PASSION FOR “SHAH-DENIZ”
by Vagif Sharifov
Seller
After long run and difficult negotiations of Shah deniz shareholders, prime personages of the play who will be engaged in study of promising sales markets of gas recoveredfrom this giant gas condense field began making appearance.
Norway’s Statoil headed the marketing company and will sell “blue fuel” to be driven to Europe by the South-Caucasus gas pipeline Baku-Tbilisi-Erzurum.
As reported the president of SOCAR Natig Aliyev, the issue on operatorship of the gas pipeline still remains open. This task will be solved before February 2003 when is anticipated sanctioning of the “Phase-1” of Shah deniz project....
However, according to the ex-president of SOCAR Sabit Bagirov, Statoil’s won as a seller for Azerbaijani gas can give rise to conflict of interests of this large company. Statoil is the main gas supplier to European countries and recovers fuel in Norway too. And very this factor can give birth to problems, “because the same company will supply Azerbaijani gas to the same Europe”. Generally, in consideration of gas supplies from Russia, in coming 30-40 years Europe can meet energy demands of these countries by its own gas reserves. As a way out of such situation there can be a fixed agreement concluded with European countries. “Generally, presently, Greece is the most promising country to buy Shah deniz gas. The second - is Italy. “But there is no sense to transport Azerbaijani gas to north Europe because this mrket is fully provided”, he said.
For information, now Shah deniz shareholders take an opinion who will operate SCRC: British-American BP or Statoil. According to representatives of companies close to the project, “shareholders are now want to known who will operate the company. No one doubts competences of BP and Statoil, but it would be better to be aware who will be company’s head.” BP is operator of Shah deniz project and holds 25,5% interest, Norway’s Statoil also has 25,5% stake.
Export of Azerbaijani gas to Turkey will begin in September 2006 from 2 billion cu m. Total volume of natural gas to be transmitted to Turkey in 15 years of contract’s duration will amount to 89,2 billion cu m.
Shah deniz partners are:
Bp - 25,5%
Statoil - 25,5%
SOCAR - 10%
NIKO - 10%
TotalFinaElf - 10%
LUKAgip - 10%
TPAO - 9%
Diamond platform
Strict policy of SOCAR and preparedness to reconsider the conception of development of Shah deniz fields followed the general discontent of the government brought by rise of cost of operations carried by British-American BP within the framework of PSAs on development of hydrocarbon resources of Azerbaijani sector of the Caspian Sea.
Azerbaijan’s complains are brought by Shah deniz project’s rise in cost and it insists upon reconsidering the conception. According to preliminary estimations the project cost amounted to $2,1 billion. Now project shareholders bind its cost rise with expensive equipment.
As noted the president of BP Azerbaijan David Woodward, cost of Shah deniz project amounts to $3,2 billion, of which $1 billion will be spent to construction of the Baku-Erzurum pipeline, $2,2 billion - to construction of offshore units.
“But we do not exclude that $3,2 billion is not a final cost. In order to define the total cost of the project and solve some details there should be in-depth calculations”, said D. Woodward.
There are platforms of world standards and suitable to work on the Caspian Sea. They cost $200 million, while Azerbaijan is offered a similar platform at $500 million.
Shareholders of Shah deniz project say the platform to be assembled on the field has no analogue in the world. Does Azerbaijan need a most expensive platform?
Following outcomes of many meetings and negotiations that SOCAR held with BP specialists the vice-president of SOCAR on foreign economic problems said, “generally, all disputes related with Shah deniz project are solved and do not prevent it from realization. But there must be willing of company- partners to bring this project to life, unfortunately this willing is not like it was in the last year.”
The president of BP Azerbaijan David Woodward said that SOCAR and BP had came to agreement on conception of Shah deniz project, particularly, on the platform cost. “SOCAR had questions as to some items of the devised conception. We discussed with Azerbaijanis disputed issues and clarified some items of the instrument”, said D. Woodward.
According to him, SOCAR was explained what factors shifted the project cost up to $3,2 billion from originally calculated $2,6 billion for which SOCAR gave tentative agreement. “Presently there remain several issues related with the project financing, after this, the project is to be sanctioned”, noted the president of BP Azerbaijan.
Till the end-2002 French technip and British KCA-Deutag will have accomplished design of the future fixed deepwater gas recovering platform TGP-500 to be installed on the Shah deniz field. It is proposed that the platform will be assembled at 105 meters water depth. This platform will spud 12 production wells to recover “first” gas.
Potential buyers
• Turkey
But certainty around the gas seller does not solve all problems of this $3,2 billion worth project. First of all, the task related with prospects with Turkish gas market is open still. In 2002 Turkey six times changed its forecasts on country’s demand. Hence, for 2003 Turkey cut its gas “appetites” by 1482 billion cu m. Next year the country will need 25796 billion cu m, in past this figure amounted to 27278 billion cu m of fuel. In 2003 the gap between consume and supply will make some 144 million cu m, hence, Turkey will need 25796 billion cu m against 25940 billion cu m import.
In August 2002 forecasts were altered too. At that time Botas reconsidered its need for 2004 from 37620 billion cu m to 30756 billion cu m. Forecasts on “blue fuel” consume in 2020 were altered. Hence, in past it was supposed that over 18 years Turkey would “burn” 86 billion cu m of gas, now the company says this figure will amount to 82785 billion cu m. Hence, forecasts on Turkey’s gas consume in coming 20 years will fall by 11561 billion cu m.
• Greece
Greek Pipeline Operator DEPA sent a letter to SOCAR’s managerial head to hold negotiations on December 31, 2002 in Athena about prospects of Azerbaijani gas export from Shah deniz field to Europe. Negotiations will be attended by representatives of Turkey’s BOTAS too. It is proposed that the parties will preliminary coordinate volumes of gas supplies to the European market, particularly to Greece, and tariffs on fuel transit across the territory of the Greece to Italy and other countries.
Presently Greece buys from Russia 3 billion cu m of gas a year. Till 2010 gas import is expected to double. Nevertheless, transported Azerbaijani gas to Greece will be driven further on to Slovenia, Croatia and then to Germany, Italy and France, rather than will meet energy needs of Greece. Presently, European countries meet 30-35% of their gas needs.
According Greece’s ambassador to Azerbaijan Merkurias Karafotis, Greece and Italy will be integrated by one subsea gas pipeline. “Ionic Sea is not very deep and we exactly know what rout the pipe construction will go along, especially because this project is easy from the technical point of view”, noted M. Karafotis. It should be noted that within the framework of construction of the gas pipeline Greece signed relevant agreement with Italy’s Edison Gas.
“When we will exactly know what volumes of gas the country needs, specialist will hold negotiations and decide how the construction of Greece-France pipeline will be technically realized. Now we know several countries with large gas demands”, said the ambassador of Greece.
Commenting on how the feasible delay of realization of Shah deniz project can affect Greece M. Karafotisnoted said, “We can always wait, the country has a prepared infrastructure to receive fuel, but we do not still have gas. We need large volumes of gas to fuel enterprises which generate electric energy”.
The Greek diplomat noted that his country wanted to help realization of Shah deniz project. “Exploitation of the field is closely bound with the space where the gas will be sold to. This means that Shah deniz needs customers and now we try to find them because as soon as there are buyers it would be easy to continue exploitation of the field. Surely, most part of the gas to Greece will be consumed inside the country, remaining portion to be exported”, said the ambassador.
• Iran
“The State Oil Company of Azerbaijan Republic does not consider possibility to settle accounts wby the Iran with gas recovered from Shah deniz field in exchange for energy supplies to Nakhchivan, said the president of SOCAR Natig Aliyev. Azerbaijan plans to buy from Iran 300-350 million cu m of natural gas a year to meet energy need of Nakhchivan autonomous republic. “Azerbaijan has its own gas balance and can use its reserves as it considers reasonable. In order to make up for gas supplies to Iran we will use Gazi-Magomed-Astara-Bind-Biand gas pipeline. The condition of the pipeline is being studied and surely is to be put in order. These operations will require several billion dollars. We also plan to diversify the gas pipeline to receive gas from Iran, once necessary. I do not find technical problems related with gas swap”, said N. Aliyev.
The whole rehabilitation of trunk gas pipeline grid and domestic gas distribution system of Nakhchivan Autonomous republic requires $50-60 million. Specialists of Azerigaz JSC propose step-wise rehabilitation of the grid. First of all it is necessary to build the new gas pipeline lengthened at 3,5 km to Iranian JulfaAs reported the president of Azerigaz Alikhan Malikov, if the Ministry of economic development of Azerbaijan finds a source to finance the project, Azerigaz would immediately begin its realization.
Hence, cost of the Shah deniz project rushed up and shifted up the price on the gas recovered on this field. This, on the background of unpredictable Turkish gas market - the main sales market for Azerbaijani gas, put the project on the verge of commercial justifiability, hence, feasible reconsideration of terms of work of its prime current shareholders up to close of Shah deniz consortium. In any case February of the next year will define a future fate of Shah deniz project.