Azerbaijan’s ‘Contract of the Century’ Coming to an End, Hungarian Specialist on Oil Industry Says

Paul Goble

            Staunton, May 15 – “’The Contract of the Century’” as many have called the 1994 deal between Baku and the major oil companies of the world laid the foundation for the economic expansion of Azerbaijan. But everything suggests, Viktor Katon, a specialist on the oil industry, says, that deal was able to last “only a quarter of a century.”

            Now, the MOL Group analyst says, “Western oil majors and Russia’s LUKOIL are displaying much greater interest in the Kazakhstan part of the Caspian shelf” than they are in Azerbaijan or the Caspian fields off it coast;” and some are even trying to exit Azerbaijan entirely (eurasia.expert/neftyaniki-ukhodyat-iz-azerbaydzhana-v-kazakhstan/).

            “Although Britain’s BP has repeatedly declared its intention to remain in Azerbaijan for the long term,” Katon says, the American giants ExxonMobil and Chevron have begun behind-the-scenes searches for potential buyers of their shares in the ACG project” in Azerbaijan, “the foundation of the main oil supply for this Caspian state and the Baku-Tbilisi-Ceyhan pipeline.”

            These two American companies were among the leaders of Western investment in the Azerbaijan energy sector from the mid-1990s and helped make it “one of the most important players in the Caspian region,” the Hungarian oil expert says. It isn’t clear to whom the two will sell their shares but it is “extremely unlikely” it will be to another Western “major.”

            The reason for their exit and also for declining interest by Russia’s LUKOIL, Katon continues, is that there have been no new fields on the Azerbaijani sector of the shelf while those on the Kazakhstan segment have been expanding.  Consequently, all three of them are looking in that direction rather than hoping for further growth in Azerbaijan.

            There is a second reason behind LUKOIL’s change in plans, he says.  “In view of the limited chances for growth in Western Siberia and the serious slowing of the development of its own Caspian shelf, the Russian giant is looking to Kazakhstan although it still wants to be a participant in Azerbaijan’s Apsheron field.

            Related to this are Russian laws that restrict LUKOIL’s prospects in Russia and therefore are leading it to look to Kazakhstan as well. Under the terms of these laws, Katon says, access to the Russian shelf will be restricted to Rosneft and GazpromNeft leaving LUKOIL with little hope of expanding there.

            It and the American majors presumably will also be interested in projects on the Turkmen and Iranian sectors of the shelf eventually. But the closed nature of the political system in the case of the first and the sanctions regime with regard to the second mean that this will not happen soon.

            But the shift from Azerbaijan to Kazakhstan is happening, something with inevitable geo-economic and geo-political consequences for the region as a whole.