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Total: Shah Deniz Transit Talks With Turkey "Difficult"

19 November 2009 09:20 (UTC +04:00)

Baku. Rashad Suleymanov â€“ APA-Economics. Transit of natural gas from phase two of Azerbaijanâ€™s Shah Deniz field could be re-routed via Russia if already-difficult talks with Turkey fail, French oil major Total SAâ€™s (TOT) senior vice-president for Central Asia, Arnaud Breuillac, told Dow Jones Newswires in an exclusive interview Monday.
Breuillac also revealed that a $1 billion cost savings plan for this year at the giant Kashagan field in Kazakhstan is on course, and that a proposal for Total to develop Turkmenistanâ€™s onshore gas was recently rejected by the Turkmenistan authorities.
Current discussions with the Turkish government regarding the transit of natural gas from the second phase of Shah Deniz are "quite difficult", Breuillac said, with disagreements over price also an obstacle to progress. Turkey is demanding prices as low as those negotiated during the first phase even though market conditions have changed and prices are higher now.
Total holds a 10% interest in Shah Deniz, which is developed by a consortium including operator BP PLC (BP.LN) Norwayâ€™s Statoil (STO.OS), Russiaâ€™s OAO Lukoil (LKOH.RS) Turkeyâ€™s TPAO and the Azerbaijani state oil company Socar.
Turkey buys 6 billion cubic meters of natural gas a year from the first phase Shah Deniz field, which produces a peak of 8 billion cubic meters of gas annually. The upper-limit of the gas price is set at $120 per 1,000 cubic meters, which is lower than international prices.
Turkeyâ€™s position as a final destination for second phase Shah Deniz gas was also preventing an agreement. "(Turkey) doesnâ€™t need all the gas that will be produced during the second phase ... A part should transit (the country)," Breuillac said, but Turkey is reluctant.
"The Turks must understand that if they donâ€™t accept that part of the gas transits (through Turkey), it wonâ€™t then transit through their territory but will go to Russia or even to Iran instead," Breuillac said.
Socar recently signed a deal with Russiaâ€™s state-controlled Gazprom OAO (GAZP.RS) for gas from Shah Deniz which would see gas pipelines to Russia upgraded, Breuillac noted.
He stressed there wouldnâ€™t "in any case" be a repeat of the commercial exclusivity agreed with Turkey for Shah Denizâ€™s first phase.
Despite the difficulties, the start of the second phase of Shah Deniz remains on track for 2016, Breuillac said.
Breuillac, who met with national oil group Socarâ€™s president Rovnag Abdullayev in Azerbaijan last week, said that Shah Denizâ€™s second phase is expected to produce twice as much as the first phase, with a total estimated production of around 16 billion cubic meters of natural gas per year.
Breuillac meanwhile revealed that Total had also approached Turkmenistanâ€™s authorities with regards to developing its onshore gas fields. Turkmenistan is open to offers from international companies to develop its offshore fields, but the Turkmen government doesnâ€™t want to open the onshore sector to foreign interests for strategic reasons, Breuillac said, and Totalâ€™s proposals were turned down,,as .
"Itâ€™s undoubtedly a country with a strong potential," as the gas produced there is being sent to Russia, but which could also be sent to China as a new pipeline is being built, Breuillac said. He said that gas produced there could in the future also be sent to Europe.
Total still hopes to be able to convince Turkmenistan to open its onshore reserves to foreign companies, although no resumption of the talks is planned at the moment.
Regarding the Kashagan project in Kazhakstan, Breuillac said that the consortium is on track to deliver its pledged $1 billion of cost reductions for this year, and could even exceed them.
"The figure is still valid," Breuillac said. "Weâ€™re in line with the objectives," he said, adding that the consortium could cut more than the initial objective.
Total holds a 16.81% interest in Kashagan, along with U.S.-based ExxonMobil (XOM), Royal Dutch/Shell (RDSA.LN), KazMunaiGas and Italyâ€™s Eni (E) - which all own 16.81% each - ConocoPhillips (COP), which has 8.4% and Japanâ€™s Inpex (1605.TO) which hold 7.56%.
The cost savings plan targets not only overhead and services costs but also takes into account works postponements, due to the deterioration of the economic conditions, Breuillac explained.
Kashagan is still expected to deliver its first oil in 2012, he added. The total cost to develop Kashagan is estimated at more than $100 billion, according to industry figures.
Total plans to further develop its activities in Kazakhstan, in addition to both Kashagan and the recent contract to develop the Khvalinskoye gas field in the Caspian field, it signed during French president Nicolas Sarkozyâ€™s Oct.6 visit, the Total executive said.
"We would like also to enter the exploration segment in the Caspian Sea," and Total is currently in talks with Kazakhstanâ€™s state-owned oil and gas group KazMunaiGas, Breuillac said. He declined to elaborate. Source: WSJ