It also contains the world's largest deposits of natural gas (Energy Information Administration 2008).
The breakup of the former Soviet Union has attracted much of the world's interests in the huge oil and gas reserves of the Caspian Sea region. The newly independent countries have signed many contracts worth billions of dollars to develop the region's oil and gas fields. The Caspian Sea has the potential to become one of the major oil and gas production areas in the world similar in its capacity to the North Sea and the Gulf of Mexico (Energy Information Administration 2008).
During World War II, Azerbaijan's oil production peaked at about 500,000 barrels per day (bbl/d). Oil extracted from Azerbaijan constituted 71.4% of overall oil output of former Soviet Union. Following the war, the former Soviet Union directed resources elsewhere causing Azerbaijan's oil production to drop dramatically. In 1991, Azerbaijan gained its independence from the former Soviet Union and oil production was at a minimum low of 180,000 bbl/d (Energy Information Administration 2008).
The ability of Azerbaijan to develop its oil and natural gas resources was dependent on the availability of sources of capital and technology. Since then, Azerbaijan officials have been trying to attract foreign investments into their oil and gas industry. Azerbaijan's has 1.2 billion barrels of proven oil reserves in addition to enormous possible reserves in the Caspian Sea. These oil reserves in addition to successful governmental policies have attracted foreign international investment to Azerbaijan. Since 1996, over $3.4 billion has been invested in the oil sector with expectations to reach $2 billion in 2006. Ever since, Azerbaijan's oil industry experienced a boom reaching almost 800,000 bbl/d in 2007. Much growth is still anticipated during the 21st century. It is expected that by 2010, Azerbaijan's oil production would exceed 1.5 million bbl/d (www.stat.gov.az, 2006).
New fields in the Caspian Sea were developed through joint ventures (JVs) and production sharing agreements (PSAs). JVs were later converted to PSAs in 2000, due to their restrictions on the ability to export their oil (Energy Information Administration 2008).
The Caspian Sea has 30 billion tons of oil, 18-20 trillion cubic meters of gas, which comprises 15 percent of the world carbon-hydrogen resources. The oil deposit that belongs to Azerbaijan 3-5 billion tons of oil, 5 trillion cubic meters of gas the oil production in Azerbaijan is expected to increase rapidly (SOCAR, 2008)..
Azerbaijan carries most of its oil products from the Caspian Sea to the European market through the following four major pipelines: Baku-Tbilisi-Ceyhan (BTC), Baku-Novorossiysk, Baku-Supsa, and Caspian Pipeline Consortium (CPC) as shown in figure 1 (Energy Information Administration, 2008).
Figure 1: Four Major Pipelines of Azerbaijan
The Caspian Sea is also rich with natural gas. The largest natural gas field in Azerbaijan is Shah Deniz. Azerbaijan is planning to supply natural gas to Turkey and European countries through the development of South Caucasus Pipeline (SCP) (SOCAR, 2008).
The former Soviet Union lacked of environmental protection has caused heavy environmental damages to Azerbaijan and the Caspian Sea. Mismanagement of the oil industry has generated much pollution and alteration of the natural environment of Caspian Sea region. Furthermore, oil and