THE LARGEST PROJECT IN THE WORLD

The project encompassing the extraction and export of Azerbaijani natural gas to European markets is the largest in the world. “Yes, this is the largest project in the world outside the military sector in terms of scope and investments. I am proud to be a part of it. I am proud that despite the scope of works, we manage not only to outperform the timetable but also to save on the projected budget expenditures. Undoubtedly, this project is a significant milestone for the entire people of Azerbaijan,” said Gary Jones, Regional President of BP in Azerbaijan, Georgia, and Turkey.

Unique components of the Shah Deniz

June 30, 2018 may become yet another remarkable date in the history of Azerbaijan thanks to the start of deliveries of Azerbaijani natural gas from the Shah Deniz field to the Trans Anatolian Pipeline (TANAP). According to Gary Jones, 99% of works on the implementation of the Shah Deniz Stage II are over. However, the remaining one percent includes the most critical testing and commissioning processes.

The main components of the South Gas Corridor (SGC) project include the Shah Deniz Phase II, the extension of the South Caucasus Pipeline (SCP) within Baku-Georgia-the Turkish borderline, the construction of the TANAP within the eastern and western borders of Turkey, as well as the Trans Adriatic Pipeline (TAP) connecting Greece, Albania, and the Adriatic Sea with the south of Italy.

As stated initially, the supply of Azerbaijani gas to Europe is expected in 2020 and will reach 10 billion cubic meters (bcm). Yet another 6bcm will be delivered to the western regions of Turkey. However, the volumes of supplies will be increased gradually. According to Gary Jones, in 2018 this amount will reach only 2bcm intended for Turkey only.

The annual production capacity of the Shah Deniz facilities reach 10.9bcm. Last year they produced 10.2bcm of gas. After the launch of Stage II, the field will have two production platforms - Alfa (Stage 1) and Bravo (Stage 2). It is the first time that all components of the platform, including underwater installations, are constructed in Azerbaijan, which means that the country has all conditions for performing complex construction operations. During the peak of the project implementation, 24,000 people were involved in operations in Azerbaijan hitting 45 million man-hours. Another very important aspect of the project was that these works were carried out completely safe, without any extraordinary incidents. “This is a huge success,” said Gary Jones. The “human factor” of the project is still growing considering that 80% of all the workforce involved are Azerbaijani nationals, who received valuable experience that will contribute to their future career. With such a pool of knowledge and expertise, they can easily claim participation in other major global projects.

Another success of the project is the largest and unique underwater system in the Caspian Sea for the Bravo platform constructed on spot from the new flagship vessel Khankendi, which belongs to Azerbaijan. Its construction cost is $378m. In total, in 2017, the costs for the Shah Deniz project amounted to $3.3b, of which $451m was operational, and $2.9b was capital costs. According to President Jones, the company is not planning for project separation to stages, since the gas production in both stages is carried out from a single formation. “Currently we have wells drilled as part of the Stage I, which are not yet in operation, as they are capable of producing the volumes in excess of what the existing system is actually designed for. We will use them gradually, starting from the second half of 2018. Therefore, it will be impossible to specify the project stage that supplies natural gas to the pipeline,” said Gary Jones.

Extra gas for SGC

There is no problem with the start of extraction of additional volumes from Shah Deniz and their transportation, although this project stage is even more labour-intensive, given the number of countries and companies involved in it.

The readiness of Europe to accept natural gas from Azerbaijan was discussed in February in Baku at the 4^th ministerial meeting of the SGC Consultative Council (CC).

As noted by the President of Azerbaijan Ilham Aliyev, the implementation of SGC is a strategic objective of Azerbaijan. “This will make a long-term contribution to the use of energy resources, human capital and infrastructure. The works on the project implementation entered the decisive stage. Shah Deniz will not be the only source of supply for the gas pipeline system of Europe. For example, Baku is actively negotiating with foreign companies to develop new gas fields. So far Shah Deniz is the only resource SGC. But I am confident that in the future we will have more resources in Azerbaijan,” said the president.

He added that today Azerbaijan with its international partners is actively working on new gas projects in the Azerbaijani sector of the Caspian Sea. “Azerbaijan is conducting active negotiations with foreign companies on Absheron fields including the fields of Umid and Babek with large gas reserves, which will start production in the coming years as well,” said Aliyev.

According to the president, Azerbaijan also hopes for international cooperation to develop the fields of Garabagh, Dan Ulduzu, and Ashrafi. “The confirmed gas reserves of Azerbaijan are twice as large as in the Shah Deniz field reaching 2.6 trillion cubic meters. I am sure that due to the discovery of new gas deposits, our reserves will be even greater. Our experience shows that the real reserves are much greater than the initial forecasts,” said President Aliyev.

By the way, as noted by Gary Jones, his company intends to export natural gas through SGC if they detect reserves on the perspective field Shafag-Asiman. BP plans to start drilling operations on the contract block, developed jointly with SOCAR (50% of the equity participation) in 2019. According to SOCAR, the reserves of the Shafag-Asiman structure reach 500bcm of gas and 65 million tons of condensate (mtc).

In other words, the overall situation with the filling of South Gas Corridor can be compared with that of the Baku-Tbilisi-Ceyhan, when few believed in the completion of the construction works. As it turned out later, both the investors and transit countries are satisfied with the project. As President Aliyev reminded, the forecasts for the Azeri-Chirag-Guneshli bloc in 1994 were slightly more than 500 million tons. Now this figure reaches 1 billion tons. “I think that we will also witness the same situation in gas fields. Therefore, in the coming decades, Azerbaijan will be a reliable and long-term energy supplier of the world market,” said the president.

He added that currently in some European countries 40% of the consumed oil is supplied from Azerbaijan. “Azerbaijan is also ready to enter the European market with its gas reserves,” stressed Aliyev.

Diversification for Europe

Europe is expecting Azerbaijani gas with impatience, hence explicitly putting SGC forward as one of its priority projects. As stated by Maroš Šefčovič, EC Vice-President in charge of Energy Union, co-chairman of the Advisory Council for the Southern Gas Corridor, “the implementation of this idea shows that the project is strategic and it will strengthen the energy security of Europe”. After all, 69% of the gas consumed in the European Union is currently imported, and this figure is 89% for oil. That is, dependence on imports of energy resources is obvious, and most of all the Old World is concerned about the monotony of sources of supply. “At present, we import most of the energy resources from Russia, Norway and Algeria. However, we certainly want to diversify the sources of supply, give priority to new sources, new routes and new suppliers. We want each member of the EU to have access to at least three different sources of gas,” noted Šefčovič.

In addition to ensuring security, diversification of gas sources will naturally also have a positive impact on the price of gas, as Western European countries now buy it at a higher price than Central and Eastern Europe. “Due to a better supply infrastructure, we want to solve this problem. Therefore, we are counting on gas from the Caspian region, from Azerbaijan. I hope that gas from the Caspian basin will begin to flow into Europe in 2020. After that, we must work to ensure that Azerbaijani gas is supplied to those EU countries that need it,” added Šefčovič.

So, it is obvious that the EU plans to expand the boundaries for the Southern Gas Corridor. Thus, the construction of the Interconnector-Greece-Bulgaria gas pipeline will take natural gas to  Greece and through another interconnector to Romania thanks to SGC pipeline.

However, Europe is ready to receive gas not only from Azerbaijan, but also from other countries, if they have a desire to pump it into the upcoming SGC pipeline. This particularly concerns the gas supplies from Iran and Turkmenistan. As to Iran, “this issue was discussed with the Iranian side, but its further solution depends on Iran. Plus, the infrastructure inside Iran itself should be ready for such deliveries,” said Šefčovič.

Things are more complicated with Turkmen gas. As known, its supply through SGC pipeline requires the construction of an additional gas pipeline along the Caspian seabed from Turkmenistan and its connection with the South Caucasus Pipeline. This issue has been the subject of multilateral negotiations for many years now. However, according to Šefčovič, the EU still shows a growing interest in this issue. Seemingly, Ashgabat is ready to continue negotiations with the European Union, as was confirmed by the adviser to the president of Turkmenistan Yakhshigeldy Kakayev at the last ministerial meeting in Baku. “We see an interest of the Turkmen side to continue these discussions. In addition, we see Azerbaijan's interest in this issue and the role that it plays in this process,“ said EC Vice-President in charge of Energy Union.

Demand creates supply, and while Europe is ready to buy the Caspian gas, one cannot rule out the emergence of new projects or additions to existing ones. Meanwhile, Azerbaijan will maintain its leading position in any such ventures in the upcoming years.