Europe’s new source of natural gas supply through the so-called “Southern Corridor” took a big step towards becoming reality last month. On 19th September the Shah Deniz consortium said it had concluded 25-year sales agreements for just over 10 Bcm/year of gas to be produced from the Stage 2 development of the Shah Deniz project in the Caspian Sea, offshore Azerbaijan. The announcement puts the $40 billion project firmly on track to reach a final investment decision (FID) later this year.
At a time when gas demand in Europe has been in steep decline, the new sales agreements constitute a vote of confidence in the long-term role of natural gas in Europe’s energy supply mix.
Following negotiations that have lasted for years, nine companies in Italy, Greece and Bulgaria have 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.
“These agreements mark the biggest gas sales in the history of Azerbaijan,” said Rovnag Abdullayev, president of the State Oil Company of Azerbaijan Republic (SOCAR), which has been leading the negotiations. “They also mark the beginning of direct links between Azerbaijan’s huge gas resources and the European markets.”
The Shah Deniz Stage 2 project will bring gas directly from the Caspian Sea to Europe for the first time, opening up the long-awaited “Southern Gas Corridor”. It will deliver 16 Bcm/year of gas through more than 3,500 kilometres of pipelines through Azerbaijan, Georgia, Turkey, Greece, Bulgaria, Albania and under the Adriatic Sea to Italy. The agreements signed on the 19th of September for European gas sales follow the signing of agreements with Botas in 2011 to sell 6 Bcm/year of gas in Turkey. The Shah Deniz co-venturers are: BP, operator, with a 25.5% interest, Statoil (25.5%), SOCAR (10%), Total (10%), Lukoil (10%), NICO (10%) and TPAO (9%).
Infrastructure coming together too: Crucial to getting the Shah Deniz gas to Europe will be the thousands of kilometres of new pipeline that will need to be constructed, through Azerbaijan, Georgia, Turkey and into Europe. This new pipeline infrastructure accounts for $15 billion of the project’s total $40 billion cost.
The Shah Deniz consortium announced in June that – after a long and intense competition – it had selected the Trans-Adriatic Pipeline (TAP), rather than rival Nabucco West, to deliver gas from Shah Deniz 2 to Europe. This means the gas will travel from Azerbaijan into Turkey via an expansion of the South Caucasus Pipeline (SCP), then through Turkey via the Trans-Anatolian Pipeline (TANAP), and on into South-Eastern Europe through TAP.
THE TRANS-ADRIATIC PIPELINE ROUTE – 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 Italy. (Source: TAP)
Sold out: The latest gas sales agreements mark the completion of the Shah Deniz 2 gas sales process. They will enter into force following the FID on the Shah Deniz Stage 2 project, which is targeted for late this year.
Of the total 10 Bcm/year destined for Europe, around 1 Bcm/year will go to buyers intending to supply to Bulgaria and Greece while the rest will go to buyers supplying Italy and adjacent market hubs.
Commenting on the agreements, Gordon Birrell – regional president for BP in Azerbaijan, Georgia and Turkey, and president of the operator of the Shah Deniz PSA – said: “The Shah Deniz consortium is proud to be involved in the conclusion of one of the biggest gas deals in the history of the oil and gas industry . . . The strong demand for Shah Deniz gas gives us confidence in the long-term development of Azerbaijan’s gas resources. Today’s signings represent another important milestone bringing us closer to a final investment decision (FID) on the Shah Deniz 2 project.”
The Shah Deniz Stage 2 project will add its 16 Bcm/year of gas production to the 9 Bcm/year from Shah Deniz Stage 1.
The Shah Deniz field, discovered in 1999, is one of the world’s largest gas-condensate fields, with 40 Tcf – more than 1 Tcm – of gas in place. It is located on the deep-water shelf of the Caspian Sea, 70 km south-east of Baku, in water depths ranging from 50 to 500 metres.
Despite the complexities of drilling the wells, building a platform (pictured above), constructing an onshore terminal and laying a 700 km pipeline – the SCP – through Azerbaijan and Georgia to the Georgia-Turkey border, Shah Deniz Stage 1 was developed in only seven years, coming on stream in 2006.
This Stage 2 development of the Shah Deniz field is expected to include two new bridge-linked production platforms; 26 subsea wells to be drilled with 2 semi-submersible rigs; 500 kilometres of subsea pipelines built at water depths down to 550 metres; a 16 Bcm/year upgrade for the South Caucasus Pipeline (SCP); and expansion of the Sangachal Terminal, south of Baku.
Not over yet for Nabucco? The gas from Shah Deniz 2 is likely to be just the first phase of Europe’s Southern Gas Corridor, given Azerbaijan’s ambitions to develop more gas for export westwards. Rovnag Abdullayev, president of SOCAR, said earlier this year that the Shah Deniz consortium has plans to work with European interconnector projects to deliver gas to multiple countries across south-eastern Europe. He also 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.”
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