Overview Country overview Situated in the southern Caucasus region, Azerbaijan is bordered by the Caspian Sea to the east, Armenia and Georgia to the west, the Russian Federation (hereafter, “Russia”) to the north, and the Islamic Republic of Iran (hereafter, “Iran”) to the south. Its population of 10.1 million occupies approximately 86 600 square kilometres, with Baku being the capital and largest city. Azerbaijan has undergone significant economic transformation since gaining independence in 1991, with its large oil and gas reserves driving strong growth in the 1990s and 2000s. However, its heavy dependence on extractive industries has left Azerbaijan exposed to the negative effects of oil price volatility. From 2013 to 2017, growth in gross domestic product (GDP) averaged 1.4% per year, down from 5.5% during 2008 to 2012. The country’s hydrocarbon sector was responsible for the bulk of the decline, as it contributes roughly one-third of GDP and makes up over 90% of total exports. The 2014 downturn in global oil prices and the ensuing decline in oil production pushed this contraction. Furthermore, the oil price drop also led to lower remittances from Azerbaijan’s hydrocarbon-rich trading partners.

Despite widespread privatisation of the economy since the country gained its independence, Azerbaijan’s energy sector remains predominantly government owned. Only a handful of small hydropower plants are in private ownership, and they account for less than 1% of electricity generation.

Energy security Resource endowment Azerbaijan is rich in oil and natural gas resources. According to the June 2021 BP Statistical Review of World Energy, at the end of 2020 its oil reserves of 7 billion barrels (1 Mt) accounted for 0.4% of global reserves. Oil is produced both onshore and offshore in the Caspian Sea, with offshore production accounting for about one-quarter of the total. The Azeri-Chirag-Deepwater Gunashli (ACG) field, located about 100 km east of Baku, is the largest oilfield in the Azerbaijan sector of the Caspian Basin. Discovered in the early 1970s when Azerbaijan was part of the Soviet Union, it comprises a series of individual reservoir horizons located 2 000 to 3 500 metres beneath the Caspian seabed. The Government of Azerbaijan and a consortium of 11 foreign oil companies signed a PSA in Baku in September 1994. Azerbaijan has an estimated 2.5 trillion cubic metres of proven natural gas reserves, according to the BP Statistical Review of World Energy 2021. While Azerbaijan is not as prominent in global gas as it is in oil, gas extraction is expected to continue contributing significantly to the economy in upcoming decades.

Oil and gas Resources Azerbaijan is rich in oil and natural gas resources. According to the June 2018 BP Statistical Review of World Energy, the country’s remaining commercial liquid reserves (crude and condensate) are typically indicated to be 7.0 billion barrels (bbl), accounting for 0.4% of global reserves. Oil is produced both onshore and offshore in the Caspian Sea, with offshore production making up about onequarter of the total. The ACG field, situated about 100 km east of Baku, is the largest oilfield in the Azerbaijan sector of the Caspian Basin. Discovered in the early 1970s when Azerbaijan was part of the Soviet Union, it comprises a series of individual reservoir horizons 2 000 to 3 500 metres beneath the Caspian seabed. The Government of Azerbaijan and a consortium of 11 foreign oil companies signed a PSA for its exploitation at Baku in September 1994. Azerbaijan has an estimated 1.3 trillion cubic metres of proven natural gas reserves, and according to the operator (BP), the Shah Deniz gas field is one of the world’s largest at more than 1 000 bcm. While Azerbaijan is not as large a figure in global gas as it is in oil, gas extraction is expected to continue contributing significantly to the economy in the coming decades.

Electricity generation Along with the oil and gas sector, the electricity sector plays a leading role in Azerbaijan’s social and economic development. Large investments in power generation and transmission since 2009 have resulted in remarkable improvements in the quality of power supply. Electricity generation is now sufficient to cover domestic demand, and the power system is capable of supplying electricity of acceptable quality to almost the entire population.

Energy system transformation Azerbaijan has yet to tap into its significant renewable energy and energy efficiency potential, but in 2021 the Parliament approved several laws to this end. Higher ambitions and greater efforts to produce renewable energy and improve energy efficiency will also help the country conserve natural gas and oil for exports while meeting GHG commitments. Azerbaijan joined the UNFCCC as a non-Annex I country in 1995 and ratified the Paris Agreement in 2016. The government has outlined climate change mitigation actions in a number of sectors, including energy, and the Ministry of Ecology and Natural Resources is preparing both a national strategy for climate change and a national low-carbon strategy.

Climate change Azerbaijan approved the UNFCCC in 1995 and the Kyoto Protocol in 2000. In 2016, it signed the Paris Agreement and ratified it in 2017. Its NDC is to reduce GHG emissions 35% from 1990 to 2030. The latest official GHG emissions figures are from 2017, when emissions were 38% below 1990 levels and the energy sector accounted for 75% of total emissions. According to the most recent IEA data, in 2017 Azerbaijan’s CO2 emissions from fuel combustion amounted to 30.9 Mt (+6.6% since 2005; -42.1% since 1990). Attaining the 2030 NDC target will be complicated, however, if the country does not tackle climbing transport fuel demand (which is unrestrained by prices or taxes) and the rise in natural gas consumption (which is subsidised in all sectors). Although the country does not currently have legally binding climate targets or measures, it has outlined climate change mitigation actions for its energy, oil and gas, residential and commercial, transport, agriculture, and waste sectors. These actions primarily entail technological improvements to reduce the negative environmental impacts of various sectors of the economy, together with some regulatory changes and public awareness measures. The Ministry of Ecology and Natural Resources is also preparing a National Strategy for Low-Carbon Development and a Climate Change Adaptation Plan. Working groups have been established, made up of representatives of all the relevant ministries and state agencies.

Source:http://IEA