BAKU
Participants in a major project in Azerbaijan aimed at supplying natural gas to Turkey and Europe from the giant Shah Deniz field refreshed the contract terms over deliveries to Turkey.
The BP-led consortium which is developing the Shah Deniz project in Azerbaijan has been pumping gas from the offshore field’s first phase since 2006, delivering more than 10 billion cubic metres (bcm) a year of gas to Azerbaijan, Georgia and Turkey through the South Caucasus Pipeline.
The second phase started output in 2018, adding 16 bcm of gas production capacity at its peak to bring total capacity to 26 bcm.
Azerbaijan started supplying commercial natural gas to Europe from the second stage of the Shah Deniz project via its $40-billion Southern Gas Corridor in December 2020, when the corridor’s last part, the Trans-Adriatic Pipeline (TAP), became operational. The project hopes to reduce Europe’s dependence on supplies from Russia, which currently controls 34 percent of the continent’s gas market.
An initial contract between Turkish pipeline operator company BOTAS, Azerbaijan’s state energy firm SOCAR and the international Shah Deniz consortium over purchase and sale of gas from the first stage of Shah Deniz expired in April 2021 and parties continued to discuss a new mid-term contract until autumn.
The new contract will expire at the end of 2024, an informed source from SOCAR told the Tribune.
“According to the new contract, Turkey will receive from Shah Deniz-1 twice less than the previous volumes. This decision was made both in connection with the gradual natural decline in Shah Deniz-1 resources and due to the fact that part of the gas from the first stage, by agreement between SOCAR and the project operator BP, will go to the internal growing needs of Azerbaijan,” the source said.
According to the source, the new contract stipulates more flexible commercial conditions – actual spot prices for “blue fuel”, while in the previous long-term contract the gas price was tied to the “oil basket”.
In 2020, Azerbaijan exported to Turkey a total of 11.548 bcm of gas from both stages of the Shah Deniz development, 20.5 percent up from 2019.
In 2021, due to a pause in gas supplies from Shah Deniz-1 and with a decrease in contractual volumes from Shah Deniz-1, transportation volumes will be lower.
Shah Deniz reserves are estimated at 1.2 trillion cubic metres of gas, of which a little more than 12 percent has been extracted so far.
The participants in the Shah Deniz project are: BP (operator, 28.8 percent), TPAO (19 percent), SOCAR (16.7 percent), Petronas (15.5 percent), LUKOIL (10 percent) and NICO (10 percent).