The main objective of the commission is to protect Azerbaijan’s interests in these projects and to provide a smooth implementation process. The “South Caucasus pipeline has political and economic importance for the country thanks to its capacity to deliver gas not only from Shah Deniz, but also from other gas fields of Azerbaijan,” the decree reads.
Ilham Shaban, head of the Baku-based Center for Oil Studies, termed the Shah Deniz 2 project a first path leading Azerbaijan to Europe and opening for other projects in the future: “I see a new epoch, new technologies, new projects by 2025 … and even Shah Deniz stage 3 is possible, when deeper fields will be developed ... Shah-Deniz stage 2 is a unique project not only in the Caspian Sea region, its depth (up to 6.9 kilometers) is nearly double that of the Azeri-Chirag-Guneshli oil field, which produced 77 percent of the country’s oil last year.”
In October, the BP-led consortium developing the Shah Deniz field concluded 25-year agreements to supply European markets with gas, offering an alternative supply source to Russia’s Gazprom. Nine companies will purchase over 10 billion cubic meters (bcm) a year of gas in Italy, Greece and Bulgaria. These contracts, worth more than US$ 100 billion at today’s prices, represent the most valuable set of gas sales agreements ever signed by BP. The buyers who have agreed to buy the gas are: Axpo Trading AG, Bulgargaz EAD, DEPA Public Gas Corporation of Greece S.A., Enel Trade SpA, E.ON Global Commodities SE, Gas Natural Aprovisionamientos SDG SA, GDF SUEZ S.A., Hera Trading Srl and Shell Energy Europe Limited.
“These agreements mark the biggest gas sales in the history of Azerbaijan. They also mark the beginning of direct links between Azerbaijan’s huge gas resources and the European markets ... I am sure that this cooperation will bring benefits to consumers across Europe and will play an important role in strengthening European energy security,” said Rovnag Abdullayev, President of Azerbaijan’s State Oil Company (SOCAR).
The Shah Deniz Stage 2 project will add another 16 bcm per year of gas production to the approximately 9 bcm annually from Shah Deniz Stage 1. Shah Deniz is expected to provide 10 bcm of gas per year for Europe and 6 bcm for Turkey. Shah Deniz Stage 2 gas will be delivered through more than 3,500 kilometers of pipelines through Azerbaijan, Georgia, Turkey, Greece, Bulgaria, Albania, and under the Adriatic Sea to Italy. The TANAP will transport gas across Turkey and then the TAP will transport gas from the Turkish-Greek border to Italy.
When Shah Deniz comes online, which is expected during 2019, TAP will be ready to ship the initial 10 bcm per year. “As additional resources come on-stream, the pipeline has been designed to be able to easily expand by just adding extra compression, to over 20 bcm – double the capacity, and all at an incremental cost. Of course the reserves in Azerbaijan alone, not to mention the wider Caspian, are very likely to be far greater and that is one of the reasons why TAP and the entire Southern Gas Corridor are so important. TAP is a project which will be the first to open up a new energy route in Europe,” TAP’s managing director Kjetil Tungland told the Report Company.
Tungland termed called TAP “a game-changer” on Europe’s energy market. In south-east Europe in particular, TAP will facilitate gas deliveries to various regional pipelines – both existing and planned – such as connections with Bulgaria and the Ionian Adriatic Pipeline which will connect with key western Balkan countries. TAP is also likely to have an effect on Western Europe and may help reduce the gas prices more generally through increased competition, Tungland noted.
Once in Italy, TAP will plug into the Snam Rete gas network from where gas can then be supplied to Switzerland, France, Austria, Germany, Belgium and the UK through various pipeline systems – some of them operated by TAP’s new shareholder Fluxys.
“We firmly believe that TAP will be a game changer for the European energy industry. It will open up a new corridor from the south-east, creating a route for new and additional supplies to follow. In so doing, it will start the process of improving Europe’s diversity and security of supply and helping to secure a more liquid market for gas and support an increasingly competitive energy sector,” Tungland stated.
Shaban expects that Shah Deniz Stage 2 will demand a huge investment, as according to his estimation “nearly 30 billion U.S. dollars will be needed for gas production and construction of necessary infrastructure to deliver Azerbaijani gas to the European border.” However, Shaban still believes that all these projects will be profitable and beneficial. “The project will definitely bring good money, it is commercially justified. Three billion U.S. dollars have already been spent for the project’s development.”
The gas sales agreements will enter into force following the final investment decision on the Shah Deniz Stage 2 project which is targeted for late this year. Al Cook, Vice President of BP in Azerbaijan, expressed his confidence that a final investment decision will be made by the end of the year.