Shah Deniz: The Great Decider

Azerbaijan’s Shah Deniz gas field, situated in the South Caspian Sea, off the coast of Azerbaijan, is a kingmaker of sorts, quite possibly determining the fates of Europe’s proposed “European Corridor” gas routes.

At the European Autumn Gas Conference, Alasdair Cook, Vice President, Shah Deniz Development at BP Azerbaijan spoke about Shah Deniz Stage II, which he characterized as one of the largest oil and gas projects in the world.  “It will undoubtedly open the Southern Gas Corridor, bringing Caspian Sea gas to the markets in Europe,” he said.

Mr. Cook said he wanted to give the audience a sense of the pace and scope of the project, provide an update on agreements signed a few weeks prior, and to tell a bit more about Shah Deniz’s European pipeline decisions as the company reached key milestones in its selection process.

He began with a description of the project itself.

“The Shah Deniz field in Azerbaijan contains over 30 TCF of natural gas, making it one of the world’s giant fields. Starting with the Caspian Sea, we have the existing Shah Deniz Stage I platform which started production in 2006. For Shah Deniz Stage II, we will install two new platforms to produce an additional 16 BCM of gas and around about 100,000 barrels a day of oil from sub sea wells across a field around the size of Manhattan island.

“Onshore the gas will be compressed in preparation for a journey across Azerbaijan and Georgia through an expansion of the existing south Caucasus pipeline. Developing a project of this proportion is a huge undertaking,” he remarked. “At over US 20 billion it is also a huge investment.

Cook said that as of next year BP Azerbaijan would have almost 1,000 people working in project offices in the UK and in regional headquarters in Baku, Tblisi and Ankara, as well as on two drilling rigs out in the Caspian sea.

“This all puts us in good shape to start our production in 2017.”

He said that thanks to the outstanding efforts of the Azerbaijani and Turkish governments Shah Deniz had signed legally binding agreements for both Shah Deniz gas sales and transit. The gas sales agreements set out terms of sales of 6 BCM per year, building on the existing Shah Deniz I sales to maintain Turkey as the leading importer of Azerbaijani gas.

The transit agreements, he said, were arguably even more important in their scope.