AZERBAIJAN, TURKEY SEAL AGREEMENTS ON SHAH-DENIZ GAS.

Publication: Monitor Volume: 7 Issue: 52

On March 12 in Ankara, Presidents Haidar Aliev of Azerbaijan and Ahmet Necdet Sezer of Turkey, along with their respective energy ministers, signed a set of agreements on the export of Azerbaijani natural gas to Turkey via Georgia. The agreements catapult the gas export project one or two steps ahead of the Baku-Ceyhan (Turkey) oil export project, which is also currently experiencing significant momentum. Azerbaijan is now set to become a large-scale exporter of gas from its offshore Shah-Deniz field, which is rated in the “super giant” category and is being developed by a British Petroleum Amoco-led international consortium.

The commercial agreement just signed in Ankara stipulates that Azerbaijan will supply Turkey with an initial 2 billion cubic meters of gas in 2004, rising to 6.6 billion annually by 2007 and continuing through 2019. The figure for 2007 and thereafter is a minimum, not a cap. Pricing arrangements are not being disclosed, but it is believed that the sale price of Azerbaijani gas undercuts that of more distant competitor countries on the Turkish market.

An accompanying intergovernmental agreement envisages laying an export pipeline, some 1,100 kilometers in length, across Azerbaijan and Georgia to Erzurum in eastern Turkey, where the line will plug into Turkey’s distribution network. The Shah-Deniz consortium and Azerbaijan’s State Oil Company will be responsible for the approximately 850 kilometers of the planned line on the territories of Azerbaijan and Georgia. That includes laying a subsea pipeline from the offshore field to Baku, overhauling and expanding an old pipeline from Baku to the Georgian border, and constructing a line via Georgia to the Turkish border. The overall cost of those three sections is projected at US$800 million. Turkey’s state company Botas will be responsible for laying a 250-kilometer section of the pipeline on Turkish territory.

The Azerbaijani and Georgian sections of this gas pipeline will run in parallel to the planned Baku-Tbilisi-Ceyhan oil pipeline. The pairing is intended to increase the commercial profitability of both lines. The signing of the gas agreements consequently lends added impetus to the oil export project. This pair of lines forms the backbone of the planned East-West transit corridor for Caspian fuels.

For Georgia, the gas transit entails both economic dividends and–at least as important–political reinsurance. The signed agreements create for the first time a palpable, as distinct from projected, Western and Turkish economic and political stake in Georgia’s security and independence from Russia. As the linchpin country in the Caspian-Caucasus-Europe transit projects, Georgia currently bears the brunt of Russian pressures which aim to reverse Tbilisi’s pro-Western policy and thwart those projects.

Turkey constitutes the world’s fastest-growing national market for gas. Ankara plans to import major amounts from Russia and Iran as well. Even so, the import commitment just signed regarding Shah-Deniz gas probably leaves scope for an increase in coming years. More important, Turkey is well placed to provide a corridor for the export of Azerbaijani gas from Shah-Deniz and Apsheron to Mediterranean and Balkan countries.

The March 12 agreement could have been signed some months earlier, but was held up by the erratic conduct of Turkmen president Saparmurat Niazov, whose country was to have been a partner in this project. A Transcaspian Gas Pipeline from Turkmenistan to Baku is planned to feed Turkmen gas into the pipeline to Turkey. Azerbaijan and Turkmenistan had agreed to share the pipeline’s capacity to Niazov’s satisfaction. Niazov, however, has raised additional demands which have resulted in the Transcaspian project’s being shelved for the time being.

Shah-Deniz, initially expected to contain mainly oil, altered the Caspian energy export projections after 1999 when the consortium revealed a huge deposit of gas instead. Recoverable reserves are estimated at 1 trillion cubic meters of gas and 200 million tons of condensate. The field lies in the southeastern part of Azerbaijan’s sector, at depths ranging from 50 to 550 meters below the sea surface and drilling depths of up to 7,000 meters. Projected investments amount to some US$4 billion over the 20-year contract period. The consortium includes BP Amoco as operator with a 25.5 percent stake, Norway’s Statoil with 25.5 percent, Azerbaijan’s State Oil Company with 10 percent, TotalFinaElf of France with 10 percent, an alliance of Russia’s Lukoil and Italy’s Agip with a joint 10 percent, the National Iranian Oil Company with 10 percent, and Turkish Petroleum with 9 percent.

Even larger reserves of gas are now expected to be found, along with oil, at an offshore field close to Azerbaijan’s Apsheron peninsula. The American company Chevron operates that project in partnership with Azerbaijan’s State Oil Company and TotalFinaElf. The Apsheron field’s outlook has prompted Chevron earlier this month to join the Baku-Tbilisi-Ceyhan sponsor group, providing a further boost to that project and the East-West energy corridor (Anadolu News Agency, The Turkish Daily News, ANS, Dow-Jones Newswires, March 12-13; see the Monitor, January 4, February 1).

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