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    Total Investment in Shah Deniz Gas Field at $11.4 Billion



BP and Shah Deniz partners have invested $11.4 billion in the Shah Deniz field, an investment that has returned its value as companies are making profit.

by: Dalga Khatinoglu

Posted in:

Pipelines, Baku–Tbilisi–Ceyhan (BTC) , News By Country, Azerbaijan, Caspian Focus

Total Investment in Shah Deniz Gas Field at $11.4 Billion

The latest statistics released by British Petroleum, the operator of Azerbaijan’s giant gas fields, indicate that BP and Shah Deniz partners have invested $6 billion in Shah Deniz Stage 1 until 1H14, but how much investment was put in the total project including the pipelines, terminals, etc?

Responding to Natural Gas Europe’s question, Spokesperson of BP Azerbaijan, Tamam Bayatli, said that some $8.224 billion has been invested on Shah Deniz Stage 1 in total so far.

According to her statement, the investment covering the time period starting from the approval of the agreement on Shah Deniz Stage 1 by the Azerbaijani government in April of 2003 to 1st of October, 2014.

“Investment, originally, included the construction of the South Caucasus pipeline which is 680 km long with maximum discharge of 8 bcm per annum in 2003 to 2006, the construction of 2 compressor stations in Georgia, the construction of the gas terminal (firstly collecting, then processing of natural gas and the construction of drying facilities) in Sanqachal and finally, the construction of offshore gas production platform” Mrs. Bayatli said.

She added that in addition to that, an infrastructure of two 110 km long underwater pipelines was built in order to transport natural gas and condensate from offshore facilities to the coastal gas terminal.

During recent years, the investment was spent on both to on-platform works, export pipelines, pumping stations, and the natural gas facilities at Sanqachal terminal, she underlined.

Shah Deniz Stage 1 began operations in 2006. It has the capacity to produce about 9 billion cubic meters of gas per annum (bcma) and approximately 50,000 barrels a day of condensate.

The second phase of Shah Deniz gas field is projected to be operational until 2019, aimed to deliver 16 bcma of gas to Turkey and EU.

“Until the 1st of October 2014, some $11.4 billion investment has been put in “Stage-I” and “Stage-II” projects of Shah Deniz field”- Tamam Bayatli stated.

“Stage-II” project approved on 17th of December, 2013 to produce 16 bcma of natural gas from the deep sea parts (550 meters below sea level) of the field. But the works on this project started in 2011 as agreed by the Azerbaijani side and consortium.

Bayatli said that, at the moment total investment for Shah Deniz-II almost reached 3 billion 176 million US dollars.

Also to note that, the agreement to operate  Shah Deniz field was signed on 4th of June, 1996 and it was approved by the parliament on 17th of October of the same year.

In June of 1999, BP Exploration (Shah Deniz) Ltd. consortium (operator – BP) officially announced that, first exploration well discovered viable layers at the depth of approximately 6800 meters. At the time, it was estimated that the discovered gas field had reserves of approximately 600 billion cubic meters. But further drilling works from 2004 to 2006 discovered new viable layers and it was verified that natural gas reserves were twice the amount it was previously thought.

Earlier, Hoshbekt Yusifzade, the vice-president of SOCAR on geology, geophysics and operating of fields, said that some 55 billion cubic meters of gas and 14 million tons of gas condensate were produced from Shah Deniz field since the start of operating the field in 2006 till 1st of October, 2014.

It is important to note that, exports from this field to Turkey started on the 3rd of July, 2007. Since that time until 1st of October, 2014, 30 billion cube meters of gas has been exported to Turkey. Till this moment, 4 billion cubic meters of blue fuel has been delivered to Georgia from Shah Deniz and Remaining 21 billion cubic meters of gas was bought by SOCAR.

Following companies are the stakeholders of “Shahdeniz” project: BP (operator – 28,8%), TPAO (19%), SOCAR (16,7%), Petronas (15,5%), LUKoil (10%) and NICO (10%).

Some 9.8 billion cube meters of gas and 2,48 million tons of gas condensate were produced in 2013 from this field. So far, this is the peak point of the production. Such high production rates have not been achieved to this date.

Bayatli says that 7.25 billion cube meters of gas was produced during first 9 months of 2014 and BP expects to produce 9.6 bcma this year.

It seems the reason behind not increasing the production is the lack of export possibilities. Turkey plays the role of main buyer as part of “Stage-I”. Based on the agreement signed in March, 2001 with Turkey’s BOTAS company, Turkey was planned to receive a minimum of 6.3 bcma of gas through Turkish-Georgian border from 2008. So far, BOTAS has bought a maximum amount of 4.5 bcm from Azerbaijan. From this standpoint, SOCAR has helped the consortium by buying some quantities of gas as part of “Stage-I”.

From a financial point of view, the investment has returned its value, and the companies are making profit.  Azerbaijan is collecting taxes, and according to PSA agreement, approximately 400 million US dollars enter State Oil Fund every year. Exporting 14 million tons of gas condensate to the world market through the Baku-Tbilisi-Ceyhan pipeline and selling gas at high prices are the reasons of this.