Shah Deniz project, gas pipeline to Turkey approved

March 10, 2003
International licensees of Azerbaijan's Shah Deniz gas and condensate field development project in the Caspian Sea near Baku approved Phase 1 of the project Feb. 27, including the start of field development and construction of the South Caucasus gas pipeline (SCP) from Shah Deniz to Erzurum, Turkey, said major participant Statoil ASA. Development (upstream and midstream) has an overall investment budget of $3.2 billion.

International licensees of Azerbaijan's Shah Deniz gas and condensate field development project in the Caspian Sea near Baku approved Phase 1 of the project Feb. 27, including the start of field development and construction of the South Caucasus gas pipeline (SCP) from Shah Deniz to Erzurum, Turkey, said major participant Statoil ASA. Development (upstream and midstream) has an overall investment budget of $3.2 billion.

The Shah Deniz discovery well was drilled in May 1999 (OGJ Online, July 15, 1999) and subsequent test wells indicated gas reserves estimated at 25-35 tcf (OGJ Aug. 21, 2000, p. 68).

The development go-ahead opens the door for Norway's Hydralift ASA and AS Nymo Mek. Verksted to deliver equipment and fabricated structures to Shah Deniz under contracts valued at $46 million. Offshore development in 50-500 m of water will consist of a fixed platform from which 10 wells will be drilled, and two 100-km offshore pipelines—a 26-in. gas line and a 12-in. liquids line—to Sangachal terminal where new gas processing and condensate stabilization facilities are planned. BP PLC will operate the plant and terminal (OGJ, Oct. 29, 2001, p. 64).

The Shah Deniz consortium, which also constitutes the South Caucasus Pipeline Co., also plans to begin construction on the 690 km SCP pipeline and associated compression facilities next year and has scheduled operations to begin in 2006.

The SCP line will follow the right-of-way of the Baku-Tbilisi-Ceyhan oil pipeline, which is already under construction, as far as Erzurum. When complete, the pipeline will transport an estimated 8.4 billion cu m/year of gas from Shah Deniz field through Baku and the Georgian capital Tbilisi to Erzurum in Turkey.

BP, which holds a 25.5% interest in the project, confirmed that it will be technical operator for both the pipeline and the field development. Other Shah Deniz consortium shareholders are Statoil, also with 25.5%, and State Oil Co. of the Azerbaijan Republic (Socar), TotalFinaElf SA, Naftiran Intertrade Co. Ltd., and LukAgip NV—each with 10%—and Turkiye Petrolleri Anonim Ortakligi 9%.

Statoil was designated commercial operator covering gas sales, contract administration, and business development for Shah Deniz, through the newly established Azerbaijan Gas Supply Co., and commercial operator for business development and administration for the pipeline.

"Another milestone has been achieved," Medjid Kerimov, Azerbaijan's minister of fuel and energy, said at the official approval ceremony in Baku, according to a press statement. "The scale of the project means that Azerbaijan is now firmly positioned to become a major gas exporter."