New business opportunities in Azerbaijan

Under the leadership of Aliyev, Azerbaijan is gearing up to enter an investment-attractive phase, supported by two crucial factors. Firstly, the widespread presence of rich oil and gas reserves along its shores promises significant economic prospects. Additionally, the European Union's strategy to reduce dependence on Russian raw materials supplies, initiated after the Russo-Ukrainian conflict, opens new business opportunities for those looking to invest in Azerbaijan.

I. INTRODUCTION

Azerbaijan, an independent former Soviet republic since 1991, has always hosted some of the most extensive hydrocarbon reserves in Eurasia.

Starting from the second half of the 19th century, technology and engineering arrived in the Southern Caucasus with Western investors, expanding the scale of oil exploration and extraction along the shores of the Caspian Sea. From refining to transportation, the "black gold rush" led to the development of Azerbaijani industrial and energy infrastructure, then under czarist control.

Since 1994, the year of the first contract with major international companies after the collapse of the USSR, known as the "contract of the century," Azerbaijan has returned to being a major player in the global Oil & Gas market by inheriting a vast cluster of fields from the Soviets, strategically located at the crossroads of Europe, Asia, and the Middle East.

Despite the complex political events involving the country, primarily the ongoing conflict with neighboring Armenia over control of Nagorno-Karabakh, the Azerbaijani Caspian shore remains a strategic area for companies coordinating hydrocarbon extraction and related engineering design.

The new business opportunities in Azerbaijan for these companies can be quite extensive.

II. 3 KEY FACTORS DRIVING OIL & GAS PARTNERSHIP DEVELOPMENT IN AZERBAIJAN

Several strategic factors currently favor the entry of Italian (and not only) companies into Azerbaijan's economic landscape:

• European Union's urgency to become energetically independent from Russia

After the start of the war in Ukraine and the subsequent withdrawal of European companies from partnerships with Russian counterparts in the extractive sector, the European Union has intensified political and commercial ties with Baku. This interest has particularly emerged following Azerbaijan's statements during the "Shaping the Geopolitics of Greater Eurasia" summit.

European companies are so actively seeking new partners through a multi-level approach that combines engineering capabilities, commercial agreements, and diplomatic relations.

This situation presents technical and economic aspects that can attract investments from specialized companies, for example, in advanced engineering.

• Italy’s ambitions to become a new hub for gas transport and storage

The current Italian government's goal is to allocate a portion of the NRRP (The National Recovery and Resilience Plan) funds to complete the national gas network, building a transport infrastructure that connects Foligno in Umbria to Sulmona in Abruzzo.

This project is crucial today for completing the internal gas transport system, overcoming the Apennine pass, and multiplying gas supply and storage synergies.

An infrastructure whose realization would align with the TAP (Trans Adriatic Pipeline) doubling project and strengthen economic-commercial ties with Baku for the involved companies.

• Conditions fueling "technological demand": not only Oil & Gas

It should be noted that Azerbaijan is not a member of the Organization of the Petroleum Exporting Countries (OPEC), but still maintains excellent diplomatic relations with it. A highly favorable condition for the development of targeted agreements, where groups of foreign contractors can enter as suppliers in medium and long-term agreements.

In Azerbaijan, oil is extracted both onshore and offshore in the Caspian Sea, with offshore production representing about 25% of the total. The "Azeri-Chirag-Deepwater Gunashli" field, located about 100 km east of Baku, is the largest oil field in the Azerbaijani Caspian district.

As for the natural gas sector, Azerbaijan possesses about 2.5 trillion cubic meters of reserves. Gas production is steadily increasing, mainly due to the intensive exploitation of the Shah Deniz field.

Shah Deniz is the main source of supply for the "Southern Gas Corridor," which includes the Shah Deniz 1 (SD1) gas-condensate field, the South Caucasus Pipeline (SCP), the Trans Anatolian Natural Gas Pipeline (TANAP), and the Trans Adriatic Pipeline (TAP). This complex system, extending over 3,000 km, allows the transportation of gas from the Caspian Sea to Europe, passing through Georgia, Turkey, Greece, Albania, and Italy.

Overall, the scenario offers interesting investment opportunities for manufacturers of equipment and machinery for the offshore oil and gas industry.

But that's not all. Azerbaijan is also emerging as a nation with significant potential in renewable energy sources. According to a World Bank study, the Azerbaijani part of the Caspian Sea has a technical potential of 157 GW from offshore wind energy, of which 35 GW in shallow waters and 122 GW in deep waters.

The Azerbaijani Ministry of Energy has outlined ambitious goals, aiming to increase the share of electricity generation from renewable energy sources to 30% by 2030.

III. CONCLUSION

Azerbaijan may still appear to many companies as a peripheral area to direct their investments and internationalization processes. However, for a highly-engineered company, considering business partnerships, mergers, and other forms of agreements and expansions in Azerbaijan could be a key element of a successful strategy.

Azerbaijan continues to represent a hub for new business opportunities, especially in the fields of extraction and engineering design, as well as all related activities.

Despite the current economic and geopolitical context being periodically threatened by tensions in the conflict with Armenia, those willing to invest in Azerbaijani soil can expect a phase of prolonged profits.

And be certain that their investments will fit into a broader framework that will favor their success: the European strategy of energy supplies diversification.

SOURCES:

• Ada University News (2023), ADA Univerisity hosts “Shaping the Geopolitics of the Greater Eurasia: from Past to Present to Future” International Conference.
• Eccher C. (2018), Baku, la maledizione del petrolio.
• Infomercati esteri (2023), Disponibilità materie prime (AZERBAIJAN).
• Informercati esteri (2023), Dove investire (AZERBAIJAN).
• Muratore A. (2023), Dorsale adriatica e raddoppio del TAP: si rafforza la strategia italiana sul gas.
• The Diplomat in Spain (2019), Azerbaijan celebrates the 25th anniversary of the “Contract of the Century”.

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