The Shah Deniz Alpha gas platform in the Caspian Sea, where the Shah Deniz II project will be built

Caspian gas deal to trigger major new pipeline

A deal to develop an offshore gas field in the Caspian Sea is the first step towards creating a southern gas corridor to Europe.

Backers of Azerbaijan's Shah Deniz II gas project signed a final investment decision today, which paves the way for the drilling of 26 subsea wells and construction of two bridge-linked platforms offshore, as well as new onshore processing and compression facilities at Sangachal.

The decision to go ahead with the project triggers plans to expand the South Caucasus Pipeline through Azerbaijan and Georgia, to construct the Trans Anatolian Gas Pipeline across Turkey and to construct the Trans Adriatic Pipeline across Greece, Albania and into Italy.

When combined with new gas transmission infrastructure to Bulgaria the projects will create the Southern Gas Corridor to Europe, in competition with Gazprom’s $39bn (£24bn) South Stream proposal to pipe gas from the Caspian to northeast Italy through the Black Sea starting at the end of 2015.

Azeri President Ilham Aliyev told a ceremony in the capital Baku that the project "will change the energy map of our region and help the historical development of our country".

Combined, the projects will cost $35bn Aliyev said.

BP Azerbaijan and the consortium said SOCAR and its partners in Shah Deniz II had agreed to extend terms for the project by 12 years to 2048. From around 2019, Shah Deniz II is expected to supply 16 billion cubic metres (bcm) per year to Europe, including 6 bcm for Turkey.

Bob Dudley, group chief executive of BP, said: “Very few projects have the ability to change the energy map of an entire region. Shah Deniz II and the Southern Corridor pipelines will not only change the energy map, but will give customers in Europe direct access to the gas resources of Azerbaijan for the first time.

“The final investment decision today would not have been possible without years of cooperation between many companies and many countries. I am proud that BP can be part of this historic moment, and grateful for the efforts of so many people in making this possible.

“As well as creating tens of thousands of jobs along the route of the pipelines in Azerbaijan, Georgia, Turkey and Europe, this project represents the largest ever foreign investment to Azerbaijan.”

In a surprise announcement, Norway's Statoil said it was cutting its stake in the Shah Deniz consortium to 15.5 per cent from 25.5 per cent, selling a 10 per cent stake in the consortium to partners BP of Britain and Azeri state energy firmSOCAR for $1.45bn in cash. BP will buy 3.3 per cent and SOCAR 6.7 per cent.

"It's a complete assessment of the risk, the exposure and the possibility of earnings from our portfolio, and for us the right stake is 15.5 per cent in this project," Statoil spokesman Knut Rostad said.

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