First oil boom in First oil boom in AzerbaijanAzerbaijan

The development of oil The development of oil industry in Azerbaijanindustry in Azerbaijan

and its relevance for us todayand its relevance for us today

Created by Gulnaz Hajiyeva and Ulker Aslanova

IntroductionIntroduction

Azerbaijan is recognized as one of leading countries in the oil industry in the world enriched with knowledge and experience in oil production

Information on oil production in Azerbaijan was repeatedly mentioned in the manuscripts of scientists and travelers in the Middle Ages and it was noted that such an uncommon product would generate a significant income

Today we want to take you back many years and show you how the oil industry was developed in our country

Azerbaijan oil in Azerbaijan oil in historyhistory

Arabian historian Masudi Abdul Huseyn (9th century)-There are two main sources of Black oil and white oil (kerosene) on Apsheron

Marco Polo (13-14th century) – Apsheron peninsula was dotted with oil wells and the oil extracted was used for lighting and for heating purposes.

Engelbert Kaempfer (15th century) - oil was transported via wineskins on four-wheeled carts to Shamakhi and Baku. From Shamakhi it is taken across country on camels. From Baku it is taken by sea to other regions

Turkish traveler Ortakoy (17th century)- The area around Baku has a “burning ground”. The ground is hot from the burning fuel beneath it

Arabian historian Masudi Abdul Huseyn (9th century)-There are two main sources of Black oil and white oil (kerosene) on Apsheron

Marco Polo (13-14th century) – Apsheron peninsula was dotted with oil wells and the oil extracted was used for lighting and for heating purposes.

Engelbert Kaempfer (15th century) - oil was transported via wineskins on four-wheeled carts to Shamakhi and Baku. From Shamakhi it is taken across country on camels. From Baku it is taken by sea to other regions

Turkish traveler Ortakoy (17th century)- The area around Baku has a “burning ground”. The ground is hot from the burning fuel beneath it

Late-1800s Baku during the Oil Late-1800s Baku during the Oil

Boom, view from Bibi-Heybat regionBoom, view from Bibi-Heybat region

Early Views of Baku-Early Views of Baku-continuedcontinued

ContentsContents

General characteristics of the pre-oil General characteristics of the pre-oil boom periodboom period

Beginnings of first oil boomBeginnings of first oil boom First oil boom First oil boom Local oil barons & their activitiesLocal oil barons & their activities Inflow of foreign capital to oil industry Inflow of foreign capital to oil industry Affects of first oil boomAffects of first oil boom Relevance to modern AzerbaijanRelevance to modern Azerbaijan

Turkmenchay Treaty Turkmenchay Treaty (1828)(1828)

Azerbaijan was divided into North and South Azerbaijan was divided into North and South between Russian and Persian Empiresbetween Russian and Persian Empires

Importance of Importance of Azerbaijan’s Oil for the Azerbaijan’s Oil for the Russian EmpireRussian Empire North Azerbaijan became the source of North Azerbaijan became the source of

oil for industry in Czarist Russia. oil for industry in Czarist Russia. The whole economy of Azerbaijan was The whole economy of Azerbaijan was

under Russian controlunder Russian control Russian government took monopolistic Russian government took monopolistic

control of oil production and contracted control of oil production and contracted to individuals under the to individuals under the otkupchina / otkupchina / iltizamiltizam short-term lease system short-term lease system

This was considered to be the main This was considered to be the main obstacle for oil development in obstacle for oil development in AzerbaijanAzerbaijan

Early Oil Extraction Early Oil Extraction MethodsMethods

Early oil extraction methods were very primitive - mainly hand dug wells drilled to very shallow depths (2-3 metres)

In 1813, 136 wells were in Absheron which produced total volume of only 64 barrels of oil per day

In 1825, oil was produced on the Absheron peninsular in Balakhani, Sabunchu, Binaqadi, Bibi-Heybat, Shubani

Oil GushersOil Gushers

Much of early oil Much of early oil production was wasted in production was wasted in blowout gushers and this blowout gushers and this was a very uneconomical was a very uneconomical and environmentally and environmentally harmful processharmful process

Workers were dying Workers were dying because of the gushersbecause of the gushers

The strong gushers were The strong gushers were flooding the houses in flooding the houses in the nearest villages the nearest villages

Oil from wells was lost Oil from wells was lost for nothing because of oil for nothing because of oil gushers gushers

The first successfully drilled The first successfully drilled well in the worldwell in the world

In 1844 in Baku, more than a decade earlier In 1844 in Baku, more than a decade earlier than the oil well in Pennsylvania (USA, 1859), than the oil well in Pennsylvania (USA, 1859), V. Semyonov, the Baku mining engineer, V. Semyonov, the Baku mining engineer, drilled a well 21 m deep using primitive drilled a well 21 m deep using primitive percussion method in the settlement of Bibi-percussion method in the settlement of Bibi-Heybat near Baku Heybat near Baku

This is considered the starting point of This is considered the starting point of industrial oil extraction in Azerbaijan and in industrial oil extraction in Azerbaijan and in the whole world. the whole world.

Drivers of First Oil Boom

Replacement of Iltizam leasing system with an Replacement of Iltizam leasing system with an auction system for the leases in 1872auction system for the leases in 1872

Replacement of all hand dug wells with wells Replacement of all hand dug wells with wells drilled using the percussion method by 1871 drilled using the percussion method by 1871 which which increased the number and depth of oil wells

Partial replacement of manpower with steam Partial replacement of manpower with steam enginesengines

Building of the first oil pipeline in the world from Building of the first oil pipeline in the world from the oil wells in Balakhani to the oil refinery the oil wells in Balakhani to the oil refinery

Early Oil Well Early Oil Well from Late-19from Late-19thth. Century. Century

First Oil Boom Takes First Oil Boom Takes OffOff

1873 marked the beginning of oil 1873 marked the beginning of oil well drilling on a massive scale well drilling on a massive scale

By 1900, Azerbaijan was By 1900, Azerbaijan was producing more than ten million producing more than ten million tons of oil each year which was tons of oil each year which was more than half of the world’s oil more than half of the world’s oil supplysupply

Demand for OilDemand for Oil

LightingLighting

HeatingHeating

AutomobilesAutomobiles

MedicinesMedicines

Changes to BakuChanges to Baku

Attracted migrant workers from all over Attracted migrant workers from all over the Russian Empire, Iran and other placesthe Russian Empire, Iran and other places

Population of Baku increased from 3,000 Population of Baku increased from 3,000 in 1807 to roughly 250,000 in 1900in 1807 to roughly 250,000 in 1900

Multi-cultural city with Azeris in the Multi-cultural city with Azeris in the minorityminority

Building boomBuilding boom

Research & developmentResearch & development

Azerbaijan benefited from the expertise of well Azerbaijan benefited from the expertise of well known chemists and geologists from the whole known chemists and geologists from the whole world such as the Russian chemist D. Mendeleyev, world such as the Russian chemist D. Mendeleyev, creator of the periodic table of chemical elementscreator of the periodic table of chemical elements

As a result, innovative new techniques such as As a result, innovative new techniques such as rotary drilling and gas lift were tested for the first rotary drilling and gas lift were tested for the first time in Azerbaijantime in Azerbaijan

The first oil refinery was built in 1859 in Baku. By The first oil refinery was built in 1859 in Baku. By 1867 there were 15 crude oil refineries1867 there were 15 crude oil refineries

After abolishing excise tax on oil products, many After abolishing excise tax on oil products, many new factories were built with new technologies new factories were built with new technologies allowing the production of new types of refined oil allowing the production of new types of refined oil products products

Construction of First Oil Construction of First Oil Pipeline in the WorldPipeline in the World

1878 - the first oil 1878 - the first oil pipeline in the world pipeline in the world was constructed was constructed between oil fields in between oil fields in Balakhany and the oil Balakhany and the oil refinery in Baku. The refinery in Baku. The length of pipeline was length of pipeline was 12 km.12 km.

1896-1906 the 1896-1906 the construction of Baku-construction of Baku-Batumi pipeline Batumi pipeline carrying 900 thousand carrying 900 thousand tons of oil per yeartons of oil per year

Transportation of OilTransportation of Oil

1873 - The first marine transportation 1873 - The first marine transportation of oil from Baku to Astrakhanof oil from Baku to Astrakhan

The Nobel Brothers were major The Nobel Brothers were major contributors to oil transportcontributors to oil transport;;

– Built the world’s first oil carrying Built the world’s first oil carrying steamship, named “Zoroaster” in 1878steamship, named “Zoroaster” in 1878

– Constructed the first rail tanks for Constructed the first rail tanks for transporting oil in 1883transporting oil in 1883

First oil tankerFirst oil tanker

Azeri Oil BaronsAzeri Oil Barons

Oil boom gave an Oil boom gave an impetus to the impetus to the emergence of emergence of Azerbaijani middle Azerbaijani middle class and class and millionaires. millionaires.

This period This period witnessed witnessed unprecedented unprecedented renaissance in renaissance in Azerbaijani national Azerbaijani national consciousness. consciousness.

Local Oil Barons:Local Oil Barons: Haji Zeynalabdin Haji Zeynalabdin

TagiyevTagiyev Musa NagiyevMusa Nagiyev Murtuza MuxtarovMurtuza Muxtarov Shemsi AsadullayevShemsi Asadullayev Seyid MirbabayevSeyid Mirbabayev Haji Haci AgaHaji Haci Aga Haji Ajdar-bey Haji Ajdar-bey

Ashurbeyov and etc.Ashurbeyov and etc.

Famous Azeri Oil Barons Famous Azeri Oil Barons - Haci Zeynalabdin Taqiyev - Haci Zeynalabdin Taqiyev (1823-1924) (1823-1924)

Born in a poor familyBorn in a poor family

Earned his fortune after he discovered Earned his fortune after he discovered oil on a small piece of propertyoil on a small piece of property

Became an oil-millionaire when he was Became an oil-millionaire when he was about 55about 55

Shared his fortune with his countrymen Shared his fortune with his countrymen by building houses, schools, factories, by building houses, schools, factories, theatres etc.theatres etc.

Founder of the Alexandrian Russian-Founder of the Alexandrian Russian-Muslim female Boarding School, the Muslim female Boarding School, the first school for girls in the Muslim world first school for girls in the Muslim world in the current Institute of Manuscriptsin the current Institute of Manuscripts

Founder of Commercial school (now the Founder of Commercial school (now the pedagogical institute of N. Tusi) and pedagogical institute of N. Tusi) and the Mechanical and Technical School the Mechanical and Technical School (now the Oil Academy)(now the Oil Academy)

Built the first water pipeline to BakuBuilt the first water pipeline to Baku

Institute of Manuscripts which served as Institute of Manuscripts which served as the first school for girls. Built by Taghiyevthe first school for girls. Built by Taghiyev

Classes at first secular female boarding Classes at first secular female boarding school school

Famous Azeri Oil Barons Famous Azeri Oil Barons – Musa Nagiyev (1849-1919)– Musa Nagiyev (1849-1919)

the wealthiest oil baron in the wealthiest oil baron in Baku at turn of the 20Baku at turn of the 20thth. . centurycentury

Financed the building for the Financed the building for the Muslim Philanthropic Society Muslim Philanthropic Society in his son’s memory which is in his son’s memory which is now the building of the now the building of the Academy of SciencesAcademy of Sciences

the founder of one of the the founder of one of the largest male technical schools largest male technical schools which is now the State which is now the State Economic University and Economic University and Baku’s Largest hospital which Baku’s Largest hospital which is now named after Musa is now named after Musa NagiyevNagiyev

Foreign InvestmentForeign Investment

Oil production in Baku attracted investors and Oil production in Baku attracted investors and entrepreneurs from all over the world including the entrepreneurs from all over the world including the Nobel brothers from Sweden, the Rothschild from Nobel brothers from Sweden, the Rothschild from France and Royal Dutch Shell oil companyFrance and Royal Dutch Shell oil company

The inflow of foreign capital into the Baku oil industry The inflow of foreign capital into the Baku oil industry had a direct impact on the exploration, extraction and had a direct impact on the exploration, extraction and transportation of Baku oiltransportation of Baku oil

1898 : Baku was in a pick of its oil industry1898 : Baku was in a pick of its oil industry

With the abolition of the Government monopoly, Baku With the abolition of the Government monopoly, Baku attracted foreign capital resulting in the epoch of oil attracted foreign capital resulting in the epoch of oil boom boom

Nobel BrothersNobel Brothers

Azerbaijan first caught the eye of the Nobel brothers in 1872 when the Russian government offered free competition for plots of lands there.

In 1879 created a shareholding company and became the main owners

Nobel brothersNobel brothers

In 1882, Ludwig invited In 1882, Ludwig invited technical staff to Baku technical staff to Baku and the aim was to and the aim was to establish a colony establish a colony Villa Villa PetroleaPetrolea, located in , located in “Black City" district of “Black City" district of BakuBaku

Oil products from their Oil products from their venture were distributed venture were distributed all over Russia by train all over Russia by train and by ship to Central and by ship to Central Asia and EuropeAsia and Europe

Nobel brothers-Nobel brothers-continuedcontinued

Picture 1:Picture 1: The Nobel Brothers oil wells in Balakhani, a The Nobel Brothers oil wells in Balakhani, a suburb of Bakusuburb of Baku

Picture 2:Picture 2: 1896 -In order to have their own Protestant 1896 -In order to have their own Protestant place of worship in Baku, the Nobels helped finance place of worship in Baku, the Nobels helped finance nearly 50 percent of the construction of the German nearly 50 percent of the construction of the German Kirche. But since the Soviet period, its primary use has Kirche. But since the Soviet period, its primary use has been for concerts been for concerts

Negative Affects of First Negative Affects of First Oil BoomOil Boom

Oil wells in the vicinity of Baku pumping oil into Oil wells in the vicinity of Baku pumping oil into reservoir lakes more than 100 years ago. The reservoir lakes more than 100 years ago. The

ecological disaster still plagues the region.ecological disaster still plagues the region.

Dynamics of Oil Dynamics of Oil ProductionProduction

64 2600

160000

212000

65000

52000

177000

475000

414000

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

500000

1842 1872 1898 1901 1918 1920 1929 1940 1967

Barrel OilPer day

Others36%

Russia28%

Shell20%

Nobels15%

Oil Barons1%

Shares of oil Shares of oil production production

What are the positive lessons of What are the positive lessons of the First Oil Boom for today? the First Oil Boom for today?

Development of a modern oil industry Development of a modern oil industry

Property rights attracted private sector Property rights attracted private sector investmentinvestment

Significant foreign investmentSignificant foreign investment

Investment in oil transportation (water, rail & Investment in oil transportation (water, rail & pipelines)pipelines)

Technological innovationsTechnological innovations

Charity provided by Oil BaronsCharity provided by Oil Barons

Building boom in BakuBuilding boom in Baku

What are the negative lessons of What are the negative lessons of the First Oil Boom for today?the First Oil Boom for today?

Under a colonial regimeUnder a colonial regime InequalityInequality Unsafe working conditionsUnsafe working conditions Pollution Pollution Operating LossesOperating Losses

Thank You Thank You for your for your

attention!attention!!!!!