Azerbaijan celebrates launch of $28bn Shah Deniz 2 field set to supply gas to Europe

Azerbaijan celebrates launch of $28bn Shah Deniz 2 field set to supply gas to Europe
Gas from Shah Deniz 2, located offshore from Baku, will flow from Azerbaijan to Georgia to Turkey, and then onwards to Italy via Greece, Albania and an undersea Adriatic route. The final part of the gas corridor, the Trans Adriatic Pipeline, is due to go operational in 2020.
By bne IntelliNews July 3, 2018

Azerbaijan on July 1 celebrated the launch by BP and partners of the $28bn Shah Deniz 2 gas field development, from which gas will be sent by pipeline to Georgia, Turkey, Greece, Albania and Italy.

Shah Deniz, located in the Caspian Sea, was discovered in 1999 and hailed as BP’s largest ever gas find. The giant field, estimated to hold approximately 1 trillion cubic metres of gas and covering approximately 860 square kilometres, is roughly the same size and shape as Manhattan Island. The first phase of field development, Shah Deniz 1, began production in 2006 and currently supplies gas to Azerbaijan, Georgia and Turkey, but for the past decade the Azerbaijani hydrocarbon dream has been to open up Shah Deniz 2 to achieve a complex megaproject and source enough gas to make an impact on European Union markets.

Gas from Shah Deniz 2 is to be exported through three interconnected pipelines that will make up the $40bn and 3,500-km Southern Gas Corridor (SGC) stretching to Melendugno in southeast Italy. The gas is to transit along an already completed extension of the 700-km South Caucasus Pipeline (SCP) to reach Turkey via Georgia. It then enters the 1,850-km and $8bn Trans Anatolian Natural Gas Pipeline (TANAP), launched on June 12, and traverses Turkey to flow to Greece. From there, the 878-km Trans Adriatic Pipeline (TAP)—to run from Greece to Albania and then onwards to Italy via an undersea route—forms the last leg of the SGC. TAP is still under construction, but BP says it should be operational in time to make commercial deliveries of Shah Deniz 2 gas to western Europe a reality by 2020. TAP was said to be two-thirds complete in February.

If targets are fulfilled the SGC could be delivering around 4% of the European bloc’s gas supplies by the early 2020s and, after capacity expansions, could add several more percentage points to that share in subsequent years.

Rivalry with TurkStream
Shah Deniz 2 and the SGC will eventually compete with Russia’s TurkStream pipeline (sometimes referred to as Turkish Stream), forks of which will by late 2019 send gas to Turkey and perhaps Bulgaria via Black Sea routes, according to plans. The SGC has the advantage of being an initiative of the European Commission to help Europe diversify away from over-reliance on Russian Gas. Some eurocrats hope that it will one day also carry gas to Europe from Middle Eastern regions.

Announcing the Shah Deniz start-up, BP said the first commercial gas delivery to Turkey was already under way. The BP-operated project is the first subsea development in the Caspian Sea and the largest subsea infrastructure operated by BP worldwide.

BP group chief executive Bob Dudley said: “Shah Deniz 2 is one of the biggest and most complex new energy projects anywhere in the world, comprising major offshore, onshore and pipeline developments. BP and our partners have safely and successfully delivered this multi-dimensional project as designed, on time and on budget. 

“Together with the Southern Gas Corridor pipeline system, Shah Deniz 2 will deliver significant new energy supplies to Europe, further diversifying its sources of energy and providing new supplies of natural gas which will be essential in the energy transition.

“This milestone achievement is a credit to the Shah Deniz partners and to our close co-operation with the governments of Azerbaijan, Georgia and Turkey, building on the relationships BP has built in the region over more than 25 years.”

At plateau, Shah Deniz 2 is expected to produce 16bn cubic metres (bcm) of gas per year incrementally to current Shah Deniz production. Together with output from the first phase of development, total production from the Shah Deniz field will be up to 26 bcm of gas and up to 120,000 barrels of condensate a day. The Turkish market is to buy 6 bcm of the Shah Deniz gas per year.

Commenting on the launch, Ashley Sherman, principal analyst, Caspian & Europe Upstream oil and gas, at Wood Mackenzie, was quoted by Reuters as saying: “Start-up of Shah Deniz II is a milestone not just for Azerbaijan and the BP-led consortium, but for the Caspian as a whole region: a complex megaproject delivered on schedule and under budget.”

500km of subsea pipelines
Offshore, the Shah Deniz 2 project includes 26 subsea wells, 500km of subsea pipelines and flowlines and two new bridge-linked platforms. Gas is transported onshore through an 85-km pipeline to the Sangachal terminal near Baku, which underwent a major expansion to accommodate the new increased gas output.

Bernard Looney, BP’s chief executive, upstream, said: “Bringing this huge project online within the schedule and budget we set out at sanction 4½ years ago is further evidence of our focus on efficient and disciplined project execution. As our largest start-up for the year, Shah Deniz 2 is also a very important milestone in delivering our plans for growth, including from our pipeline of new higher-margin projects.”

“As can be seen from our recent agreements, we expect to be operating in Azerbaijan for decades to come and we continue to see opportunities to work with the country to further explore and develop its significant resources,” he added.

At peak, the Shah Deniz 2 development, sanctioned in 2013, supported more than 30,000 jobs in Azerbaijan and Georgia and in total included over 180mn hours of work, BP said.

The Shah Deniz consortium is: BP, 28.8% - operator; TPAO, 19%; Petronas, 15.5%; AzSD,  10.0%; SGC Upstream, 6.7%; Lukoil, 10%; and NICO, 10%.

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