• Natural Gas News

    Energy Prices Allow Cost Cuts in Caspian



Azerbaijan willing to see positive impact of fall oil prices with cost reduction for its flagship project, BP says too early to call exact figures

by: Kama

Posted in:

Natural Gas & LNG News, Greater Caspian News, Caspian Focus, Gas for Transport, Infrastructure, Pipelines, South Caucasus (Baku-Tbilisi-Erzurum|BTE), Trans-Adriatic Pipeline (TAP) , Trans-Anatolian Gas Pipeline (TANAP) , News By Country, Azerbaijan, Turkey

Energy Prices Allow Cost Cuts in Caspian

While falling energy prices in international markets hit Azerbaijan's revenue from oil and gas exports, they also support cost savings for implementing the Southern gas corridor project (SGC), according to the country energy minister Natig Aliev.

The current cost of SGC including upstream work on Shah Deniz 2, is now estimated at around $40bn, he said. “The fall of oil prices led to a decrease of SGC cost of about $5 bn," said the energy minister in his address to an international energy conference in Baku. Earlier the project’s value was put at $45bn.

He explained that the low energy prices impact on prices for material and services that are being used for SGC. “Apparently it means lower expenses for the project.”

"For instance, the TransAnatolian gas pipeline (Tanap) cost estimates now is $9.3bn, down from earlier $11bn; the TransAdriatic pipeline (TAP) estimate is $6bn and Shah Deniz 2 development including the expansion of the South Caucasus line (SPCX) stands at $23.8bn with cost saving above $4bn,” he said.

But it could change, he added. “It depends on fluctuations of market prices for steel and equipment."

The most important thing that decline of energy prices does not have a negative impact on realisation of SGC. It is progressing well with Shah Deniz 2 71% complete, Tanap 55% complete and TAP 10% complete, he said.

Shah Deniz Alpha platform (Credit: Stuart Conway/BP)

Shah Deniz Alpha platform (Credit: Stuart Conway/BP)

In the current market environment we are seeing a cost reduction in Shah Deniz 2 and SCPX, but it too early to say exactly how much that would be, said BP regional manager Gordon Birrell.

Giving an update of progress of Shah Deniz2 and SCPX, where BP is an operator, Birrell said both projects were progressing very well with about 22,000 involved in Azerbaijan and over 3,000 in Georgia. Next year the offshore hook up and commissioning work will be started to make two platforms and subsea drilling and production centres ready for the first gas.

Onshore construction on Sangachal terminal, pipeline in Azerbaijan and compressor stations in Georgia progressing well too. “We need only one compressor station in Georgia to be ready in initial stage of production rump up and export by SCPX. It is ready for 40%,” said the regional president.

“The track of success with delivery of Shah Deniz stage1 in time and within a budget gives us a confidence that stage 2 will also be delivered on time. We  are looking forward to producing first gas in 2018 and delivering it to the Georgia-Turkey border to introduce into Tanap the same year,” Birrell said.

Jacket fabrication in BDJF for Shah Deniz 2 (Credit: BP)

Jacket fabrication in BDJF for Shah Deniz 2 (Credit: BP)

Activity is under way in all three construction stages of Tanap in which BP is partner, with 480 km of pipes welded and 600 km lined up along the route.

The activity in the European section of Tanap in lot 4 has started, the TransAnatolian pipeline company general manager Saltuk Duzyol said. This section from Eskishehir to Europe includes not only the pipeline itself but compressor and metering stations too.

Shah Deniz 1 has proven a reliable gas supplier to the Azerbaijan, Georgia and Turkey. It has so far produced 70bn m³ of gas and 142mn metric tons of condensate. Shah Deniz 2 will double the gas output from the giant field and expand export beyond the region to Europe with the opening of the  SGC. Exports from Shah Deniz 2 to Turkey will start in 2018, followed by supply to Europe in 2020. 


Kama Mustafayeva