By Robert Hutton & Zulfugar Agayev
BP Plc led a group of companies signing a $45 billion deal to pipe natural gas from Azerbaijan’s Shah Deniz field to Italy, offering the European Union an alternative to Russian supplies.
The deal will see BP lead the expansion of the Shah Deniz project in the Caspian Sea and the construction of pipelines across Turkey and into Greece, Albania and Italy. Production from the field will increase by 16 billion cubic meters a year, BP said in a statement today. That’s equal to about 1.5 percent of Europe’s total consumption.
Bringing Azeri gas to Europe will lessen reliance on Russian export monopoly OAO Gazprom (GAZP), which supplies about a quarter of the region’s natural gas by pipeline. Italy, Europe’s third-largest gas consumer, will buy half of the project’s gas starting in 2019.
“It will increase our energy security by providing an additional route and a new source for gas supplies to Europe,” UK Foreign Secretary William Hague said at the signing ceremony in Baku. “There is also the potential to expand the southern corridor to reach major gas suppliers in the Middle East, which could bring huge additional benefits.”
BP Chief Executive Officer Bob Dudley told the ceremony that gas production from Shah Deniz, holds an estimated 1.2 trillion cubic meters of natural gas, would immediately be expanded by 1.4 billion cubic meters a year.
BP’s partners in the project include Norway’s Statoil ASA (STL), Azerbaijan’s State Oil Co of Azerbaijan, or Socar, Total SA (FP), Iran’s Naftiran Intertrade Co, Turkey’s Turkiye Petrolleri AO and OAO Lukoil (LKOH).
“This will be a great day for our shareholders,” Dudley said. “This undertaking will be one that delivers value for many years to come.”
Under current plans, the new supplies will reach Turkey from 2018 and Europe in 2019. Bulgarian and Greece will buy one billion cubic meters of gas each.
As part of the agreement, Socar purchased 6.7 percent equity in Shah Deniz and the South Caucasus Pipeline from Statoil, and BP purchased 3.3 percent from Statoil.
Socar and the Shah Deniz partners also agreed to extend the terms of the Shah Deniz production sharing agreement up to 2048. [Bloomberg]