Azerbaijan Oil Fund’s assets to go down from now on

In 2010 Azerbaijan had a peak of oil production and a year later the country had the highest oil and gas profit index.

            Analysis of Caspian Barrel proved that “during five years” Azerbaijan left behind another rating. This time it was the peak period of assets of the State Oil Fund of Azerbaijan (SOFAZ).

All these events passed unnoticed in the country: the officials keep silence and the government does not make public statements and even media does not have demand in such issues.

In early 2015 SOFAZ assets totaled $37,104,100,000. From January to March 2015 they went down by $2,173,600,000 and totaled $34,930,500,000. Two factors favored these two factors: reduction of oil prices by 48% in quarter 1, 2015 and reduction of European currency rate against US dollar (about 35% of SOFAZ assets are in Euro).

                           Dynamics of SOFAZ assets ($ billion)

Caspian Barrel’s analysis has shown that SOFAZ’s assets will no longer be able to exceed $37.1 billion, because of huge expenses of the Fund. The biggest expense item of the Fund is transfers to the state budget. Over $10 billion a year is spent for support of the state budget. This year the Fund started funding the costs related to the gas projects in Azerbaijan. SOFAZ Executive Director Shakhmar Movsumov told journalists in March 2014 that during five years the Oil Fund will invest over $10 billion into the international gas projects in Azerbaijan. Last year the Fund spent only $51 million for this purpose and the forecast for this year is $1.28 billion (although about 30% of the funds have been spent in quarter 1, 2015). This means that till the end of 2018 the Fund will spend on average over $2.5 billion a year for these purposes.

However,  SOFAZ also spends money to build a new generation semi-submersible drilling rig for SOCAR. About $500 million has been already spent for this purpose and about $600 million more is planned to be invested in the coming two years. The Fund will also have to support construction of the capital-intensive project – construction of the gas chemical complex of SOCAR, which started in 2016 and will be completed in 2021.

With the oil price of even $100 per barrel, incomes of the Oil Fund will hardly be able to cover costs in the future. At present over 92% incomes of the Fund come from sale of profitable oil from the Azeri-Chirag-Guneshli (ACG) fields. In 2016 oil export from these fields will significantly decrease.

Table of incomes and expenses of the Oil Fund