AZERBAIJAN STATE OIL COMPANY TO BUILD REFINERIES ABROAD

On July 13 the Turkish Energy Markets Regulatory Authority (EMRA) approved a joint proposal by the State Oil Company of Azerbaijan (SOCAR) and Turkey’s Turcas Petrol to build a refinery near the Turkish port of Ceyhan. This was the second large-scale, successful initiative by SOCAR this year — the first was the acquisition of the Kulevi Oil Terminal in Georgia.

SOCAR formed a joint venture with Turcas Petrol — SOCAR-Turcas Energy — in December 2006 to construct a $4 billion oil refinery near in Ceyhan. SOCAR and Turcas applied to the Turkish Energy Markets Regulatory Authority for the approval of the project in April and have been anxiously waiting for the agency’s response.

Just before the application, the shareholders raised the joint venture’s initial capital from 50,000 YTL to 50 million YTL ($40 million). SOCAR owns the majority of shares in SOCAR-Turcas Energy (51%), followed by Turcas Petrol (25%), and Aksoy Holding (24%) (Turcas.gov.tr).

Most of Azerbaijan’s oil is transferred to western markets via the Baku-Tbilisi-Ceyhan (BTC) pipeline, which ends in the port of Ceyhan. So the selection for the new refinery site was not accidental.

In April SOCAR president Rovnag Abdullayev announced that by 2009 “Azerbaijan will own 80% of the oil production in the Azeri-Chirag-Guneshli field,” which holds an estimated 5-7 billion barrels of oil (APA.az, April 30).

“The capacity of the BTC is 50 million tons, of which 40 million tons will belong to Azerbaijan. So, we plan to build an oil refinery in Ceyhan, the outfall of the pipeline, to refine Azeri oil there,” stated Abdullayev (APA.az, April 30).

The proposed refinery will have an annual capacity of 10 million tons, and the necessary investments will be made gradually over the next six years (Turcas.gov.tr).

In addition, SOCAR unveiled its long-term plan to expand its activities in other former Soviet republics and European Union member states. The company already has offices in Georgia and Romania and by the end of this year plans to open new facilities in the United Kingdom and Greece. SOCAR is also considering whether to acquire stakes in major refineries in countries where it may be involved in future oil sales (APA.az, April 30).

SOCAR made its first major purchase when it bought the Kulevi Terminal in Georgia, near the Black Sea port town of Poti. After the purchase, SOCAR’s president announced that the company would upgrade the terminal and build a new refinery with an annual capacity of 5-10 million tons. “We are very interested in Georgia’s market [and] Kulevi Terminal will open our way to the Black Sea,” said Abdullayev (APA.az, April 30).

In March, speaking at the Sixth International Oil, Gas, Energy and Infrastructure Conference (GIOGIE-2007) in Tbilisi, another SOCAR official, Mahir Mamedov, noted that the company will invest $20 million over the next two years into the Georgian economy and will “build three petroleum storage depots and 25 modern filling stations in Georgia” (Giogie.ge, March 26). With the completion of a railway link near Kulevi, the terminal will be ready to receive oil shipments from Azerbaijan by rail starting this fall.

Initially, the Kulevi terminal will process 10 million tons of crude oil per year, gradually increasing this amount to 20 million tons. With SOCAR’s investment and oil deliveries, the Kulevi terminal may soon challenge the Batumi Oil Terminal, which has been the biggest oil terminal in Georgia.

The acquisition of a terminal in Georgia raised the significance of cooperation with Romania, another Black Sea region country and EU member state. In May the local press in Azerbaijan and Romania reported that SOCAR is interested in buying a 25% stake in Romania’s second-largest oil company, Rompetrol. However, the parties have not yet signed any agreement.

On July 11-15, a high-level delegation led by Abdullayev visited Romania and met with Romanian President Traian Basescu and other government officials and industry representatives (Socar.gov.az).

After meeting with SOCAR representatives, Romania’s minister for small and medium-sized enterprises, trade, tourism, and freelance professions, Ovidiu Silaghi, said, “SOCAR is [still] interested in processing oil in Romania [and plans] to bring the raw material from Azerbaijan” (Rompres.ro, July 16).

SOCAR has just begun to implement its new strategy, which so far seems to be working successfully. The company wants to secure long-term contracts with a potential buyer and then build its own refinery or partner with the major energy company in that state.

SOCAR has already signed long-term contracts with Thailand’s PTT Public Company Ltd. and Indian Company Reliance Petroleum for delivery of Azeri Light crude oil to these countries.

By 2010, Azerbaijan will be producing 65 million tons of crude oil and more than 10 billion cubic meters of natural gas per year. Natural gas production will reach 20 billion cubic meters by 2015. Hence, SOCAR is likely to continue its international expansion as the country gets involved in other regional projects such as Nabucco and a Turkey-Greece-Italy pipeline.