The deal will see BP lead the expansion of the Shah Deniz project in the Caspian Sea and the construction of pipelines across Turkey and into Greece, Albania and Italy. Production from the field will increase by 16 billion cubic meters a year, BP said in a statement today. That’s equal to about 1.5 percent of Europe’s total consumption.
Bringing Azeri gas to Europe will lessen reliance on Russian export monopoly OAO Gazprom (GAZP), which supplies about a quarter of the region’s gas by pipeline. The EU made diversifying supply a priority after disputes on gas pricing between Russia and Ukraine, through which several pipelines pass, threatened to disrupt shipments. Italy will buy half of the project’s gas starting in 2019.
“It will increase our energy security by providing an additional route and a new source for gas supplies to Europe,” U.K. Foreign Secretary William Hague said at the signing ceremony in the Azeri capital Baku. “There is also the potential to expand the southern corridor to reach major gas suppliers in the Middle East, which could bring huge additional benefits.”
BP Chief Executive Officer Bob Dudley told the ceremony that gas production from Shah Deniz, which holds an estimated 1.2 trillion cubic meters of natural gas, would immediately be expanded by 1.4 billion cubic meters a year.
Expanding the field and the pipeline to Turkey will cost about $28 billion, while the rest will be spent on building the Trans-Anatolian Pipeline, or Tanap, across Turkey and the Trans-Adriatic Pipeline into Italy.
BP’s partners in the project include Norway’s Statoil ASA (STL), Azerbaijan’s State Oil Co. of Azerbaijan, or Socar, Total SA (FP), Iran’s Naftiran Intertrade Co., Turkey’s Turkiye Petrolleri AO, and OAO Lukoil. (LKOH)
Under current plans, the new supplies will reach Turkey from 2018 and Europe in 2019. Bulgarian and Greece will buy 1 billion cubic meters of gas each.
The pipelines will be built to accommodate gas from other suppliers, BP’s vice president for the Shah Deniz development, Al Cook, said in an interview in Baku.
“It’s about as large as you can make a long gas pipeline,” Cook said. “It would be very easy to double the amount of gas flowing through it. There’s a number of countries this gas could come from. We regard Tanap as a hugely strategic pipeline for the future.”
As part of the agreement, Socar purchased 6.7 percent equity in Shah Deniz and the South Caucasus Pipeline from Statoil, and BP purchased 3.3 percent from Statoil. That reduced Statoil’s stake in the pipeline to 15.5 percent.
The Oslo-based company also said it wouldn’t participate in building the Tanap pipeline.
Socar and the Shah Deniz partners also agreed to extend the terms of the Shah Deniz production sharing agreement up to 2048.
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