Azernews.Az

By Gulgiz Dadashova

The Shah Deniz Consortium -- Azerbaijan's state energy company SOCAR, British BP and France's Total -- has made the final investment decision (FID) on the second phase of offshore gas condensate field development.

A final investment document on a project to supply European buyers with gas from Azerbaijan's Shah Deniz-2 field was signed in Baku on December 17 at the Heydar Aliyev Center.

This long-awaited decision become a major milestone for the diversification of Europe's energy supplies, opened a strategic door for stronger European energy security and turned Azerbaijan into a strong player in the world gas market.

Also, Azerbaijan has entered a new stage of implementing its own energy strategy.

The ceremony was witnessed by Azerbaijani President Ilham Aliyev, who was joined by leaders from nations along the Southern Corridor, as well as from the European Commission and other countries.

Azerbaijan's First Lady Mehriban Aliyeva and Vice-President of Heydar Aliyev Foundation Leyla Aliyeva also attended the ceremony.

President Aliyev made a speech at the signing ceremony.

"Today is a historic day in the history of modern Azerbaijan," he said. "The final investment decision on the Shah Deniz-2 energy project will provide our country with successful, long-term economic development."

The President said the Shah Deniz-2, TANAP and TAP are the biggest energy projects of the world.

"It is a project of energy security and diversification, with broad international cooperation between countries and companies involved in this historic project," President Aliyev said. "We expect at least $45 billion of investments and at least 30,000 new jobs along the line of the corridor. And of course this project needs a lot of additional efforts. Azerbaijan is just in the beginning of the huge project, which we will implement by joint efforts."

President Aliyev said he believes the Shah Deniz-2 project in the future will cover many more destinations than it is anticipated today.

"We have big plans and the design of the pipeline is appropriate for these plans. In the future we will be able to deliver, for the pipelines to be constructed as much gas as we can produce," he said.

Addressing the event, European Energy Commissioner Gunther Oettinger said the FID on the Shah Deniz-2 project will pave the way for further diversification of European gas sources.

"And this will strengthen the links between the Caucasus and the EU. It is an energy link, but it is also an industrial link and cultural link as well," Oettinger said.

Speaking at the event British Foreign Secretary William Hague also noted that the Shah Deniz-2 development will enhance the energy security of Europe.

"This project is important for the following reasons," he said. "It will increase the energy security of Europe, strengthen competition in the European gas market and affect the gas price, support the fight against climate change, bring profits to the project participants and create more than 30,000 new jobs."

Italian Foreign Minister Emma Bonino, in turn, said the signing of the final investment decision launches a new generation of investments in the gas field.

"I am sure that this will strengthen our political and economic relation and in this framework my presence in Baku testifies to our determination to deepen, widen and enrich our bilateral relations," she said.

Other speakers at the event included prime ministers Edi Rama of Albania, Plamen Oresharski of Bulgaria, Irakli Garibashvili of Georgia, Zoran Milanovic of Croatia, President of Montenegro Filip Vujanovic, Minister of Energy and Natural Resources of Turkey Taner Yıldız, Acting Assistant Secretary for the Office of Policy and International Affairs (PI) at the U.S. Department of Energy Jonathan Elkind, SOCAR President Rovnag Abdullayev and BP Group Chief Executive Robert Dudley.

The speeches were followed by the signing ceremony.

Azerbaijan`s Minister of Energy Natig Aliyev, Albanian Minister of Energy and Industry Damian Gjiknuri, Croatian Economy Minister Ivan Vrdoljak and Montenegrin Economy Minister Vladimir Kavaric signed "Memorandum of Understating related to cooperation in implementing the Southern Gas Corridor in the South East Europe between Azerbaijan, Albania, Croatia and Montenegro."

Rovnag Abdullayev and President of the operator of the Shah Deniz PSA (Production Sharing Agreement) Gordon Birrell undersigned Shah Deniz 2 Final Investment Decision.

The FID triggers plans to expand the South Caucasus Pipeline through Azerbaijan and Georgia, to construct the Trans Anatolian Gas Pipeline (TANAP) across Turkey and to construct the Trans Adriatic Pipeline (TAP) across Greece, Albania and into Italy. Together these projects, as well as gas transmission infrastructure to Bulgaria, will create a new Southern Gas Corridor to Europe.

The Shah Deniz project entails several elements: offshore it includes drilling and completion of 26 subsea wells and construction of two bridge-linked platforms; onshore there will be new processing and compression facilities at Sangachal.

The total cost of the Shah Deniz Stage 2 and South Caucasus Pipeline (SCP) expansion projects will be around $28bn. 16 billion cubic metres per year (bcma) of gas produced from the giant Shah Deniz field will be carried some 3,500 kilometres to provide energy for millions of consumers in Georgia, Turkey, Greece, Bulgaria and Italy. First gas is targeted for late 2018, with sales to Georgia and Turkey; first deliveries to Europe will follow approximately a year later.

Condensate production from the Shah Deniz field is expected increase to 120,000 barrels per day, from current levels of about 55,000 barrels per day.

In the shorter term, the Shah Deniz partners have agreed terms with SOCAR for expanding production through the existing facilities by 1.4bcma. The production increase is already in progress and is expected to be complete by the end of 2014.

SOCAR and the Shah Deniz partners have also agreed terms for extending the Shah Deniz Production Sharing Agreement up to 2048, BP reported.

The Shah Deniz partners have agreed to undertake exploration and appraisal work on prospects within the PSA area.

Rovnag Abdullayev, commenting on the event, said this is a truly historic day for Azerbaijan.

"This is the first time that our country and this region has embarked upon such an ambitious gas project. This project paves the way for Azerbaijan's future and the region's future," he emphasized.

"Firstly, it enables us to unlock Azerbaijan's giant gas resources for the benefit of our nation. Secondly, it establishes Azerbaijan as an important energy supplier to Europe, fulfilling a vision we have had for so many years. Thirdly, it brings benefits to countries stretching from the Caspian Sea to the heart of Europe through creating a direct transportation link between the Caspian and the European gas markets."

Robert Dudley, in turn, said very few projects have the ability to change the energy map of an entire region. Shah Deniz 2 and the Southern Corridor pipelines will not only change the energy map, but will give customers in Europe direct access to the gas resources of Azerbaijan for the first time.

The Shah Deniz Stage 2 project is a significant project which will make Azerbaijan's large gas resources available for the European market, it brings benefits for customers and creates value for the partners, President and CEO of Statoil Helge Lund said in his statement.

The FID means that gas sales contracts with nine European companies will now come into effect. As a result some 10 bcma of Shah Deniz gas are expected to be delivered for 25 years to customers in Italy, Greece and Bulgaria.

In addition, some 6 bcma of Shah Deniz Stage 2 gas will be delivered to consumers in Turkey. All gas sales and transportation contracts will be managed by the Azerbaijan Gas Supply Company established by Shah Deniz co-venturers under the operatorship of SOCAR. The Shah Deniz Stage 2 development and Southern Corridor pipeline projects together represent one of the largest and most complex endeavours yet undertaken by the global oil and gas industry.

Meanwhile, the Trans Adriatic Pipeline's shareholders - SOCAR, Statoil, BP, Fluxys, Total, E.ON and Axpo - confirmed that they have passed the Resolution to Construct on the development and construction of the TAP project.

This announcement followed the FID made on the Shah Deniz Stage-2 project.

Managing Director at TAP Kjetil Tungland said today's announcement by TAP shareholders is a very important milestone for TAP and further demonstration of their strong confidence in the commercial and technical viability of the project.

"Our focus now is to make sure that we construct the pipeline on time and on budget," he said.

Commenting on the Shah Deniz Consortium's Final Investment Decision, Mr. Tungland said this decision is another historic step in the realisation of the Southern Gas Corridor.

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

TAP's routing can facilitate gas supply to several South Eastern European countries, including Bulgaria, Albania, Bosnia and Herzegovina, Montenegro, Croatia and others. TAP's landfall in Italy provides multiple opportunities for further transport of Caspian natural gas to some of the largest European markets such as Germany, France, the UK, Switzerland and Austria.