Government officials from Azerbaijan and Georgia signed an agreement late last month in Baku that signals another important step toward construction of a gas export pipeline into Turkey.
Azerbaijan President Heydar Aliyev and Georgia President Eduard Shevardnadze were joined in the signing by Minister of Fuel and Energy of Azerbaijan Majid Karimov and the president of the Georgian International Oil Co. Georgi Chanturia.
The intergovernmental agreement covers details of the transit, transportation, and sale of natural gas in the two countries through which the South Caucasus pipeline system will run.
The agreement embodies the principles of freedom of transit of gas through the states, the development of related infrastructure, the provision of land rights and the protection of the environment and investments, and the right to purchase gas on a non-discriminatory basis under terms of future purchase and sales agreements.
The countries had reportedly been close to signing such an agreement 2 months earlier in Baku, but comments from World Bank observers scuttled those plans.
Then they were close to signing an agreement again in early September in London when President Shevardnadze appears to have wrung concessions from Aliyev that led to the final agreement signed Sept. 29.
Planned facilities
The Shah Deniz line will be 1,000 km: 440 km in Azerbaijan, 280 km in Georgia, and 280 km in Turkey. Line size has yet to be decided but is expected to be 26-42 in.
Throughput starts in 2005 and will build rapidly to 6.6 billion cu m/year exported to Turkey. Azerbaijan and Turkey have each announced intentions to buy gas from the line but have given no volumes.
Projected development cost will be about $1 billion for the pipeline and $1.5 billion for associated offshore structures. Offshore development will consist of a fixed platform 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.
Further preliminaries
Some important matters remain outstanding, however, most notably ratification of the agreement by the two countries' parliaments.
Now that the initial agreement has been executed, it will be presented to the two parliaments as the prevailing legal regime of the states with respect to the project as well as a binding obligation under international law.
Attached to the agreement as appendices are forms of the Host Government Agreement between Georgia and project investors and the Host Government Agreement between the Azerbaijan Republic and project investors. These detail the relations between the respective governments with investors in the pipeline project regarding, for instance, health, safety, and environmental standards, gas pipeline construction and operation standards, land-acquisition procedures, cooperation mechanisms between the investors and governments, and taxes payable by the investors to the host governments.
Once ratification of the intergovernmental agreement signed last month has taken place, the next step will be for investors interested in building a pipeline to ship Caspian gas to Erzurum to reach downstream marketing agreements with Turkish and world gas markets.
BP PLC, operator and major shareholder in the project, has said that it will proceed with the pipeline project only if it is commercially sound. BP at the time of last month's signing said that it hopes project approval will be given at yearend and that first gas will flow late in 2004.
BP holds 25.5% of the Shah Deniz project, Statoil 25.5%, LukAGIP 10%, SOCAR (the Azerbaijan state oil company) 10%, Offshore Iran Energy Co. 10%, TPAO (the Turkish state oil company) 9%, and TotalFinaElf 10%.
