2015 Ninth Annual Baku Summer Energy School: Exploring the Caspian Oil and Gas Industry
Why did you choose this particular country/internship?
This spring I did considerable research into energy-related coursework and internship opportunities for the summer. In March, I spoke with a former School of Foreign Service (SFS) student currently working at ExxonMobil. She spoke highly of the BSES program, spotlighting the program’s instructional component as well as the various networking opportunities with energy professionals, academics and other students. I also met briefly with Dr. Brenda Shaffer, an SFS adjunct professor and Caspian energy subject matter expert. Dr. Shaffer has extensive experience in the region and was involved in crafting the BSES curriculum nine years ago. She echoed similar sentiments and suggested the program would serve as a valuable primer for her Caspian Energy Theory and Practice course, which I plan to take in the fall.
Prior to my arrival, I had a general understanding of Azerbaijan’s position as a major oil and natural gas exporter in the Caucasus region, but my energy studies to this point have focused primarily on upstream oil and gas production in the Middle East. As I investigated the political economy of Azerbaijan, I thought it could be an intriguing place to broaden my understanding of international energy policy. Despite the country’s relative lack of geopolitical clout compared to its southern neighbor, Iran, and northern neighbor, Russia, Azerbaijan is an historically prominent global oil producer and exporter dating back to the late 19th century, through the 20th century (largely as a Soviet republic), and currently as an independent, sovereign state. Since the collapse in oil prices, and similar to other resource-dependent economies, Azerbaijan has faced major budget shortfalls and dramatic decreases in annual revenue. As the government scales back its annual budget to accommodate low oil prices, the Ministry of Energy and SOCAR are poised to produce and export the country’s significant natural gas reserves - and serve as a Caspian transit hub - for export to the European Union (EU). European natural gas demand has been weak of recent and future demand projections are varied, though EU governments are looking to improve their energy security, in part by diversifying import supply away from Russia’s Gazprom, which holds nearly 60% market share in EU countries. The Azerbaijanis have teamed with industry and a host of other governments to initiate a Southern Gas Corridor pipeline that can serve European markets by the end of the decade and beyond. Significant challenges remain, including political disputes and long-term market and project finance uncertainties, which may call into question the project’s economic viability. Nevertheless, my sense is that SOCAR officials and some regional energy experts are optimistic as Azerbaijan seeks to position itself not only as a significant natural gas exporter and transit hub, but also as a politically and geo-strategically western-aligned country.
What is the best day you’ve had on your trip?
I and three other American participants had an opportunity to meet with US Ambassador to Azerbaijan Robert Cekuta prior to a regularly scheduled afternoon seminar with BSES. What was originally scheduled for a half hour meeting went almost as an hour as we casually, yet candidly, discussed Azerbaijani and regional issues, as well as our initial impressions of the Baku. Ambassador Cekuta struck me as both down-to-earth and engaging, and genuinely interested in our perspectives. Having only arrived in Baku this February, it seemed the Ambassador was still trying to round out his own impressions of Azerbaijan. Following our meeting, my colleagues and I returned to ADA for an afternoon seminar on international oil and gas law. We received a dense, “death by powerpoint” presentation from a Finnish lawyer who teaches international energy law at the University of Eastern Finland. I appreciated the presentation’s substance, though stylistically it left much to be desired. I suppose there’s only so much you can stylize powerpoint slides on production sharing agreements, joint ventures, concessions and related oil and gas contract law. In any case, I found the presentation could be a useful “off-the-shelf” reference piece, and was pleased I could speak with the professor for a while afterward.
Did anything surprise you?
In my two week stay I was particularly surprised by this city’s varied socio-economic landscape. In some respects, Baku has all the trappings of Dubai. Arriving into the city from the airport, you’re instantly struck by the glitzy skyline; with the city’s massive Flame Towers and Baku’s own Trump Tower looming above. These buildings and others portray flashy, digitally-imposed displays and marquees, some showing the Azerbaijani flag and others welcoming the country’s guests to the first annual European Games which Baku hosted in June. The city’s main thoroughfares and even its gas stations are also impressively lit up. I joked with my colleagues that facades of SOCAR gas stations look like ultra-modern, chic bed and breakfasts you might find in the wealthiest neighborhoods of Moscow or London. This landscape stands in stark contrast to what I found in some areas of Baku the following day. The city does in fact boast some rather pristine parks and open, green spaces, as well as prominently displayed shopping malls and high-end fashion which catch the eye in daylight. The city however is also interspersed with neighborhoods containing very modest storefronts, markets and apartments you would expect to find in a developing country. In some instances, this landscape butted up against ornate, almost gaudy apartment buildings and office spaces which were mostly vacant. Baku city planners seem to have anticipated volumes of tourism, especially high-end tourism and consumption, which simply hasn’t materialized. Moving forward, Azerbaijan hopes that tourism can meaningfully contribute to the country’s economic diversification away from oil and gas. The large oil rents the country accrued in the nine years preceding mid-2014 afforded the government an opportunity to invest in commercial, residential and urban infrastructure which has superimposed Dubai-like “modernity” on parts of the city and potentially masked some of the relative deprivation in certain areas. That said, I was thoroughly impressed with the preservation of Baku’s Old City, a UNESCO World Heritage Site which dates back to at least the 12th century (some contend the 7th century). Touring around the well-maintained Maiden Tower and the Palace of the Shirvanshahs, I was impressed with the Old City’s historical integrity given that Bakubans continue to inhabit the area. Perhaps not surprisingly, my overall impressions of the city were mixed. I found some areas to be charming, while others were somewhat gaudy and inauthentic.