The New Agreement between BP Azerbaijan and South Caucasus Pipeline

Azerbaijan and BP have agreed to expand a part of the South Caucasus gas pipeline. The volume of extra gas produced by the Shah Deniz consortium will be monitored by SOCAR.

This was said at today’s briefing by the vice-president of BP on Shah Deniz, Al Cook.

According to him, during the course of  BP President Robert Dudley December 18, 2012 visit to Baku, the parties signed a framework agreement for the Stage 2 development of Shah Deniz and the expansion of the South Caucasus Pipeline (Baku-Tbilisi-Erzurum) as well as BP’s participation in the TANAP (Trans-Anatolian Pipeline) project.

As noted by Cook, in the expanded part of the South Caucasus Gas Pipeline the pumping of over 25 billion cubic meters of gas per annum will be controlled by SOCAR.

It is assumed that, in parallel with the existing line of the South Caucasus Gas Pipeline with a capacity of 8 billion cubic meters (used to pump gas at Stage 1 of Shah Deniz), there will be another pipeline built.  It will be reserved for pumping 17 billion cubic meters of gas per year, of which, 16 billion cubic meters will be from Stage 2 and another 1 billion cubic meters will serve as a technical reserve.

All of the additional investments in the expansion of the pipeline will be made by Azerbaijan and SOCAR whom will control additional pumping volumes from the Absheron field, etc.  Thus, in view of the project TANAP, Azerbaijan gets control of the pipeline infrastructure in delivering gas from the Sangachal terminal to the borders of the EU.

Cook also said that agreements will be signed this year to let three companies; BP, Statoil and Totaln, join TANAP.

According to him, they have already spent $1 billion for the work on the Stage 2 the project, and on the business, legal negotiations, and preparation work at the Sangachal terminal.

The total project cost is estimated at $25 billion. However, the error of the preliminary cost could be 20%.

According to Cook, in the next 18 months, there will be $10 billion worth of signed contracts for the procurement of equipment, construction materials, etc.

Cook also said that by April 1 the consortia TAP (Trans Adriatic Pipeline) and Nabucco West are to submit final quotes on pumping Azerbaijani gas. By late June, a decision is expected on the choice route, and in the second half of the year, the Stage 2 authorization, on the first gas to be recovered in 2018.

* Members of Shah Deniz are: BP (operator with 25.5%), Statoil (25.5%), SOCAR (10%), LUKOIL (PTC: LKOH) (10%), NICO (10 %), Total (10%), and TPAO (9%). -12C06 –