Baku - the cradle of Russian oil

2024 Author: Seth Attwood | [email protected]. Last modified: 2023-12-16 15:55

Over the past 2-3 years, the situation on the world hydrocarbon market has moved further and further from the postulates of the liberal economic doctrine, from the ideals of globalism.

Trade wars between countries, cartel collusion between suppliers and buyers, difficult destinies of transport projects, incredible drops and rises in prices, state and even supranational patronage of individual companies and even their groups, participation of financial and banking groups in all this, mutual influence of energy companies on each other and governments.

A whirlwind of events that, not only to analyze, but even to track, is becoming more and more difficult.

Somewhere out there, on the periphery of events - the World Trade Organization, the rules of international trade, the usual models of long-term contracts. Oil, coal, pipeline gas and liquefied gas are competing with each other, and equipment manufacturers, steel and shipbuilding companies are gradually joining this battle with everyone.

Of course, politicians of all stripes are trying to add oil and blow up natural gas - not only verbal "attacks" are used, but also all kinds of sanctions, various models of "color revolutions" have become common weapons, the results of which sometimes become the disappearance of individual states from the global hydrocarbon market, traditionally actively present at it.

The volume of oil exports from Libya has dropped to zero, Venezuela's oil industry has huge problems, Iran has almost completely gone into the "gray" market, production in Iraq is going on with a constant risk of military action - it's hard to list everything.

But is it all so unusual for this market?

Sometimes, in order to better understand what is happening, it is worth looking back at the events of bygone days and, following Viktor Chernomyrdin, exclaim "This has never happened - and here it is again!".

Baku is the center of the most important events in the oil industry of the 19th century

Dear readers, the analytical online magazine Geoenergetika.ru has more than once introduced you to the development of the nuclear power project - the youngest industry in the world energy.

If we take the commissioning of the First NPP in Obninsk as a starting point, then this year the nuclear power industry is only 66 years old, if since the discovery by scientists of the very phenomenon of the fissility of the uranium atomic nucleus - about 80.

By historical standards, this is quite a bit, but this time period turned out to be quite enough for us to have time to forget a lot, and some of the information related to the "military" part of the atomic project ceases to be secret only now.

But the situation is surprising in that almost the same set of words can be attributed to the oil energy sector - although oil has been known to man since time immemorial, the formation of the world market began not so long ago, in the middle of the 19th century.

The events of those years really happened for the first time in history, but the analogies and parallels with the present day are so obvious that it is clearly worth taking a closer look at them.

The fundamental difference from how the atomic project developed is that the development of technologies, methods of oil production and refining proceeded simultaneously with fierce competition between individual entrepreneurs, the influence of the state on the events taking place on the development of the industry was reduced to protectionist measures.

Of course, this article does not claim to be a complete overview; many excellent books have been written about the history of Azerbaijani oil, and it is simply impossible to compete with them.

We will just try to recall the most interesting facts and the most interesting names, hoping that this topic will be so interesting that some of you, dear readers, will be interested in it seriously and for a long time - take my word for it,this is a truly exciting "historical technotriller" in which scientific and technical inventions, intrigues of politicians, large industrialists and financiers are intertwined.

And, of course, we apologize in advance for the fact that this article will not mention the names of many people who have had a serious impact on the development of technology, and on many, so to speak, organizational issues.

Land of Lights

Scientists continue to argue about exactly where the name "Azerbaijan" came from, but one of the possible options is a combination of the ancient Persian words "Land of Fires".

One can argue with this, of course, but it is on the territory of Azerbaijan that two ancient temples of the Zoroastrians are perfectly preserved - the famous Ateshtyag, 30 km from Baku, and the less visited, but no less ancient and recently completely restored, the highest alpine temple of fire worshipers near the village of Khinalig.

It's really not so easy to get to it - 3'000 meters above sea level, almost four hours' drive from Baku, closer to the border with Dagestan. "Land of fires", although there are no active volcanoes in Azerbaijan - where did this name come from in antiquity, why did the Zoroastrians settle here in great numbers? You can see the answer, but you don't need to feel it - you will get a burn.

The small village of Mehemmedi is located 27 km from Baku, next to which is the limestone hill Yanardag. Yanardag is described by the Geological Survey of Azerbaijan as "An intense flame waving 15 meters along a hill that is two to four meters high." The description is accurate, but short - there is not a word that this flame has been burning for several thousand years.

Its source is constant emissions of natural gas from the underlying soils, and the reason for the release of gas is a defect in the fault of the huge Balakhan-Fatmay structure.

It is impossible to say how many such mysterious fires there were in ancient times - oil and gas on the Absheron Peninsula have been produced by industrial methods for the second hundred years, there are less and less gas outlets directly to the surface, now only Yanardag remains.

Try mentally "rewinding" time several thousand years ago: here is a fire that burns in any rain and wind, but there is no firewood, coal, grass, nothing at all.

For a person who had no idea about natural and associated petroleum gas, about the chemical reactions of methane and oxygen, Yanardag is truly a miracle that makes one believe that the prophet Zarathushtra wrote in the Avesta.

Yes, if someone happens to visit Baku, then it will not be difficult to find this burning mountain - in June 2019, major repairs were completed in this historical, cultural and natural reserve, now Yanardag is open to tourists and just curious people.

When, in what era, oil production began on the Absheron Peninsula, it is simply impossible to say.

The first written record that has survived to our time was made by the ancient Greek historian Plutarch in his descriptions of the campaigns of Alexander the Great, which he made in the IV century BC - his warriors used the oil of Absheron for lighting, transporting it in waterskins or in earthen vessels. Iranian and Arabian chronicles testify that already in the III-IV centuries AD, oil was produced here in volumes sufficient for organized supplies to Persia, from where it was distributed to other countries.

The first testimony made by Europeans is from the notes of the missionary monk Jourdain Catalini de Severac, circa 1320:

In medicine, oil was used, by the way, not only by the ancients: back in the middle of the 19th century in the United States, refined oil called "Seneca oil" or "mountain oil" was proposed as a remedy for headaches and toothaches, deafness, rheumatism, and was recommended for the healing of back wounds. horses.

Member of the embassies of the Duke of Schleswig Holstein to the Moscow state (1631-1635 and 1635-1639) Adam Elschläger, having visited Baku, left the following note:

As you can see, all the evidence does not tell about the beginning of mining, but testifies to the fact that it was already a traditional fishery for the local population, was at a sufficiently serious level for those times.

The first battles for control of oil

In 1722, the first Persian campaign of Peter I began, the purpose of which was to provide a free trade corridor for Russia from Europe to Central Asia, Persia and India.

On August 23 of the same year, Derbent was taken by Russian troops, but further advance to the south of the Caspian coast was halted by a strong storm, which sank all ships with food. A military garrison was left in Derbent, and the bulk of the army returned to Astrakhan for more thorough preparation for the continuation of the military campaign.

For the same purpose, Peter I ordered Major General Mikhail Afanasyevich Matyushkin to conduct reconnaissance and reconnaissance of the environs of Baku, and it was necessary to reconnaissance not only that directly related to the conduct of hostilities. A quote from a letter from Peter I to Matyushkin:

Saffron is saffron, but the battles for Baku in 1723 can be called one of the first wars for control over oil fields, although, of course, Peter I was interested in oil as a possible source of covering the costs of the military campaign itself. M. A. Matyushkin conducted reconnaissance and, as expected, reported on the results:

In 1723, Baku was taken by the troops of Matyushkin, but Russia did not stay as an oil-producing state for a long time, because soon after the death of Peter I, in 1735 Russia and Persia signed the Ganja Treaty, according to which Russian troops left Baku and Derbent, transferring power over the entire territory of Persia …

Russia regained control over Baku and part of the territory of present-day Azerbaijan as a result of the Russian-Persian war, which began in 1804 and ended in 1813 with the signing of the Gulistan Peace Treaty on October 24, according to which Persia recognized the entry into the Russian Empire of eastern Georgia and the northern part of Azerbaijan, Imereti. Guria, Mengrelia and Abkhazia.

In addition, Russia received the exclusive right to maintain a military fleet in the Caspian Sea, and it is for this reason that the Gulistan peace is considered to be the beginning of the “Great Game” between the British and Russian empires in Asia.

From wells to towers

The 19th century was the beginning of the industrial development of the oil fields of the Absheron Peninsula, technical advances followed one after another.

Voskoboinikov's proposal was approved, and already in 1837 the first oil refinery in the Russian Empire began operating in Baku, the end product of which was kerosene.

For the first time in world practice, a number of technological innovations were applied at the enterprise - oil distillation together with steam and oil heating with natural gas.

Recall that the first oil refinery in the United States in the city of Pittsburgh was built by Samuel Kayer in 1855

In the late 1930s, Voskoboinikov began developing an oil production project using wells, the first of which he proposed to lay in the Bibi-Heybat valley. But he failed to realize this plan on his own - as a result of a slanderous denunciation of the embezzlement of the state, Nikolai Ivanovich was removed from office in 1838, and the oil refinery was also closed a year later.

However, here a happy accident intervened in the person of a collegiate assessor, a member of the council of the Main Directorate of the Caucasus, an inspector of all educational institutions of the Transcaucasus Vasily Nikolaevich Semyonov.

After graduating from the Tsarskoye Selo Lyceum three years later A. S. Pushkin, in 1827 V. N. Semenov received the post of literary censor, his duties included a preliminary check of all publications of literary journals printed in St. Petersburg, including Sovremennik, founded by the great poet in January 1836. The censor and the poet became friends even after Semyonov was fired from his post for being too liberal with the authors.

After the death of Pushkin, Semyonov left the capital, in 1840 he was appointed to the post of vice-governor of Orel, and in 1842 he was transferred to the Caucasus.

Having met Nikolai Voskoboinikov, Semyonov took an active part in the implementation of his project - in December 1844 he signed a memorandum to the Ministry of Finance, which resulted in the receipt of state funding in the amount of 1,000 silver rubles in the spring of 1845.

In 1846, three oil wells were drilled on Bibi-Heybat, one of which was completed in the summer of 1847. But this experimental drilling lacked an important component - the geological study of the proposed field. Oil was found at a depth of 21 meters, but there was no industrial inflow.

Nevertheless, on July 14, 1848, the governor in the Caucasus, Prince Mikhail Vorontsov, sent a memo to Nicholas I:

The date of writing this note is considered the official reference point for industrial oil both in Azerbaijan and around the world. It was 11 years before the construction of the first well by Colonel Edwin Drake in Pennsylvania.

But, unlike Voskoboinikov, Drake was much more fortunate - his well gave an industrial flow of oil, it is for this reason that many authors attribute the primacy in successful oil drilling to the United States. The unsuccessful experience of oil production by the borehole method in Absheron has suspended the introduction of this technology into the Russian oil industry for 16 years.

Only in 1864, a second well, 64 meters deep, was drilled on Bibi-Heybat, this time using the percussion-rope mechanical method, which by that time was already well mastered in the United States. This time the result turned out to be positive, and by 1871 31 wells were operating in the vicinity of Baku.

The kerosene lamp is an epoch-making invention

The rapid pace of development of Baku oil production in the early 70s of the last century was caused, among other things, by a very important technical invention made in 1853 by the Polish pharmacist and chemical technologist Jan Jozef Ignacy Luksevich.

He is not only rightfully considered the founder of the Polish oil industry, not only developed a method for producing kerosene by distilling crude oil, but also "showed the world a miracle" - he developed the design of a kerosene lamp. The design turned out to be so successful and not expensive that already in 1856 its industrial, mass production began.

The rapid growth in demand for kerosene was inevitable, and one of the first to react to it on the same Absheron peninsula was the Russian merchant of the first guild, one of the largest wine tax farmers in the empire, Vasily Aleksandrovich Kokorev.

By the end of the 1850s, the wine ransom system began to outlive itself in connection with, as surprising as it may sound, "the general movement of the people towards sobriety."

Kokorev foresaw this change in advance, and decided to invest the capital he had earned in an industry where the ransom system was preserved - in the Baku oil fields. Every four years, the treasury handed over oil plots to tax farmers, and they already entered into direct relations with oil producers and refiners, setting them prices that were favorable for themselves.

With such an approach, it was difficult for a large kerosene plant to survive, processing was carried out by small enterprises using artisanal low-cost technology. But Kokorev acted on a merchant's scale, since he, as a wine supplier for the army during the Crimean campaign, had enough capital, and he also had the experience of communicating with the necessary officials. Vasily Aleksandrovich not only combined the lease and oil refining.

In 1859, he entered in large shares into the Volga-Caspian Society of Shipping and Trade "Caucasus and Mercury", rightly believing that his own water transportation of kerosene to the industrial regions of Russia will increase the profits of the planned oil refining.

In 1861 in Surakhany the kerosene plant of V. A. Kokorev, at the peak of its development, processed an incredible volume of oil at that time - up to one and a half thousand tons per year.

Of course, Kokorev supplied to the Russian market not only kerosene, but the fuel oil formed as a result of oil refining, and his participation in the Caucasus and Mercury society allowed him not only to transport his own products, but also to provide transportation services to other oil refiners.

In short, Kokorev was the first in the Russian Empire to implement the concept of what is now commonly called a “vertically integrated company”: he produced oil in his own licensed areas, refined it at his own plant, delivered it to consumers on his own transport, and even organized retail trade in several cities of Russia.

In 1863, the St. Petersburg City Council signed a contract for the installation of kerosene lighting with US citizen Laszlo Sandor, director of the Mineral Lighting Society.

Successful pricing and marketing policy, free distribution of kerosene lamps to customers led to an instant expansion of the overseas product and its dominance in the Russian market. In 1866, Rockfeller & Andrews emerged among the American suppliers, whose owners, John Davison Rockefeller and Samuel Andrews, owned two large oil refineries in Cleveland.

In June 1870, John Rockefeller created Standart Oil, which became not only the largest oil refinery in the United States - by the end of the decade, it had already processed up to 90% of the oil produced in this country.

Russia became one of the main directions of sales of Rockefeller kerosene - by 1870 its share in total consumption in Russia was 80%. Such a strong dependence on one supplier also became one of the reasons for Russia to abandon the system of leasing out in the oil business.

The transition of the industry to capitalist relations gave the result immediately - the abolition of the lease took place on January 1, 1873, during which the volume of oil production year-to-year in Russia increased 2, 6 times, from 1.5 million to 2.6 million poods.

On January 30, 1874, another significant event took place in the history of the oil industry - Alexander II approved the charter of the first joint-stock company in the Russian oil industry, the Baku Oil Society (BNO), founded by State Counselor Pyotr Gubonin and Commerce Counselor Vasily Kokorev. the previously set goal - BNO can be organizationally considered the first oil vertically integrated oil company in Russia.

And already in 1875, this vertically integrated oil company began another tradition - it actively began to seek the provision of tax benefits, since the rate of excise tax, depending on the capacities of distillation stills at oil refineries, did not suit industrialists.

Familiar motives, right? The result, which the lobbying group of oil workers was able to achieve, also evokes thoughts of direct parallels: already in 1877, Alexander II, by his decree, abolished the excise tax for a period of 10 years to encourage the development of the oil industry.

At the same time, another excise tax was introduced - on imported kerosene, and this tax began to be levied in gold. During the period from 1873 to 1881, oil production in Russia increased from 3.4 million poods to 30 million, almost 9 times, the production of kerosene in the country increased 6, 4 times, and the supply of Rockefeller kerosene in 1882 stopped completely.

Market relations in international trade in oil and oil products? No, we have not heard and do not know, and from the very first stage of the development of the world market.

How Nobel came to Baku for timber

In 1873, the elder of the Nobel brothers, Robert, appeared in Baku for the first time on the affairs of the St. Petersburg machine-building plant "Ludwig Nobel", connected with the procurement of wood for rifle butts.

Quickly assessing the oil situation in Absheron at that time, Robert made the sole decision to invest his capital in the purchase of an oil refinery in the Black City and several oil-bearing areas in Sabunchi.

In the fall of 1876, when supplies of "lighting oil" from this enterprise had already begun to St. Petersburg, Robert left Baku for health reasons, having previously summoned his brother Ludwig to continue the business. A few months of staying in Azerbaijan was enough for Ludwig's skepticism towards the oil business to be replaced by real enthusiasm.

With the financial support of the youngest (and most famous) brother Alfred, Ludwig began to implement Mendeleev's organizational proposals, which Kokorin had previously failed to cope with.

Already in 1877, by order of Ludwig Nobel at a shipyard in the Swedish city of Motala, the world's first oil-loading steamer with a steel hull 56 meters long, 8, 2 meters wide, with a draft of 2, 7 meters and a carrying capacity of 15 thousand poods (246 tons) was built …

Those who did not have time to forget the first part of this article, we hope, will not be surprised that this steamer was called "Zoroaster". In 1878, by order of the Nobel brothers, famous engineers A. V. Bari and B. G. Shukhov designed and built Russia's first oil pipeline Balkhany - Black City (an industrial suburb of Baku, where oil refineries of several owners were concentrated), 9 km long, 3 inches in diameter and with a throughput capacity of 80 thousand poods (almost 1,300 tons) per day.

According to Mendeleev's plans, the Nobels began to build oil tanks with a concrete base and walls, which significantly improved the conditions for its storage.

In 1879, the Nobel Brothers Oil Field Partnership was founded in St. Petersburg, BraNobel was abbreviated, the controlling stake in which belonged to Robert, Ludwig and Alfred Nobel.

It should be noted that calling BraNobel a competitor in relation to BNO Kokorev can only be a stretch - the first large oil industrialists preferred to join forces to solve common problems.

The Nobels began to build oil-loading ships - Kokorev supplemented this "fleet" with oil-loading barges. Kokorev invested in the construction of the Volga-Don railway line - the Nobels were the first to organize the transportation of oil in railway oil tanks.

The business, which was developing completely new both for Russia and for large entrepreneurs, provided so many opportunities for development that there was enough room for everyone. In addition, surprisingly, both foreigners (the Nobels retained Swedish citizenship) and Russian entrepreneurs considered John Rockefeller to be their main competitor.

Another joint-stock company, or, as it was then customary to call this form of business organization, a partnership, whose charter was registered on May 16, 1883, was no exception.

The "Caspian-Black Sea Oil Industry and Trade Society" was founded again by brothers - Alphonse and Edmond de Rothschilds.

Rothschild brothers in Baku

In the late 70s of the XIX century, two Russian entrepreneurs, S. E. Palashkovsky and A. A. Bunge, who owned the "Batumi Oil Industrial and Trade Society", carried away by the example of Kokorev, tried to implement the project for the construction of the Baku-Tiflis-Batum railway.

However, a sharp drop in oil prices in the midst of work put Palashkovsky and Bunge on the brink of bankruptcy and, in an attempt to avoid it, Palashkovsky turned for help to Mayer Alphonse de Rothschild, who in 1868 headed the Paris banking house.

The Rothschild family had extensive experience in investing in the construction of railways and a controlling stake in a large oil refinery on the Adriatic, so it was not difficult to reach an agreement with Alphonse Rothschild - he simply bought out the Batumi Oil Industrial Society with all its projects, oil fields in Absheron and small oil refineries and tin-container factories.

The Rothschild brothers were already completing the construction of the railway; on-site the work was supervised by one of the three directors of the Caspian-Black Sea Society, Arnold Mikhailovich Feigl, chairman of the Council of Baku Oil Industrialists. But it was not only about the Rothschilds' investments in oil production and refining and in solving transport issues.

The fixed capital of the "Caspian-Black Sea Society" amounted to 6 million rubles in gold and 25 million francs - really big capital came to Baku, and the Rothschilds provided loans at 6% per annum at an average rate of Russian private banks from 15 to 20 percent.

The Rothschilds provided loans quite willingly, as a result, even in this case, there was no particular competition - instead of fighting with each other, Baku industrialists increased the volume of production and processing.

The Rothschilds, with their capital, in a matter of years were able to increase the number of used railway tank cars used in the Baku fields, from 600 to 3,500 units - this figure clearly demonstrates the pace at which the volumes of oil production and processing began to grow.

But the Rothschilds' interest was not only in placing money at interest - the Caspian-Black Sea Partnership acquired vast oil-bearing lands in Balakhany, Sabunchi, Ramana, Bibi-Heybat, Surakhani and immediately took on their development and exploitation.

Oil rigs were raised, well sites were equipped, pumping stations, compressor stations, barns and reservoirs were built, oil pipelines were laid to collection points and refineries. The Rothschilds tried to bring together the best specialists from all over Russia - engineers, chemists, technologists …

… In 1901, the volume of oil production in Russia reached 11.2 million tons, which was 53% of world production. Russian oil accounted for almost half of Britain's imports, a third for Belgium, and three quarters for France, Russia was the main supplier of oil and oil products to the Middle East, India and China. As for Rockefeller's influence on the domestic market of Russia, here are the data from 1903:

We hope to return to this topic in the future.