The BP-led consortium developing the Shah Deniz gas field has launched the Front End Engineering and Design (FEED) phase of the US$ 25 billion stage II project. This has increased the competition between pipeline systems for future gas transportation from Azerbaijan to the European market.
The start of the FEED process was approved by BP’s Chief Executive Officer Bob Dudley and Azerbaijan’s President Ilham Aliyev, according to BP’s local office in Baku. The FEED comprises engineering studies, wells, commercial agreements and construction deals. “We are pleased to announce this major step forward,” said Rashid Javanshir, BP’s President for Azerbaijan, Georgia and Turkey. “Engineering studies, commercial agreements and the support of the state of Azerbaijan and other governments give the Shah Deniz consortium the confidence to embark upon this FEED phase.” The other Shah Deniz partners include Norway’s Statoil ASA and Azerbaijan’s state oil company SOCAR, as well as France's Total SA, Russia's Lukoil Holdings and the Iranian national oil company Naftiran Intertrade Co.
Shah Deniz is estimated to contain 1.2 trillion cubic meters of gas, which European countries hope can reduce their dependence on Russia by transporting Caspian gas to European markets through opening the Southern Gas Corridor. The second phase is expected to start by the end of 2017, and is set to produce 16 billion cubic meters (bcm) of gas per year. Javanshir noted that “six billion cubic meters of gas from the second stage of Shah Deniz will be delivered to Turkey and at least ten billion through Turkey and then to Europe.”
During the FEED phase of the project, the Shah Deniz consortium will also finalize its selection of export routes across Turkey and then to Europe, when engineering studies will be refined, further wells will be drilled, commercial agreements will be finalized and key construction contracts will start. “The Shah Deniz consortium will make a final route selection in 2013,” according to BP. Javanshir stated that “With over 30 trillion cubic feet of gas resources; Shah Deniz is truly a giant field. With more than 26 wells, two new platforms, a terminal expansion, and up to 4,000 kilometers of new pipelines to Europe, this chain of major projects represent one of the largest oil and gas developments in the world.” He also envisioned two scenarios for the transit of gas via Turkey. The first is a modernization of existing infrastructure owned by the Turkish state pipeline company BOTA? and the second is the construction of the Trans Anatolia gas pipeline in Turkey.
Azerbaijan and Turkey signed a memorandum of understanding in last December to construct a pipeline at an estimated cost of US$ 6 billion. The pipeline known as Tanap will carry gas from Azerbaijan’s Shah Deniz-II field via Georgia to Turkey and on to Europe. According to the deal, SOCAR will hold an 80 percent stake and the Turkish state-owned companies BOTA? (Petroleum Pipeline Corporation) and TPAO (Turkish Petroleum Corporation) will each hold 10 percent stakes.
Azerbaijan and Turkey are planning to complete delayed talks on the proposed Trans-Anatolia pipeline by the end of the month. “We aim to complete talks this month and sign the intergovernmental agreement by June 30,” SOCAR’s Vice President Elshad Nasirov said in an interview to Bloomberg on May 1. The deal was held up by disagreements over taxes and investment regulations, according to Nasirov.
Tanap is expected to be completed before the start of production from the second phase of the Shah Deniz project, due in 2017 or 2018 and will link up with other proposed pipelines, such as Nabucco West, that are vying for the rights to deliver the fuel on to the European Union from the Turkish border.
Nasirov states that Tanap will initially be able to carry 16 billion cubic meters of gas per year, with capacity rising to more than 30 billion cubic meters when additional sources are found. The Shah Deniz consortium will choose between Nabucco West, a revised version of the EU-backed project, and BP’s South East Europe Pipeline option (SEEP), “no later than June 30.” Nasirov terms Nabucco a “fantastic” project even though it has financial difficulties, while SEEP is less advanced.
In February this year, the Shah Deniz consortium including its lead partner BP announced the Trans Adriatic Pipeline (TAP) as its choice for the so-called southern route of the Southern Gas Corridor. BP’s Vice President for the Shah Deniz Development Al Cook also confirmed that the next step is to make a selection for the Central European route by the end of June. In the selection between SEEP and Nabucco West, BP awaits formal tenders by May16.
Cook noted that the selection of TAP for the Southern route to Italy should be considered as final. The Shah Deniz consortium reviewed all the Southern Gas Corridor projects according to eight selection criteria which were agreed last year. TAP was chosen as the southern route because it met the technical, commercial and other requirements best. “Once that has been done, we’ll then work with the winner of the Central European route and TAP to develop these projects further. We expect to make a final route selection ahead of mid-2013,” – Al Cook stated in the TAP’s electronic newsletter.