The Russian firm Lukoil is on course to make $7 billion in profits over the coming decade from a gas field in Azerbaijan that supplies the European Union, according to Rystad Energy data analysed by Global Witness.
The Shah Deniz field is one of the world’s largest gas-condensate projects, and currently the only one in Azerbaijan that exports gas to the EU. The field is operated by the British company BP, with Lukoil owning a 19.99% share of it.
In 2022, as part of EU moves to reduce its dependence on Russian gas, European Commission President Ursula von der Leyen signed a deal with Ilham Aliyev, Azerbaijan’s dictatorial president, to double gas imports from the country.
The EU made the deal even though a major Russian fossil fuel company – along with its project partners including BP – is selling the gas, and stands to benefit financially from the agreement.
Lukoil was Azerbaijan’s third largest gas producer when the EU deal was signed – accounting for 15% of the country’s output according to Rystad Energy – and is set to remain a significant player well past the EU’s 2027 deadline for quitting Russian gas.
According to the Economist Intelligence Unit, the deal led to a ramp-up of gas exports from Azerbaijan to the EU, from 8.1 billion cubic metres (bcm) in 2021 to 11.4 bcm in 2022, and a projected 11.6 bcm in 2023.
The $7 billion profits forecast for Lukoil covers the years 2024 to 2033. It shows the company’s earnings from its share of the Shah Deniz field after tax, investment and operating costs are accounted for.
A Lukoil filing obtained by Global Witness shows that European companies with long-term contracts to import gas from Shaz Deniz to the EU include Shell, Uniper, Engie and Enel. The document shows that in 2021, Lukoil earned $757 million from the sale of Shah Deniz gas and gas condensate.
While Lukoil, which is privately owned, has been the subject of sanctions elsewhere, it is not subject to EU sanctions, despite having business operations across the EU while at the same time being a major contributor to Russia’s state revenues in recent years. According to ResourceProjects.org, which shows tax reports published by Lukoil, from 2015 to 2020 the company paid $63.8 billion into Russian government accounts, which are currently being used to wage war in Ukraine.
Lukoil has previously said that it “...is an international privately-owned company with no state stake. It does not participate in any political process in any country of its presence.” In a March 2022 statement, Lukoil's board of directors expressed their “deepest concerns about the tragic events in Ukraine” and called for “soonest termination of the armed conflict".
Dominic Eagleton, senior fossil fuels campaigner at Global Witness said: “Buying Russian gas funds the Kremlin’s war in Ukraine directly – but buying Azeri gas from Lukoil strengthens one of Russia’s largest fossil fuel giants and lines the pockets of the Azeri dictatorship, which stands accused of ethnic cleansing.
"The more gas the EU buys, the more these threats to global peace and security will proliferate. We need urgent action to phase gas out in the EU by 2035.”
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Notes to editor:
Data on Lukoil’s forecast profits (‘free cash flow’) from the Shah Deniz gas field were sourced from the business intelligence agency Rystad Energy’s UCube database. UCube is an integrated field-by-field database of the global upstream oil and gas market, covering the time span from 1900 to 2100. Rystad data is widely referenced by major oil and gas companies, the media and international bodies such as the International Energy Agency.
Free cash flow is revenue flowing from oil and gas projects to companies after government take, capital expenditure and operating expenditure. Debt service or other corporate costs, such as executive salaries, have not been extracted from these revenues. Free cash flow is therefore the profit derived at the project level from selling oil and gas produced before corporate expenses have been paid. Much of it could be used for executive bonuses, share buybacks, and investor dividends.
Lukoil’s partners in the Shah Deniz project are BP (29.99%), Southern Gas Corridor (21.02%), TPAO (Türkiye Petrolleri Anonim Ortaklığı, 19%), and NICO Group (10%).
A number of organisations including the Council on Foreign Relations and the Human Rights Foundation, as well as the Prime Minister of Armenia, have accused Azerbaijan of ‘’ethnic cleansing’’ in Nagorno-Karabakh.
