BP Shah Deniz: Picking and Choosing

When you’ve got a significant natural gas resource to develop and sell, you can take your time picking the right partners to work with, as well as the right pipeline for delivering the gas.

At the European Gas Conference in Vienna, Austria, Steve Garlick, Marketing Manager, BP Shah Deniz Development pledged to speak about Shah Deniz’ agreements with Turkey as well as about pipeline selection.

“In terms of Shah Deniz itself, we’re about to enter feed. This is a very large project,” he commented, saying that at the moment the Consortium had a single platform on the Caspian that was producing approximately 7 bcm of gas per year.

He said that gas was taken ashore to a gas terminal in Azerbaijan, and piped to Turkey, where it was sold.

Phase II, he explained, was about developing the rest of the resource.

“We’re going to be putting into place two new platforms, we’ll be drilling a further 25 new wells in water depths of up to 500 meters, and tying those back to those new platforms. We’ll be putting into place some new gas slides to take gas ashore and we’ll be putting in some condensate lines to take the condensate to shore,” he reported. “And we’ll be putting in two new processing trains there.”

He said the evacuation route to the Turkish border remained the same.

“We’ll be putting in place a new line, or looping the existing line, certainly as far into Georgia with a six inch diameter line. We’ll be putting in some compressor stations to boost the pressure and utilize the existing line that we have. There’s very mountainous terrain in Georgia. We take the gas to the Turkish border.”

Mr. Garlick said that the new wells and platforms would add a further 16 bcm/annum of production capacity to the Shah Deniz field, and 100,000 barrels of condensate.

“Of 16 bcm/a of natural gas that we will be producing, we’ve committed 6 bcm of that to Turkey’s Botas, and that leaves the other 10. The plan is to transit those 10 bcm across Turkey, on into the markets of Europe.”

He explained that all of the new investment would cost in excess of $20 billion, that it was a very capital intensive and was relying on facilities.

“No one would spend that amount of money unless they were pretty confident in the rest of the value chain,” he said. “So we’re on track and we’re still predicting the first gas date of 3Q 2017; we should be taking FID by the middle of 2013. So development is going very much to plan.”

“Turkey is a key piece of geography,” he said, explaining that Shah Deniz gas would go into or across the country. “If you look at the map of gas, all of the gas is now either going into Turkey or across Turkey.”

On 25 October, reported Mr. Garlick, with some help from the governments of Azerbaijan and Turkey, two agreements were made with Botas regarding purchase of 6 bcm/year of gas.

“What we also signed was a transit agreement with Botas with two options embedded in the transit arrangement: to work with the Consortium on how to upgrade the existing network in Botas to transit the 10 bcm across Turkey.”

He made mention of the Trans Adriatic Pipeline (TAP) proposal.

“So at the same time we’re looking at the upgrade, BP will assist Botas and the government of Azerbaijan and SOCAR in the development and scoping of the Trans Anatolian Pipeline Project (TANAP), which is a scalable gas transit pipeline that will transit across the whole of Turkey,” he said.

Mr. Garlick added that Shah Deniz had signed a technical agreement with Botas that would regulate the relationship between them to be able to work together in what would be required to build the upgrade.

He said it was a significant step for the Consortium that unlocked the “Turkey gateway” to the rest of Europe and provided much certainty regarding project development and the commercial nature that underpinned the project.

“It’s a significant milestone for us.”

TANAP was also gathering momentum after the signing of a memorandum of understanding, he said.

“I think very shortly there will be an announcement about new entrants to that project,” he said, “with a formal structure put around the project to bind the participants together once they’re finalized.”

“That brings me on to the pipeline conundrum and how we select a route into deepest Europe,” said Mr. Garlick, “be that Italy or through the Balkan, south-east European countries towards Baumgarten.”

He noted that the various pipelines had made their proposals primarily based upon tariff, but explained: “It’s not just about the tariff and how it sits alongside the various indicative offers we’ve had from the various gas purchasers in Europe. There’s a need to have certainty around other aspects of the project, things like how easy it is to raise finance and how sustainable or technically complete the proposal is. Does it meet all the other stakeholder objectives in terms of politicians and various types of governments?”

He continued, “So we’ve had to put together a process that analyzes all of the responses that the projects have made so that we could make an informed, objective judgment as to which of those routes is actually going to offer the best results, the most certainty, the most attractive offer; comfort around whether the project can be delivered on time and be capable of being operated over a long period – 25 years or so of analysis is taking place to make an objective judgment.

“This is about opening the Southern Gas Corridor,” said Garlick. “The Shah Deniz resource will be followed by others, gas from Iraq and Turkmenistan have been mentioned.”

Then, he introduced the Consortium’s proposal, the Southern East European Pipeline, “SEEP.”

He commented, “It’s the lowest cost, most appropriate. It’s in pre appraisal phase and is being used as a benchmark against the other pipeline projects we are considering.”