Azerbaijan's oil is no longer important to the international market

Dec 10, 2008 01:00 AM

by Tatul Hakobyan

The price of a barrel of oil has fallen from a record high of $ 147 to about $ 40 in the international market. Oil-producing countries -- including Armenia's immediate neighbours Azerbaijan and Iran, as well as Russia -- are taking a big hit.
Petros Terzian, president of PetroStrategies Consulting and Publishing in Paris, said on December 9 that Azerbaijan has become less important than before for the international oil market, as the volume of consumption and price of oil has dropped. When the demand for oil surpassed supply on the international oil market, every drop of the black gold was important, Mr Terzian said. Today, when a global economic slowdown has reduced demand well below production capacity, the situation is different: Whether or not Azerbaijan produces oil has no significance for the oil world since Azerbaijan does not have large reserves and produces small quantities for the international market.

Mr Terzian was a guest of the Civilitas Foundation's Council on International Relations. He delivered a lecture titled, "Economics and Politics of Oil in the Caucasus." The speaker spoke about international oil resources and then concentrated on Caspian and Azerbaijani reserves.
Mr Terzian noted that OPEC, the Organization of the Petroleum Exporting Countries controls 75 % of international oil reserves, while five of the member countries -- Saudi Arabia, Kuwait, the United Arab Emirates, Iran, and Iraq -- control 60 % % of international reserves.

Forecasts that Azerbaijan would come second to Saudi Arabia or Kuwait have not come true. Twelve companies or groups invested $ 1 bn" to find new oil reserves, "but they were unable to find even a single barrel of oil in Azerbaijan, said the speaker.
"They discovered oil in the Caspian, but in the Kazakhstan section, in Kashagan. The Caspian is important for the international oil market -- but Kazakhstan and not Azerbaijan, said Mr Terzian. The Caspian's oil reserves represent only 4 % of global reserves. The greater part of that is in Kazakhstan's sector of the lake. It has now been determined that the oil reserves in the entire Caspian basin are 48 bn barrels. Earlier estimates were as high as 200 bn barrels.

During the past several years Azerbaijan has received about $ 5 bn in income from its oil exports. At the same time, however, it has spent about $ 5 billon paying back debts to organizations that had invested. Only in 2009 was Azerbaijan expecting to receive large windfalls from the export of oil and begin the "golden century of oil income."
The drop in oil prices has disappointed Azerbaijan, Mr Terzian said. He added, however, that Azerbaijan will remain at peak production until 2015-2020. If the price of a barrel remains at the level of $ 40, then Azerbaijan will annually gain $ 7 bn. Azerbaijan's income will go up to $ 10 bn if oil costs $ 50 a barrel. If oil costs $ 75, Azerbaijan could gain $ 16 bn, and if the price is $ 100 a barrel, Azerbaijan stands to gain $ 23 bn. Of course, these are not insignificant figures for a country with a population of 8 mm, arming itself and threatening Armenia and Nagorno-Karabakh.

In Mr Terzians words, for a number of reasons from 2002 to 2004 the rate of consumption of oil increased threefold and in 2005, the total quantity of oil produced throughout the world was entirely consumed. This resulted in the increase in international prices, the peak of which was registered this summer, when a barrel of oil was sold at $ 147.
"If production continues at today's pace, then the worlds reserves of coal will end in 164, gas in 65, and oil in 41 years, said Mr Terzian.

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