Nicholas Watson in Prague -

With Azerbaijan's energy ministry now expecting that the second stage of the giant Shah Deniz offshore gasfield could produce significantly more gas than thought, plans to deliver that gas into the heart of Europe gather pace.

On September 18, Industry and Energy Minister Natik Aliyev told reporters on the sidelines of the "Oil, Gas and Media Conference" in Baku that Shah Deniz 2, as the BP-led expansion project is called, should be able to produce more than the currently targeted output of 16bn cubic metres of gas per year (cm/y). "In my mind it will be maybe 20bn-25bn [cm/y]," he was quoted as saying.

The Shah Deniz field, which is already producing gas from its first stage, has more than 1 trillion cm of gas in place, according to BP. The British operator of the project holds a 25.5% stake, as does Norway's Statoil. Other shareholders include Azeri state oil and gas company Socar, Russia's Lukoil, Iran's NICO and France's Total.

Plans to get that gas to customers centre on the Trans-Anatolia gas pipeline (Tanap), which will run from Shah Deniz across Turkey, from where a second pipeline will carry gas from the field to Europe. Thus it is well on the way to establishing itself as a lynchpin in the EU's coveted "southern energy corridor," which is intended to reduce Europe's dependence on Russian gas.

The inter-governmental agreement signed between Turkey and Azerbaijan in June has paved the way for the Tanap project, with Azerbaijan set to provide 10bn cm/y of gas for transit via the pipeline to European consumers, while another 6bn cm/y is to be supplied for Turkey itself. Currently, Socar owns 80% of Tanap, with Turkish partners Botas and TPAO, holding the remaining 20%. But in September it became clear that Socar would like to offer up to a 29% stake in the planned pipeline to its partners in Shah Deniz. "Socar will leave for itself 51% of the share capital, 29% will be sold to other companies, thus the controlling stake will remain with Socar," the Azeri firm's president, Rovang Abdullayev, said.

IHS Global Insight says Abdullayev's comments indicate that, "Azerbaijan is keen to bring in other members of the Shah Deniz consortium to the pipeline equation in order to share the financial cost of the multi-billion-dollar project... as well as to ensure their support for exporting gas via this route."

Abdullayev also went on to confirm that construction of Tanap, which has an estimated price tag of $7bn, is due to begin in 2013. The pipeline will initially have a capacity of 16bn cm/y, which may later be increased to 32bn cm/y or even 60bn cm/y. Turkey, which will take 6bn cm/y from the first stage capacity for itself before sending the remainder onwards, said it is also working on a potential deal to fill the potential expanded capacity with gas from Turkmenistan, assuming that the gas can be carried across the Caspian Sea.

Pipe plans

Azerbaijan and the Shah Deniz consortium are also still in the process of choosing a winner from the final two competing projects for onward delivery of the gas from the Turkish border to Europe, with the Nabucco West option targeting Central Europe and the Trans-Adriatic Pipeline (TAP) project targeting Southern Europe.

There are growing hopes that Azerbaijan's gas production could be such that it can fill both of those pipelines. On September 20, Abdullayev announced that Socar had begun the first gas production from its offshore Umid field. Umid is the second largest gas structure in Azerbaijan's sector of the Caspian Sea, with reserves estimated at 200bn cm of gas and 30m tonnes of condensate. Commercial production from Umid will commence by the start of 2013, with output from the field eventually providing Azerbaijan with another 6bn cm/y to export for 30 years.

Development of the Umid field, together with other offshore fields operated by Socar, is expected to enable Azerbaijan to more than double its gas production to around 40bn cm/y by 2025. "Gas production from these fields, as well as from Total's Absheron discovery, is boosting the Azerbaijani government's confidence that it can increase its gas production enough to support exports through both of the two remaining gas pipeline proposals seeking to carry Azerbaijani gas to Europe from the phase-two development of the Shah Deniz field," says IHS Global Insight. "Rather than choosing between the TAP to Italy via Greece and the Nabucco West pipeline to Central Europe, Azerbaijan could argue that it can supply sufficient gas from Shah Deniz phase two and future output from Umid, Babek, and Absheron to fill both routes."