In the southern Caucasus region The Republic of Azerbaijan is bounded on the north by Russia, on the east by the Caspian Sea, on the south by Iran, on the west by Armenia, and on the northwest by Georgia. The current population of Azerbaijan reached is 10,2 million by April of 2021, based on latest United Nations data. The territory of country covers an area of 86 600 square kilometres. The capital and the largest city of so called land of fire is Baku. The primary sources of energy and the main export products are oil and gas. Since its independence in 1991 large oil and gas reserves pushed the country's economy to strong growth in the 1990s and 2000s. Oil and gas production increased considerably in the 2000s, with the discovery of the Shah Deniz gas field reached record levels in 2010.
Energy mix of Azerbaijan is heavily concentrated on fossil fuels, with oil and gas accounting for more than 98% of total supply. The country's electricity generation of count is dominated by natural gas (90%), while large hydro generates 8%. Electricity sector also plays an important role in Azerbaijan's social and economic development along with the oil and gas sector. It is sufficient to cover domestic demand, and the power system is capable of supplying electricity to almost the entire population.
Azerbaijan has strong potential for renewable energy development because of the excellent solar and wind resources and significant prospects for biomass, geothermal and hydropower. Renewables also offer the most prominent low-carbon solution to meeting Azerbaijan's climate targets to reduce its greenhouse gas emissions by 2030.
The biggest fleet in the Caspian Sea belongs to Azerbaijan. Some countries on the eastern shores of the Caspian Sea transport their hydrocarbon resources to international markets through Azerbaijan, thus Azerbaijan has become not only a supplier but also a reliable transit country. Estimated geological reserves of the Karabakh field discovered in 2020 are more than 60 million tons of oil. It is a first oil field discovered in the years of independence.
Azerbaijan has one of the highest energy self-sufficiency ratios in the world because of this large hydrocarbon production: country's energy production is more than four times its energy demand.
In 1846 the first oil well was drilled in Azerbaijan, and the country became the first historical homeland of oil in the world. The first oil refinery was constructed in Baku in 1859. A development of the oil industry in Azerbaijan has started in the same year. It was more than a decade before the Americans have made their discovery of oil in Pennsylvania. At the first stage-for the first time in the world oil was extracted by an industrial method from the well located at 21 meters deep in the Bibi-Heybat an oil field. A number of oil wells were discovered as the well drilling technologies have developed. The increase in the production of oil led to the development of the oil infrastructures, and a creation of hundreds of companies engaged in a production, a refining and sales.
The big desire of national leader Haydar Aliev to turn an independent Azerbaijan into a modern, powerful country with sustainable economic development, determined the oil strategy, which ensured the involvements of foreign investors in the development of Azerbaijan's oil field.
On September 20, 1994, under the leadership of national leader Heydar Aliyev "The Contract of the Century" was signed, which became the turning point for Azerbaijan's 20th-century history due to its political, economic, and strategic importance. The parliament of Azerbaijan ratified "The Contract of the Century" on December 12, 1994. The $7.4 billion agreement involved 11 international oil companies from 7 countries: Azerbaijan, USA, UK, Russia, Turkey, Norway and Saudi Arabia as contractor parties. The historical agreement opened the way to another 26 contracts with 41 oil companies from 19 countries. The current assessment of Azeri-Chirag-Gunashli fields exceeds 1 billion tons of oil, which were initially estimated to have 500 million tons.
Oil started to be exported to the Black Sea by the Baku-Novorossiysk pipeline in late 1997. In 1999, another pipeline from Baku was commissioned to the different Black Sea port -- Supsa. The first tanker carrying Azerbaijani oil was sent to the world markets in December 1999.
Globally important oil pipeline The Baku-Tbilisi-Ceyhan was a crucial step towards making Azerbaijan an energy corridor. The foundation of once considered as a myth the pipeline was laid in 2002 in the result of continuous effort of national leader Heydar Aliyev. In May 2005 inauguration of the pipeline took place with the participation of the President of the Republic Azerbaijan Ilham Aliyev. First Azerbaijani oil was shipped from the Turkish port of Ceyhan in 2006.