Summer 1994 (2.2)
The History of Oil
by Natig Aliyev
The history of Azerbaijan and its capital Baku is indissolubly connected with oil from the earliest days. In ancient manuscripts, written prior to the time of Christ, references are made to oil extraction from wells and its utilization in life, construction, medicine and the military. Baku is referred to in these documents.
Ancient Knowledge of Oil in Baku
More than 2600 years ago, people already knew the value of this "fire water." During the siege of Persia in 331 BC, Alexander the Great's tent was lit by fire vessels made of clay and filled with oil taken from inhabitants living near the Caspian seaside. Oil was one of the elements of the famous "Greek Fire" used by the Arabs as an incendiary mixture. It was used by the Greeks to burn their enemy's navy - an idea that many cities and fortresses would use themselves later on in defense.
The first reliable information about oil extraction on the Absheron Peninsula, where Baku is located, dates to the 7th and 8th centuries. At that time, the oil was taken primarily by very primitive or natural ways. In the 10th century, the Arabian traveler, Marudee, reported that both white and black oil were being extracted naturally from Baku.
Oil and the Zoroastrian Religion
The Absheron Peninsula was famous for its eternal fires - the underground fire gases rising to the earth's surface. Zoroaster established fire worshipping and Baku became one of their most sacred sanctuaries. People from throughout the world wished to visit and bow before the eternal flame. In the Baku region, there were three cult hearths or "Temples of Fire" - one in Surakhany, another at Pirallahy Island, and the third at Shubanu Mountain.
The oil naturally promoted commercial development and ties with neighbors to the East, West, North and South. Carvans of camels loaded with vessels of oil exported Baku oil to other countries. To this day, the remains of two Carvansarays still exist, the Bukharian and Indian, providing evidence of the wide commerce with countries of Middle Asia and India.
As the demand for oil increased, people looked for new ways to extract the oil. It was in Azerbaijan that the first oil extraction took place. In Balakhany, one of the districts of Baku, there is a 35 meters deep well with stone at the bottom upon which is carved that it was dug out in 1594 by a skilled workman named Mamed Nuroghlu . A Russian scientist Gemlin who visited Baku in 1771 and mine-engineer Voscoboynikov in 1827 researched and described these wells and their technology. By the end of the 19th century, Baku's fame as the "Black Gold Capital" had spread throughout of the world.
In most oil-extracting countries, the oil-industry dates from the moment mechanical boring equipment begins operations. The first oil well in the world was drilled in Baku in 1847 at Bibi-Eybat oil field under the direction and initiation of Russian Engineer Semenov.
Baku - Black Gold Capital of the World
In 1850, oil extraction in the world had reached about 300 tons. By 1881, it had grown to 4.4 million tons. By 1891, 22.5 million tons of which 9.5 million tons came from the US and 11.4 million tons from Russia of which 95% was extracted from Azerbaijan.
By the end of the 19th century, Baku's fame as the "Black Gold Capital" spread throughout of the world. Skilled workers and specialists flocked to Baku. By 1900 Baku had more than 3,000 oil wells of which 2,000 of them were producing oil at industrial levels.
The Nobel Brothers and Oil
In the history of Baku oil, it is impossible not to note the investment of foreign companies, especially the Nobel family. Robert Nobel was the first of the Noels to understand the future and success of the oil-industry in Baku. He convinced his brother Ludwig to invest in oil extraction. In 1873, they established the Nobel Brothers Oil Extracting Partnership.
Thanks to his skillful leadership and personal qualities as an organizer, Ludwig, a talented engineer, developed many inventions that helped modernize the technology related to oil production.
The Nobel Brothers Company, for example, bought the first tanker in the Caspian Sea, in order to reduce transport expenses. The ship, which they called Zoroaster, was built according to drafts made by Ludwig Nobel in Sweden at the Motall Shipbuilding Factory in 1877. Because of the success of that first tanker, the Nobel Brothers built an entire fleet of tankers, giving names to the ships such as Moses, Spinoza, and Darwin. The tankers increased the turnover of goods to such an extent that by 1890, Baku had become the busiest port in the world.
The next technique they used to modernize their production of oil was to introduction of black oil for heating the ships engines. Ludwig Nobel invented several kinds of black mineral oil pulverizing systems for better burning. They were successfully installed in his own ships to heat the boilers, and resulting in considerable profit for their company.
The Nobel Brothers also were first to introduce railway tanks for oil transportation. In 1878 they built a pipeline which reduced the expenses of transportation by five times and paid for itself within a single year.
Great changes were introduced in the area of oil storage. Taking into account of the chaotic oil storage of the ground pits, vessels and lakes where great quantities of oil evaporated or simply penetrated back into the ground, the Nobel Brothers started to use iron reservoirs for oil storage and soon there were huge tank parks not only in Baku but other cities as well.
All this modernization allowed the Nobel Brothers to take the lead in the oil business by 1900 and to gain tremendous profit during the 47 years of their partnership in Azerbaijan.
The Rothschild Company and Shell lead by Samuel Markus were also involved in oil production in Baku. More than 50% of the oil extraction and 75% of the oil production commerce were held by these three foreign companies.
Oil turned Baku into a center of world oil commerce and enabled it to exert an incredible influence on the entire Caucasian economic development. In 1897-1907, the largest pipeline in the world at that time was built from Baku to Batumi on the Black Sea Coast, a distance of 883 kilometers. The diameter of the pipeline was 200 mm and was equipped with 16 pumping stations.
Prior to that , in 1883 a railway was laid from Baku to Tbilisi, enabling the oil to be transported by trains. In 1880 a 26 kilometer railway was built connecting Baku to some of its oil field - this was the first of its kind.
Of course there was a flurry of bank activity and various financial societies and organization were created. In 1884, the oil barons in Baku established their own organization, the Oil Extractors Congress Council for the discussion of oil business. They had their own magazine, Oil Business, a library, school, hospital, and pharmacy. For 6 years, the Council of Oil Extractors Congress was directed by Ludwig Nobel (1884-1890).
The oil industry greatly influenced the architectural appearance of Baku as a city. Administrative, social and municipal institutions were established which, in turn, made decisions about the city's illumination, roads, streets, buildings, eventual telephone stations, and horse-drawn trolleys. Gardens and parks were developed and hotels, casinos and beautiful stores were built.
The local oil barons began competing with each other, trying to distinguish themselves by building luxurious majestic palaces as residences. Each one differing from the other in style and architecture but each one exceptionally beautiful. Evidence remains today of the influence and philanthropy in architecture, art, science and other forms of philanthropy, the best known of whom are Zeynalabdin Taghiyev, Shamsi Asadullayev, and Musa Naghiyev. (See Article on "Legacy of the Oil Barons" by Fuad Akhundov).
Today, Sumgait has one of the largest chemical industries dealing mostly with oil-related products. Factories there supply great amount of chemicals not only to Azerbaijan but to many of the neighboring countries as well. Ali-Bayramli, another industrial town also was developed because of oil, as was the city, Naftalan, where a very unusual kind of oil called "white oil" is produced which is unique to the entire world as it has healing power for specific diseases. People from all over the world come to the sanitarium there to benefit from its curative powers.
Oil and the International Scene Today
Today we are beginning to take our first steps into the world market economy. As oil is our richest commodity, we want it benefit and work for the good of our nation. We used to believe that much of the oil was onshore but now we've come to realize that much of it is also offshore so we are developing and exploring new oil wells offshore. It's not new to say that the potential is great. For instance, Azerbaijan has 350 ships that serve the oil economy alone plus tankers, cranes and ships which build submarine pipelines.
Today, the total amount of oil that could be produced is a billion tons. This does not include areas in the sea which haven't as yet been developed which alone is sufficient to revive our economy for scores of years.
Our policy today is to attract foreign organization and companies to get involved with us. We want to use their financial support and exploit the oil industry together making it beneficial for us both.
In the future as we increase oil production, we won't be able to refine all of it by ourselves. We'll have to export it out of Azerbaijan as raw material via pipelines. We are investigating a variety of options especially those that link us to the Black and Mediterranean Seas.
Because oil economy has an immense infrastructure, many service industries will be involved. This means houses, roads, railroads, hotels, telecommunications, warehouses, have to be built. A handful of companies cannot do the job, hundreds will be needed to relate to the petrochemical, chemical , machinery producing factories, etc. Contracts will be selected on the basis of competitive bid from companies from all over the world.
We are now in the process of working on the Consortium Oil Contract. Recently, we had a meeting with President Heydar Aliyev and provided him with a summary of the history of the relationships we've had with Western companies these past three years. He issued a decree allowing us to continue and accomplish the goals of this project. We have hired finance and legal consultants from well-known companies and are presently involved with working out the conditions and details related to the Contract.
Value of the Upcoming Exhibition and Conference
Exhibitions, and business conferences that are held in Baku play a significant role in this project. It demonstrates to the world community that Azerbaijan is once again an oil country. Visitors who attend the exhibition and conference get a chance to see for themselves the potential in our country, the conditions that exist here and the political climate. We are looking forward to a great exhibition at The International Caspian Oil and Gas Conference and Exhibition in late May.
Natig Aliyev is President of SOCAR (State Oil Company of Azerbaijan Republic) and will be giving a Keynote Address at the upcoming International Caspian Oil and Gas Exhibition in Baku in May. He received his doctorate in 1974 and has written some 40 scientific articles related to oil.
From Azerbaijan International (2.2) Summer 1994.
© Azerbaijan International 1994. All rights reserved.