Azerbaijan and Russia agree oil and gas JV

By bne IntelliNews August 14, 2013

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Azerbaijan and Russia signed two deals on August 13 which lay the ground for the pair to set up a joint venture to explore and develop oil and gas resources. The deal is likely to stir concern in Brussels.

The agreement was signed during Russian President Vladimir Putin's visit to Baku on August 13. The State Oil Company of the Azerbaijan Republic (SOCAR) and Russian state-controlled giant Rosneft will set up the new company on a parity basis, to work in both countries. In addition to launching the joint venture, the two companies plan to cooperate in marketing and sales of oil, gas and related products, and to jointly use some pipelines and terminals, according to RIA Novosti.

The heads of two Russian oil majors - Rosneft and Lukoil - arrived in Baku with Putin to take part in talks on cooperation in the oil and gas sector. Lukoil is a member of the international consortium developing Azerbaijan's massive Shah Deniz offshore field, which is a central plank in Europe's efforts to reduce its energy dependence on Russia.

It is not clear whether the deal hands Russia any specific concessions on Azeri gas. Rosneft is interested in taking part in the development of the Apsheron gas field in the Caspian, which is currently run by a consortium featuring Total (40%), SOCAR (40%), and GDF Suez (20%). The head of the Russian company, Igor Sechin, met with Azeri President Ilham Aliyev and Total to discuss the prospect last month.

The two agreements signed by the heads of Rosneft and SOCAR cover undisclosed specifics of joint oil deliveries, and a separate "agreement on co-operation" between the two. A Rosneft statement said they have a list of oil projects in Russia and Azerbaijan, as well as other countries, which they will jointly develop. "For this purpose, the sides will create a joint venture on a parity basis," the Rosneft statement said.

Speaking to Russian news wires, Sechin said only that "a full range of areas" is covered by the deals signed "These include mutual deliveries, swap operations and the possibility of jointly using our infrastructure," he continued, adding the agreement "assumes an exchange of assets and joint production."

Brussels will eye the deal with some concern. Shah Deniz - operated by BP - has emerged as a major hub for its efforts to tap gas supplies that avoid Russia. That strategy - dubbed the "southern corridor" - has struggled however, and also faces the threat of the giant 63bn cm South Stream pipeline planned by Russia to head into southern Europe. Exports of 16bn cubic metres (cm) from Shah Deniz through Turkey and the Balkans and into Italy are due to start in 2019. Until that start up, Russia remains one of the main transit states for Azeri natural gas, with 1.55bn cm exported to Russia in 2012.

Talks between Putin and Aliyev also covered cooperation in the defence sector. Azerbaijan relies heavily on Moscow for its armaments and has been cautious about upsetting Moscow in the past, despite its growing role in EU energy policy.

"The agreements we signed today mark a new stage in our oil and natural gas co-operation," Russian news agencies quoted Aliyev as saying after the signing ceremony. "I am certain that this co-operation will be a great success."

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