Concerns in the post-oil period

In order to better understand the concept of the post-oil period, we must pay special attention to two factors. The first is the sharp decline in production and the lack of opportunities to benefit from oil revenues as before. The second is that oil production has not completely disappeared. When we say the post-oil period, it is not true to imagine that there will be a world without oil. It will not be possible to drill oil with traditional technology, along with simply declining production. Oil production can be achieved through modern technologies, new know-how, hydro-explosions, and modern equipment.

However, recent trends have led to a number of speculations about a change in the nature of this process. Such that the world's oil demand in 2030-2040 will be in a completely different direction. If the world's interest in the oil and gas sector continues in a pessimistic scenario in the next 15-20 years, long-term demand will not increase. But the demand for the alternative energy sector will increase sharply. That is why today oil and gas companies around the world are rapidly increasing their investments in the renewable energy sector. It is impossible not to see this in BP's strategic vision. [1] BP will continue to operate in the oil and gas sector for the next 10 years, and investment will be made during this period, but no new oil and gas projects will be launched. Instead, investment in the renewable energy sector will increase. So, for oil and gas companies, the period of transformation has begun.

What changes are taking place in our government's energy policy?

The speeches of politicians, officials, and other artists, which are given solely by the power of emotion, about economic growth, which is driven by the oil factor, are like praising a drug addict with kind words about his temporary good mood. These are ideas that make the masses believe a fake image. Such pathos is like using drugs to make expression effective. It is temporary! The lasting thing is the effect of the thought-provoking text it can give in the speech and the belief in the scale of its thought. Even if you add a false mind to the speech, the essence will not change.

At present, our economy is behaving like a drug addict, which is addicted to oil. The oil "needle" manifests itself because it affects its veins, and if that needle is stopped, the economy returns to normal. It would get rid of the unnatural state. We can bring the economy back to its natural state by moving it away from the oil needle. Then the natural state of our economy will be very ugly.

To better understand the post-oil period, it is enough to look at the level of oil production so far and the rate of economic growth due to it.

Table 1. [2] 

Statistical indicators of gross domestic product (GDP) in Azerbaijan for 2010-2019

If you pay attention to the calculations, you will see that there has been an expansion and contraction of GDP in line with oil production. Over the years, GDP growth has depended only on the production and export of raw materials. Therefore, the development of the non-oil sector must be a priority. In this regard, the Azerbaijani economy must prepare itself for the post-oil period. Because the peak period for oil production in Azerbaijan was considered until 2012. Further economic growth trends will depend only on the management of the oil rails created so far and the assets derived from them.

Our oil production: in figures

On the eve of World War II, oil production in Azerbaijan was 23 million tons. Although the development of offshore fields after 1949 increased the volume of oil produced, in general, since the 1960s, there has been an annual decline in oil production in the country. According to experts, Azerbaijan has more than 1 billion tons of oil and 800 billion cubic meters of gas reserves. Over the past 150 years, 1 billion 325 million tons of oil has been exploited in the country. Let's look at the level of oil production in recent years.

Table 2. Oil production in Azerbaijan. It was compiled by the author on the basis of the SOCAR’s data. [3]

44.4 million tons in 2008

50.4 million tons in 2009

50.8 million tons in 2010

45.6 million tons in 2011

43.4 million tons in 2012

43.5 million tons in 2013

42.0 million tons in 2014

41.6 million tons in 2015

41.0 million tons in 2016

38.7 million tons in 2017

38.8 million tons in 2018

37.5 million tons in 2019

Let's look at the main trends of the last 20 years. In 1998, oil production was 11.4 million tons; however, in 2009, this figure rose to 50 million tons. Over the past 10 years, oil production has decreased by 13 million tons, from 50.4 million tons in 2009 to 37.5 million tons in 2019. This means that the current decline in the last 10 years has even exceeded the total production in 1998.

To clarify the question of how much our state budget could benefit from this, it is enough to pay attention to the price level of oil per barrel for several years. The price of oil in the state budget was set at $ 75 in 2009, $ 45 in 2010, $ 80 in 2011, $ 80 in 2012, and $ 100 in 2013. The fact that oil prices have not approached the $ 60-80 range claimed by OPEC in recent years suggests that expensive oil prices have been a thing of the past.

When evaluating in both contexts, it is clear that we have no right to be optimistic. Because our situation is stuck in two favorable positions, which are very important for our economy. On the one hand, we are entering a sharp decline in oil production, and on the other hand, with the decline in world oil prices. The extent of such a change for the worse should make us think very deeply.

I remember that 12 years ago, in 2008, the Royal Institute of International Affairs of the United Kingdom published a report [4]. In that report, the Royal Institute of International Affairs, one of Britain's leading think tanks, analyzed the economies of oil-rich countries. The report noted that only 3 of the 12 oil countries were able to prepare their economies for the next stage without hydrocarbons. These three countries were Malaysia, Indonesia, and Norway. The remaining countries - Algeria, Nigeria, Angola, Azerbaijan, Kazakhstan, East Timor, Saudi Arabia, Kuwait, and Iran - will face challenges and deprivations in this direction.

We, the economist experts who read this report, wished that the predictions made in this report would not come true. Unfortunately, the situation predicted in this report, which I mentioned in my logbook at the time, is now accepted as a reality.

When I assessed the level of development of non-oil sectors in our economy, I described the situation figuratively in my social network account. I want to write that opinion here: “You look at the garden, the name of which is economy. You cannot see a single fruit tree (non-oil products). All of them are willows looking downward and spruces facing the sky. Can there be such a garden and gardener?!”

What about the footsteps of the post-oil period? Just like that!

Mammed Talibli

Sources:

[1] BP’s reports

[2]  State Statistical Committee

[3]  SOCAR’s data

[4]  Report of the Royal Institute of International Affairs of the United Kingdom