EUROPE WILL GET WARMER

Azerbaijan has overcome another important stage on its way to the status of a major exporter of gas to Europe: on 19 September, nine major long-term contracts with the main buyers of "blue fuel" under Stage-2 of the project for the development of the Sah Daniz field were signed in Baku. These contracts will make possible to deliver Azerbaijani gas directly to European markets the first time in the history of the country.

The fact that this event took place on the eve of Oil Workers' Day is very symbolic as another confirmation of the momentous importance for the history of modern Azerbaijan of the "Contract of the Century", which laid the foundation of the country's oil and gas strategy implemented over the past 19 years. It is noteworthy that Azerbaijan, which is known worldwide as the first country to industrially extract oil from the earth and the sea, chose as a symbol for its capital tongues of a "gas" flame embodied in the idea of the majestic towers rising above the city.

"Now this flame is not only a symbol - it's new bonds that will connect Azerbaijan to Europe through an important project owing to which the Old World will get a new significant gas supplier," the regional president of BP in Azerbaijan, Georgia and Turkey, Gordon Birrell, said at the signing ceremony.

A New Era

According to SOCAR President Rovnaq Abdullayev, a new era has begun in the "gas history" of Azerbaijan. "Azerbaijan is creating direct relations with the markets of Europe and is beginning to play an important role in the diversification of energy supplies to the region. On the other hand, the full realization of the potential of the Southern Gas Corridor is beginning, which makes it possible to implement new plans to develop gas production in the country," he said in his speech at the signing ceremony.

According to Birrell, contracts for the purchase of gas from the second stage of development of the Azerbaijani gas condensate field Sah Daniz, signed on Thursday, are one of the largest gas contracts in the oil and gas industry.

So, buyers of Azerbaijani gas from Stage-2 of Sah Daniz are Gas Natural Fenosa, DEPA, E-On, GDF-Suez, HERA Trading, AXPO, Enel (Ente Nazionale per l'Energia eLettrica), Shell and BULGARGAZ, which were selected from among 15 companies that submitted bids for the purchase of almost twice as much gas as the announced proposal. "The agreements that were signed are part of our long-term commitments as they are signed for 25 years," Abdullayev said, adding that the first gas within Stage-2 will be sent to Turkey in 2018 and reach Europe in 2019.

According to him, the term of the contract to develop the Sah Daniz field was extended for another five years in 2012 - from 2031 to 2036, and it is possible that the contract will be extended after 2036. That is to say until 2036 the Sah Daniz consortium will guarantee the obligation to supply gas and after that, such a guarantee will be provided by SOCAR.

"We think that the partnership, which was founded by these agreements, will give other markets of Europe a unique opportunity to establish relations with Azerbaijan, where there are large reserves of gas. I mean deep gas reservoirs, which are planned to be developed at Sah Daniz and Azari-Ciraq-Gunasli, the potential of Abseron and Umid fields and the very promising structures Safaq-Asiman and Babak. All this gives us reason to hope that we will cross the borders of Bulgaria, Greece and Italy," Abdullayev said.

Approximate revenues - $ 200 billion

It is predicted that within the framework of Stage-2, 16 billion cubic metres of gas will be produced on the whole, and 6 billion of it will be distributed in Azerbaijan, Georgia and Turkey, while the remaining 10 billion will be exported to Europe through the Trans-Anatolian Pipeline (TANAP) and the Trans-Adriatic Pipeline (TAP).

Specifically, Bulgaria and Greece will receive 1 billion cubic metres of gas each, while the remaining 8 billion will go to Italy. At the same time, the route for gas delivery to Bulgaria is still being clarified. According to SOCAR Vice-President Elsad Nasirov, today there are two options - via Greece or through a branch of the TANAP pipeline.

"The selection of companies was based on commercial viability in terms of efficiency of gas transportation through the TAP," Birrell said in turn. The BP vice-president for the development of Sah Daniz, Alistair Cook, said that the volume of the gas distributed among the nine companies within the framework of the agreements that were signed is not being disclosed because it is a commercial secret. According to him, in the long-term, some of the gas delivered to Italy can be redirected to other countries of Central Europe. "We hope that other gas customers in Central Europe will be able to use it," said Cook.

It must be remembered that the TAP project is designed to transport gas from Sah Daniz within Stage-2 via Greece and Albania to Western Europe. The capacity of the pipeline is 10 billion cubic metres per year, but can be expanded to 20 billion cubic metres depending on supply and demand. "With regard to Albania's desire to buy Azerbaijani gas, it is well known that in this country, there is no gas distribution network and the level of gasification is zero. But the country is interested in building the necessary infrastructure by the time of delivery of gas from Sah Daniz through Albania in order to become our market as well. We are also interested in this, because the closer the market, the higher the net profit for all participants in the project," Nasirov said, adding that, according to the results of the negotiations between SOCAR and the Albanian government, their interest in Azerbaijani gas has already been confirmed and related work is under way. "The agreements that were signed do not take into account the Albanian market yet, but it might be additional volumes of gas," he said.

Also, Abdullayev's words show that the estimated total revenues from the sale of 10 billion cubic metres of gas a year as part of Stage-2 of Sah Daniz are projected at $ 200 billion in 25 years. "Of course, this figure may vary depending on the price of gas," Nasirov said.

So, after the signing of the agreements, it remains to overcome one more stage - the final investment decision on the Sah Daniz-2 project will be taken before the end of this year. A month before it, the final investment decision on the TAP project, the construction of which will begin in 2015, will be taken. The light at the end of the pipe can already be seen.