Shah Deniz 2 and TAP FIDs expected before year-end

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The various projects that make up the Southern Corridor import route into Europe appear to be on track to take final investment decisions (FIDs) or “resolutions to construct” – effectively the same thing – before the end of 2013, according to John Baldwin, vice-president for the Southern Corridor at BP. Total investment in the various upstream and pipeline projects will amount to over $40 billion, with first gas from Azerbaijan arriving in Europe towards the end of the decade.

Speaking at the European Autumn Gas Conference in November, Baldwin said: “We expect the Trans-Anatolian Pipeline company (TANAP) and the Trans-Adriatic Pipeline (TAP) – to announce resolutions to construct those pipelines this month.

“That will be followed towards the end of December by a decision by the Shah Deniz Consortium (SDC) to declare FID on the Shah Deniz 2 offshore project and the expansion of the existing Trans-Caucasus Pipeline (TCP) that goes through Azerbaijan and Georgia.”

The TCP, which is already carrying 9 Bcm/year of gas to Turkey from the first phase of Shah Deniz, offshore Azerbaijan in the Caspian Sea, will be expanded to carry the full 25 Bcm/year of gas to Turkey. From there, 10 Bcm/year will go on to Europe through the cross-Turkey TANAP pipeline and the TAP pipeline which will run from Turkey to Italy via Greece and Albania.

A long journey: “We’ve come along way,” said Baldwin, “particularly in the last two years with the choice of route, the signing of a gas sales contracts and the intergovernmental agreements that TAP secured between Greece, Albania and Italy – as well as a multitude of other agreements."

The SDC – whose co-venturers are BP, operator (25.5%), Statoil (25.5%), the State Oil Company of the Azerbaijan Republic (SOCAR, 10%), Total (10%), Lukoil (10%), NICO (10%) and TPAO (9%) – announced in June that it had selected the TAP – rather than Nabucco West – to deliver gas from Shah Deniz 2 to customers in Greece, Italy and elsewhere in south-eastern Europe.

The 870 km long TAP will connect with the TANAP near the Turkish-Greek border at Kipoi, cross Greece and Albania and the Adriatic Sea, before coming ashore in southern Italy.

Sold out: In September the Southern Corridor took another big step forward when SDC said it had concluded 25-year sales agreements for just over 10 Bcm/year of gas to be produced from Shah Deniz 2. The agreements signed in September for European gas sales followed the signing of agreements with Botas in 2011 to sell 6 Bcm/year of gas in Turkey.

Following negotiations that lasted for years, nine companies in Italy, Greece and Bulgaria signed up to purchase gas: Axpo Trading, Bulgargaz, DEPA Public Gas Corporation of Greece, Enel Trade, E.ON Global Commodities, Gas Natural Aprovisionamientos, GDF SUEZ, Hera Trading and Shell Energy Europe. Of the 10 Bcm/year, 1 Bcm/year each will go to Bulgaria and Greece, with the rest being delivered to Italy.

“I'm told by our gas traders, wanting to celebrate their success, that this actually represented one of the biggest gas deals that BP had ever done,” said Baldwin. “It certainly was a very large deal.”

More to come? He added: “It's important to remember that the Shah Deniz 2 project is not the end of the story. There are additional volumes of gas in Azerbaijan. There is a reservoir below the existing Shah Deniz reservoir called Shah Deniz Deep. It is a deep reservoir and would require technological development to do it. But that's something that we’re already thinking about and is well under way.

“The Azeri-Chirag-Guneshli (ACG) oil field, which has been the basis of much of the wealth in Azerbaijan over the last decade, also has a deep gas reservoir. And there are additional volumes of gas in both discoveries and exploration prospects, most notably the Absheron field, which Total has, and also exploration prospects further afield that we have an interest in.”

Not over for Nabucco? In September, Rovnag Abdullayev, president of SOCAR, held out hope that Nabucco West could be developed in the future for further supplies of gas from the Caspian:

“Beyond Shah Deniz, we are confident that Azerbaijan’s gas exports will increase dramatically as fields like ACG Deep, Absheron, Umid and Shafag-Asiman are developed, and we see the pipeline route towards Austria as a natural market for this gas. The development planning of both pipeline routes lays the foundation for future growth and we appreciate the support of the European Commission throughout this process.”