Shah Deniz gas pipeline moving ahead, BP official says

A 1,300-mile pipeline that would transport Azerbaijan offshore natural gas to Turkey and Europe, effectively expanding a southern corridor for Caspian Basin gas, is moving forward, a BP PLC official said.

“The Shah Deniz partners are on track to make a final decision about the project by June,” Greg Saunders, senior director of international affairs in BP’s Washington office, told a conference about the Southern Caucasus’s transportation potential at the Woodrow Wilson Center for Scholars. “The dotted line is about to become solid.”

His statement came a day after BP’s Azerbaijan affiliate, which operates the Shah Deniz offshore gas field, and State Oil Co. of the Azerbaijan Republic (SOCAR) jointly announced they are evaluating final offers from Nabucco Gas Pipeline International and Trans Adriatic Pipeline to move Shah Deniz Stage 2 gas to Europe.

The consortium now will evaluate each proposal’s commerciality, deliverability, financing, engineering, alignment and transparency, operability, scale, and public policy considerations, the Apr. 1 announcement said. Clarification meetings will be held with each pipeline company, it added.

Kazakhstan and Turkmenistan may have most of Central Asia’s gas resources, but Azerbaijan is better situated to get its gas to Europe, Saunders said during the conference, which was cosponsored by the Wilson Center’s Kennan Institute and the Institute for the Analysis of Global Security.

More resources coming

“It has more resources coming, starting in the next decade and into the 2030s,” he maintained. The $25 billion plan to expand the existing South Caucasus gas pipeline to 25 billion cu m (bcm)/year from 9 bcm/year should reach a final investment decision by the end of 2013, Saunders said, adding: “We all look forward to when gas flows from the Caspian region to southern Europe.”

Turkey is strongly committed to the project, according to Timor Soylemez, deputy chief of mission in the country’s embassy in Washington. “Uninterrupted access, stable and diverse markets, and affordable energy are all important concepts as we go forward,” he said. “Turkey’s reality is that we import 90% of what we consume, and there are others in our area who also import heavily. Ultimately, we are a consumer and transit country, but the steps we take matter a lot to countries to our east and our west.”

The Shah Deniz Stage 2 project shows that the long-term US strategy of encouraging development of a southern oil and gas route west from the Caspian basin is succeeding, a US Department of State official noted. Cross-border accords and energy, water, and transportation improvements in Azerbaijan, Georgia, and Turkey also have been essential, said Justin Friedman, director of the Caucasus Affairs and Regional Conflicts Bureau in DOS’s European and Eurasian Affairs Bureau.

But a long-time Washington energy observer warned that the Shah Deniz project’s economics could be damaged by other potential gas developments. “Ten years from now, a lot of gas could be coming from Israel, Lebanon, and Cyprus offshore fields, and from Algeria and Libya,” said Charles K. Ebinger, director of the Energy Security Initiative at the Brookings Institution.

Norway has shut in a huge offshore gas field because of economics, and tight shale formations in Europe have not been fully evaluated, let alone explored, he continued. “Gazprom also can’t be expected to hold still as it loses market share in Europe, and the overwhelming consensus among forecasters is that Europe’s gas demand will be flat for the next 10 years,” Ebinger said.

Contact Nick Snow at nicks@pennwell.com.

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