Industry and Energy

“In a surprise announcement BP has proposed a new pipeline option to carry gas from the Shah Deniz field in Azerbaijan to Europe” Dr. Gareth Winrow, Director of SGA Research Services, says.

The authors remind that the consortium working at the field is planning to boost annual output from the current 9 billion cubic meters (bcm) to 25 bcm/y after the second phase of production at Shah Deniz is launched in 2017.

The BP-led consortium has set a deadline of October 1 for companies to submit their tariff proposals and other details for the transportation of gas from Shah Deniz to Europe from 2017. It appeared that three projects – Nabucco, the Trans-Adriatic Pipeline (TAP) and the Interconnector Turkey-Greece-Italy (ITGI) – were competing to carry 10 bcm/y of gas from the second stage of development at Shah Deniz to Europe, with a further 6 bcm/y destined for the Turkish market.

“But, BP’s proposed South-East Europe pipeline (SEEP) now appears to be a serious fourth export option for the transportation of Azerbaijani gas to Europe along the so-called Southern Gas Corridor”, SGA experts agree.

“Each of the other three export options has strengths and weaknesses. Nabucco is backed by the European Commission and the EU’s executive arm has recently been given a mandate to lead talks between the Azerbaijanis and Turkmens to secure an agreement to construct a Trans-Caspian gas pipeline”, the authors mentioned adding, “this could help provide the necessary gas volumes to fill the proposed 31 bcm/y Nabucco pipeline. However, there is no guarantee that these negotiations will succeed and BP and the State Oil Company of Azerbaijan (SOCAR) have expressed concern that the shipment of gas from Shah Deniz via Nabucco would be too expensive if the pipeline was only operating at one third of its capacity”.

In the meanwhile, the expert underscores that, “it seems that BP officials are not convinced that the plans presented by the rival three projects offer enough guarantees to ensure that gas from the second phase of production at Shah Deniz will be delivered to markets in Europe without any problems. And, BP appears to have persuaded SOCAR, another member of the Shah Deniz consortium, to consider seriously the proposed SEEP option”.

SGA believes that officials at BP are serious over the proposed SEEP. Al Cook, the company’s vice-president responsible for development at Shah Deniz, has stated that BP is open to the idea of direct investment in the project.

“BP is prepared to work with “other participants” to develop the SEEP. With the exception of SOCAR, no other member of the Shah Deniz consortium has expressed an opinion on the SEEP. Given Statoil’s interest in the TAP project, the position of the Norwegian company which holds the same equity stake in Shah Deniz as BP could be crucial. Presumably, the views of smaller stakeholders in the Shah Deniz consortium such as Total and the Turkish Petroleum Corporation will be less important. Initial comments from Statoil indicate that the company does not have a strong preference for any of the competing pipelines in the Southern Gas Corridor, however we believe the low-cost nature of the SEEP would be an important factor”.

“In our opinion, BP is clearly concerned at what it perceives to be shortcomings in each of the three projects which aim to deliver Azerbaijani gas to Europe”, the authors mentioned adding, it is possible that officials at BP are also promoting the SEEP in order to force the consortia working on Nabucco, the ITGI and the TAP project to come up with more detailed proposals before the October 1 deadline for the final submission of bids.

For example,” a spokesperson for the Nabucco consortium has responded to BP’s latest initiative by declaring that the Vienna-based group will submit a “concrete” proposal to the Shah Deniz consortium in the coming days. The BP-led consortium working at Shah Deniz has announced that they will decide on an export route for gas delivery to Europe before the end of the year. However, we think that there could still be delays even though this could then impact on the timetable for increasing production at Shah Deniz. At the time of writing, the Turks and Azerbaijanis had still to reach agreement over transit issues. The possible further extension of already drawn out negotiations between Ankara and Baku over transit terms could lead to the Shah Deniz consortium delaying a final decision on a gas export route”, says the SGA analysts.

• Natural gas prices drop at NYMEX
• Lukoil will review its strategy regarding assets in Bulgaria
• Azerbaijan increases aluminum export by more than 23%