by Guy Chazan
Baku - There is a place a short car-ride from the Azerbaijani capital Baku called "Burning Hill." Drop a match on the jets of propane gas that stream from its soil and a plume of fire jumps out at you.
It is easy to see how Azerbaijan - Turkish for "country of fires"-got its name. The Caspian state's massive oil and natural gas reserves have shaped its past-and now guarantee it the kind of prosperous future other former Soviet republics can only dream of.
It was the Zoroastrians who first understood the secret of Azerbaijan's eternal flame, and an 18th-century fire-worshippers' temple still stands on the parched earth north of Baku, abandoned and in ruins, but with its gas still burning. But it was not until the 1870's that the Nobels and Rothschilds began to harness Baku's oil reserves and large-scale commercial drilling and refining on Azerbaijan's Apsheron Peninsula began in earnest.
Now, international oil companies are returning to the newly independent republic, opening up an industry ignored and neglected by the Soviet authorities for over 70 years. "We are currently producing 11 million tons of oil a year, but expect to see production rise to 25-30 million tons by the year 2,000," says Sabit Bagirov of the Azerbaijani state oil and gas company, Azneftkhimya.
Azneftkhimya recently started talks with several international consortiums to develop fields with a proven capacity of up to 1 billion tons of oil.
In June 1991 Amoco led a five-company group which won the first international tender and has just completed a feasibility study into developing the 1.75 billion barrel "Azeri" field on the Caspian shelf. Pennzoil of Houston and Ramco, a small Aberdeen-based firm, were given permission to look at the "Guneshli" field, an existing onshore site which is already producing 130,000 barrels a day and is said to have 1.2 billion barrels still in place. The US firm Apache is currently negotiating rights to develop the off-shore "Kepes" field, with reserves estimated at 200-400 million barrels.Finally, British Petroleum and the state-owned Norwegian company Statoil this September gained Azeri approval to conduct an exploratory survey of the "Chirag" field, 46 miles south east of Baku on the so-called Apsheron Sill, which is said to contain reserves of 1.2 billion barrels.
The Popular Front government that came to power in Azerbaijan last May has made rapid strides towards opening the country's oil industry up to foreign investment after decades of neglect by the central authorities in Moscow. "Baku oil was sold for a price set lower than that for mineral water," says Sabit Bagirov. "Oil-drilling equipment is old and worn-out: Moscow didn't bother to reconstruct or modernize plants."
Once the Soviet authorities struck oil in Western Siberia in the l950's, the vagaries of central planning meant all resources were redirected towards the new discoveries and away from the cash starved Azeri industry. But even with more funding, the Azeris could not have exploited their off-shore sites without foreign help. The Soviet Union simply had no technology for deep-water drilling. So the Apsheron Sill stayed largely untapped.
Now many of the deals being negotiated with Western firms have components for increasing output from existing onshore wells. New Western equipment should help the Azeris dig deeper and cleaner, reversing a depressing legacy of acute environmental damage caused by sloppy drilling and obsolete technology.
The Azerbaijanis also want to harness their natural gas, much of which has simply been vented-allowed to escape into the atmosphere, just like the propane jets on Burning Hill. The republic already produces 9 billion cubic meters of gas annually, but an estimated 2 billion cubic meters is vented every year in the Caspian Sea. Deals are already being worked out to see this gas put to better use.
Azneftkhimya and Pennzoil signed an agreement in October on a gas utilization project which will see gas from the Ganeshli field gathered, compressed and transported to a processing plant south of Baku.
The logic of increased domestic gas production is simple. Azerbaijan currently imports much of its gas from across the Caspian from the fellow ex-Soviet republic of Turkmenistan. But the Turkmens recently doubled gas prices, forcing Azerbaijan to look to its own resources.
There is another convincing argument for increased gas production. Gas is a much cheaper energy source for the country's electricity power plants, which currently burn fuel oil. "Azerbaijan's domestic oil consumption is 8 million tons a year," says Sabit Bagirov. If they could switch to gas, Baku could free up more oil for export.
The accelerated pace of negotiations with Western firms can be attributed to the efforts of Bagirov, a close adviser to Azerbaijan's new President Abulfaz Elchibey. He replaced the old Azneft head in September, in what was widely seen as a purge of the corrupt old guard close to ex-President Ayaz Mutalibov.
But international companies remain slightly suspicious of the Azeri way of doing business. There are no rules governing how tenders and concessions are awarded, and much seems to depend on personal ties between negotiators.
"Oil companies will be more attracted to this place when the licensing regime is embodied in law, and is not dependent on the caprice of some government official," said one Western diplomat. So far, firms have only received the right to negotiate and conduct feasibility studies: no exploration rights have been granted, no contracts signed. The risk of a breakdown in talks is very real.
But whatever the final alignment of forces, Azerbaijan is staking its future on oil-and foreign help. "The future development of the Azeri economy is bound up with the oil industry," says Bagirov.
The Zoroastrians drifted to Baku's shores from northern Iran, attracted by the miraculous streams of burning gas. Now the foreigners are back, drawn by Azerbaijan's eternal flame, and pledging to turn Baku into the economic powerhouse of the Caspian.
