Azerbaijan is test case for BP’s new green agenda
BP is leading the charge into a carbon-free world by pledging to dramatically reduce its investment in traditional fossil fuels. Under new CEO Bernard Looney, BP has a strategy to reinvent itself as a “green” producer, partly in order to get away from the “big polluter” tag, and partly to attract some of the big investment funds that are supposedly itching to get into environmentally friendly energy.
The strategy has won the applause of responsible environmentalists, but so far has not shown through in its share price — down 60 percent on the year. Investors are just not convinced there is enough money in renewables to make up for the revenue it will lose from traditional oil.
Nowhere is its dilemma in sharper focus than in its operations in Azerbaijan. BP has been the mainstay of the country’s energy industry since it signed the “contract of the century” in 1994 to develop and export oil from the Caspian country, replacing its old links with the former Soviet Union from which it had recently escaped.
Not only did BP agree to develop Azerbaijan’s rich Caspian oil and gas reserves, it also took the lead role — along with the Azerbaijan government and other oil companies — in building an expensive new pipeline to export fuels toward European markets.
The result was the BTC — the link between the capital Baku through the Georgian city of Tbilisi and down to Ceyhan, a port on Turkey’s Mediterranean coast. That convoluted route was chosen to avoid passing through Armenia, with whom Azerbaijan had just experienced a savage conflict that ended with hundreds of thousands of deaths and refugees.
The Azerbaijan-BP linkup has worked well for both sides. Azerbaijan got the oil revenues to help bring it out of the Soviet era, and BP got access to oil and gas to add to its global reserves’ portfolio. It worked so well in fact that it was extended, and the deal now runs until 2050.
But can that arrangement continue in the new green era?
BP’s predicament is that it wants to reduce its hydrocarbon profile, but it also needs the revenue from fossil fuels to fund its investment in renewables. You might think its Azerbaijan operations were ripe for disposal, to reinvest the proceeds in solar or wind. BP does not necessarily see it like that. Some $72 billion has been invested in the country since operations began, and new fields are being developed in the Caspian, to feed into the BTC and the new South Gas Corridor. The company takes the view that the heavy investing has already been done, and now all it has to do is count the money as it flows in.
That was the calculation at least until three weeks ago, when hostilities between Azerbaijan and Armenia broke out again. This time it looks more serious than at any time since the truce of 1994, and large-scale military action has not been prevented by any of the cease-fires that have lasted only a few hours.
Especially worrying for BP — and for Azerbaijan — is that several missiles seem to have been aimed at the BTC pipeline, though it would need more-or-less a direct hit to seriously damage the deeply dug-in facility. But if such a strike occurred, or one of the above-ground pumping stations were hit, it would in theory choke off Azerbaijan and BP oil revenues for however long it took to repair. BP is obviously not happy at running operations in a war zone, but knows who its friends are in the dispute. Its regional CEO recently offered support to Azerbaijan in its fight for territorial integrity.
Could the renewed violence be the occasion for BP to pull out of Azerbaijan altogether? That does not seem to be on the cards at the moment, but the word from the company is “never say never.” It recently pulled out of Alaska after 60 years of operations there.
The next step in BP’s mission to reinvent itself could depend on the flightpath of an Armenian missile.