Azerbaijan signs deals to sell Shah Deniz gas to European consumers

Written by on September 20, 2013 in Business - No comments

The consortium developing the Shah Deniz 2 gas field on Azerbaijan’s shelf in the Caspian Sea signed contracts to sell gas to nine European companies, Bulgaria’s state-owned Bulgargaz included, at a ceremony in Baku on September 19.

The contracts have been signed for a period of 25 years, with deliveries scheduled to begin in 2019. Production at Shah Deniz 2 – which is to be jointly developed by British Petroleum, French firm Total, Norway’s Statoil and Azeri state-owned company Socar – is scheduled to begin in 2018.

Shah Deniz 2 has a planned annual production capacity of 16 billion cubic metres, of which six billion cubic metres would go to Turkey and the rest to Europe. To ship the gas, Turkey will build the Trans-Anatolian Pipeline (TANAP), which will link at the Turkish-Greek border with the planned Trans-Adriatic Pipeline (TAP) that will cross Greece and Albania on its way to southern Italy.

The companies that signed agreements to buy Shah Deniz 2 gas are Shell, Bulgargaz, Spain’s Gas Natural Fenosa, Greece’s DEPA, Germany’s E.ON, Italy’s Hera Trading and Enel, France’s GDF Suez and Switzerland’s AXPO.

Bulgargaz will buy one billion cubic metres of Shah Deniz 2 gas a year, enough to satisfy about a third of domestic demand – currently, Bulgaria imports about 90 per cent of its annual consumption from Russia at a price of $430 for 1000 cubic metres, under the terms of the new long-term deal signed with Gazprom in November 2012.

(Bulgaria also has the option to renegotiate the price six year into the contract, in 2018, shortly before the scheduled start of Azeri gas deliveries, a circumstance that could allow Bulgaria, as several local reports pointed out, to put further pressure on Gazprom to lower its price).

Pricing details of the deal with the Shah Deniz 2 consortium have not been disclosed.

The gas will be imported using the yet-to-be-built gas interconnector with Greece, where Socar acquired the country’s gas grid operator DESFA earlier this summer.

The contract’s clauses will activate as soon as the Shah Deniz 2 consortium signs a final investment decision on the development of the gas field, Bulgargaz said in a statement. Officials at Socar have said earlier this week that an agreement in that sense will be signed by the end of the year.

(Photo: Jayesh Nair)

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