Caspian by invading aircraft.

Now of course we demand that all foreign companies follow world standards of ecology. In our company, we have now created a new ecological department responsible for the clean up of the whole Absheron peninsula and surrounding areas. And all course, the standards for production in the water, in the Caspian area have to be very.

In Azerbaijan, there is still 29% of the population living below the poverty line. Late President Heydar Alivey was stating though that "oil is Azerbaijan's people richness". As the national operator in the industry, how do you conceive the role of SOCAR in laying the foundations for social prosperity?

SOCAR being a state company is not like any oil company in the world. Its profits are used not only for the oil company itself. The company builds 10 hospitals around the country, in remote areas, we are buying latest equipment, diagnosis. So the impact of SOCAR is far beyond the oil and gas.

One of the main reasons for this staggering poverty is also the occupation of the territory: the country has 8.5 million inhabitants and there are 1 million refugees, so one out of 8 persons in the country is a refugee or a displaced person.

In order to guarantee revenues for non-oil development and future generations, State Oil Fund of Azerbaijan was created, and the entire population has clear vision of the directions of the spendings.

Looking on international markets, we can observe that national companies first started on their national oil market before expanding their activities abroad. What is your strategy to position SOCAR as a global player on the international market.

We do want to expand our influence and role abroad and the first country where we plan to direct our investments, is Georgia. Recently we created a company called Socar Energy Georgia and its affiliated company Socar Georgia Petroleum, and we have other plans to expand our operations.

Following the visit of President Ilham Aliyev to the US last April, one can state that relations between Azerbaijan and the USA are excellent. Azerbaijan has shifted from being a country to interest to a strategic partner to the USA. Regarding the oil and gas sector, where do you see further areas of cooperation between the two countries?

We see perspectives in any area of cooperation with the USA, as well as with any other country. Foreign policy of Azerbaijan is very balanced, and we cooperate with everyone. The US support to our economic and oil projects is transforming into support in all other aspects.

Most of the readers of this publication are corporate leaders and business decision makers such as yourself. If you had the opportunity to address them a final message on your country and on your company, what would you wish to express?

I think that the interests of your US readers and of our people in Azerbaijan coincide: we all need and want peace. The USA can rely on us in supplies of oil, but we need their support in making sure that Azerbaijan is stable and get its land back.

Thank you very much for this interview.