ECONOMY

Gas field expansion likely

BAKU (Reuters) – Oil major BP and Norway’s Statoil are considering doubling the capacity of their Azeri offshore gas project as they expect gas demand in Europe and the Caspian basin to rise by 2010, the firms said. The two firms said deeper exploration of their co-led giant Shakh-Deniz offshore deposit would start next year alongside negotiations with potential buyers of additional gas in Turkey as well as in Greece, southern Europe and possibly Russia. «The gas markets in Europe are expanding very fast and we want to have a share in this pie,» the head of Statoil in Azerbaijan, Georg Gundersen, told the annual Azeri oil show this week. The Shakh-Deniz group, which also includes French Total, Russia’s Lukoil and Italy’s Agip, will invest $3.2 billion in the first development phase of the field to start shipping up to 6.3 billion cubic meters (bcm) of gas a year to Turkey from 2006. But it says the field’s massive reserves justify competition on a larger scale with the dominant European suppliers such as Russia, Algeria and Norway. «We have a big chunk of gas, which hasn’t been sold yet and we see potential markets in Turkey and beyond,» said Paal Eitrheim from Statoil-Azerbaijan. The group needs to bring and install the first offshore platform, the biggest ever brought into the Caspian Sea, to start gas sales to Turkey by October 2006. It will also drill a new exploration well next year to push more preliminary recoverable reserves of 625 bcm and 101 million tons of condensate into the category of fully confirmed and ready-for-sale reserves of 178 bcm and 34 million tons of condensate. «In terms of volumes, the second phase could be comparable with the first phase with output of up to eight bcm a year,» said Eitrheim. «It would also be reasonable to expect that we can do it cheaper (than $3.2 billion) because we have already got the basic infrastructure here,» he added. Gas sales from the first phase will reach Turkey, where Russia’s gas monopoly Gazprom has been a dominant player for decades, by a pipeline via Georgia and Azerbaijan. Turkey, which analysts believe has heavily overestimated its gas demand growth, has not offered so far to buy more gas from Shakh-Deniz, but wants to become an energy hub offering transit capacities to Greece and beyond. «We are looking for other partners in Europe and are considering joint ventures with firms interested in new supplies,» Cenk Pala, head of the strategic department of Turkish state firm BOTAS, told the conference. He said Turkey, which is building a 220 km (137 mile) gas link with Greece, would be ready to ship 3.6 bcm a year to Greece from 2006 and up to eight bcm a year to Italy and Austria from 2008. Russia’s Caspian envoy Viktor Kalyuzhny slammed the plan, saying Russia feared that it would be Gazprom’s gas that would be re-exported from Turkey. «Azerbaijan has maximum capacity to supply Turkey with six bcm and another three bcm to Greece. So we are wondering what kind of gas will be resold to Italy, Bulgaria, Romania and Austria,» he said. Gazprom, which supplies Europe a quarter of its gas needs, bans consumers from reselling gas to third countries. But Statoil said it was upbeat about the reserves of Shakh-Deniz and believed Europe’s demand would grow fast enough to accommodate new volumes.