STAGE OF HONOUR
Azerbaijan Starts the realization of Shah Deniz Project
On February 27 the Shah Deniz gas condensate field development project partners took a decision to start the Stage-1 of the construction with the participation of Macid Karimov, minister for fuel and energy of Azerbaijan .
The production sharing agreement for the development of the Shah Deniz field was signed in Baku as far back as in June 4, 1996. Ratified by the Milli Maclis it gained force on October 17 that same year. The Prospecting and Appraisal wells drilled at Shah Deniz within 1997-2001 confirmed that it is a gas condensate field of world class.
The Shah Deniz Partners are:
Stage-1 includes:
1. The upstream and downstream projects with total investment of $3.2 bln. The upstream project includes construction of the TPG -500 type rig with 15 cells for the wells, equipment for the recovery, drilling and housing facilities to be installed at the depth of 105 meters. Besides, the project envisages subsea preparation of the field with five wells to be drilled later at the sea depth of 300 meters, construction of two subsea pipelines each 100 km long, one 26 inch wide gasline and another 12 inch pipeline for condensate from TPG-500 rig towards the Sangachal terminal, a gas an condensate plant for traetment of gas in the terminal ashore. Total investment in upstream project is to make $2.3 bln.
2. The downstream project includes establishment of the gas transportation network along South Caucasus Gasline from Azerbaijan via Georgia towards the Turkish border. The gasline is to be 690 km long, 442 km running in Azerbaijan and 248 km in Georgia. The gasline is to be built together with the BTC within the pipeline corridor to reduce to the minimum the environmental and social impact and to save capital and operation resources. The diameter of the gasline is to be 42 inches. Actual construction work is to start in midst of 2004, and the early gas to Turkish market is to be supplied in 2006. The total investment on the part of South Caucasus Gasline Company (SCGC) in the frame of gas transportation is to make $900 mln. Financing of the gasline is to be realised by Shah Deniz shareholders.
After the gasline is to be put into operation Georgia is to receive in the form of transit tariffs 5% of the volume of blue fuel to be pumped along it. Under full load of the gasline Georgia is to receive 1.5 bln c/m of gas, whereas, at present the country consumes annually no more than 750 mln c/m of fuel. Besides, Georgia will have the opportunity to realize500 mln c/m of gas on preferencial prices, which, by the way, she is to buy from Azerbaijan at the price of $55 per thousand c/m. Zurab Gumberidze, ambassador of Georgia to Azerbaijan had stated earlier "we are ready to realize the commitments we have take non ensuring the safety of the pipelines running trough our territory. No unexpected accidents that can spring out in the country can prevent us to do so.
The SCGC will have two technical operators. The British-US bp is to act as technical operator and will be responsible for the construction and operation of the SCGC units. The Norwegian Statoil, as a commercial operator, will be responsible for the business progress and administrative work in the frame of SCGC. Besides this, Statoil is to come out as an operator of the Azerbaijanian company for gas supplies (ACGS) in the frame of Stage -1. Ilham Aliyev, first vice president of SOCAR stated that Statoil owned widest experience and high international reputation in realising projects like this.
"Despite the the crisis the Turkish market presents great potentials for gas imports", Georg Gundersen, Statoil Azerbaijan Company president said.
"And the said potentials will increase after the energy market of Turkey is liberalized which is to take place shortly. I think, the experience the company has may turn out to be advantageous in Azerbaijan as well", Pal Eitrheim, manager of Statoil for governmental and public relations said. The agreement on sale of the fuel in the frame of Stage-1 was signed with Turkish BOTAS (6.3 bln c/m a year) with Azerbaijan (up to 1.5 bln c/m a year) and Georgian GIOC (up to 0.8 bln c/m a year). The Shah Deniz shareholders expect 178 bln c/m of gas and 34 mln tons of condensate is to be recovered in the frame of Stage-1. The average output under of Stage-1 development is expected to make 8.4 bln c/m of gas and 2 mln tons of condensate a year (14.6 mln barrels) during the maximum output period. Recoverable reserves of Shah Deniz make 625 bln c/m of gas and 101 mln tons (750 mln barrels) of condensate. It was also noted that even greater hydrocarbon reserves existed deeper in the productive horizons. Total output potential of the field is approximately 16 bln c/m a year, which can be reached during the following stages of development. The Shah Deniz project development schedule plans awarding the basic projects and the start of the programme of drilling ahead of time in the first quarter of 2003, the start of the rig construction in the 2nd quarter of this year, the beginning of the terminal construction in the 4th quarter of 2003, the start of SOCAR's SelfLayihaTikinti PA in the 2nd quarter of 2004, the first gas supply to Turkey in the 3rd quarter of 2006.
Prices
The deal on Azerbaijanian gas sales lacks fixed price for per thousand c/m. The deal participants deduced the formula for the settlement of the purchase price, in which there are such variables as average world natural gas cost, the inflation rates in Turkey, etc. Thus, the partners will have to define the price for each separate gas consignment for a concrete supply date.
Drilling
Drilling the well at Shah Deniz field is to start on April 1, 2003 from Istiqlal rig where the modernization is over. Particularly, the re-inforcement work of the rig for optimum and maximum efficient drilling of three wells at the Shah denis gas condensate field has been performed.
Drilling of a well is supposed to take 120-130 days.
The Istiqlal rig (previously Shelf-5) was built and delivered to Baku from Astrakhan, Russia, in 1991, to perform the drilling at Novkhani field in the Azerbaijanian sector of the Caspian. After bp's modernisation, that took many months late in 90s only the carcas remained from the previous construction. The housing facilities were extended from 80 to 120 persons. The price of similar SSDR in the world market is about $300 mln. About $214 mln investment was made in the project of modernisation. The main showings of the Istiqlal SSDR are as follows: carrying drill work at the depth of up to 700 meters (previously 280 meters), well depth - up to 7,500 meters (previously the maximum was 500 meters). Proceeding from these parameters, Istiqlal is at present the most powerful rig in using Caspian sea.
The French Technip and British KCA-Deutag have almost completed the design of future TGP-500 deep sea offshore rig which is to be installed at Shah Deniz for direct gas recovery. The rig is to be installed at the sea depth of 105 meters, and 12 operating well are to be sunk from it to recover the early gas. About 2 bln c/m of gas is to be output by means of the rig during its first year of operation, with subsequent increase of the figure up to 7-8 bln c/m a year. The completion of designing is to last till midst of next March, and the main work on the project is already over. From 2006 Turkey is to import 2 bln c/m of gas from Shah Deniz. By 2008 the figure is to rise up to 6.6 bln c/m.
Most significant stages of the Shah Deniz Project are:
Ratification of Azerbaijanian Intergovernmental Agreement (IGA)/ the Agreements with Transit TerritoryOwning Country Governments (ATTOCG) of October 23, 2001 . Ratification of Georgian IGA and ATTOCG of December 19, 2001 . Ratification of Turkish IGA/ Agreement on Purchase and Sales of December 28 2001 with Turkey Supply of initial gas is scheduled for October 2005.