Shah deniz

COMPANY PROFILE

2014

SHAH DENIZ

www.bp.com/en_az/caspian/operationsprojects/Shahdeniz

One of BP’s biggest projects is materialising in Azerbaijan…

Editorial: Christian Jordan

Shah Deniz Stage 2, or Full Field Development (FFD) is a giant project that will add a further 16 billion cubic meters per year (bcma) of gas production to the approximately nine bcma produced by Shah Deniz Stage 1.

“Shah Deniz is important for Europe for security of supply, it’s an important asset for the nation of Azerbaijan, it’s important for the seven transit nations through which

April last year.

Currently developing Stage 2 or Full Field Development (FFD) of the Shah Deniz gas field, the largest natural gas field in Azerbaijan, BP

Sea approximately 70 kilometres southeast of Baku, at a depth of 600 metres, the field covers approximately 860 km2. The gas and condensate field was

gas will flow to market and it’s important for BP – it’s BP’s biggest project for the next decade,” said Andy Lane, BP’s Head of Business Development, Integrated Supply and Trading when speaking about the Shah Deniz natural gas project in

is looking to add 16 bcma of gas to the nine bcma that the field already produces as a result of Shah Deniz Stage 1 development making the field one of the most important for European energy markets.

Situated in the South Caspian

discovered in 1999 and is similar in size and shape to Manhattan Island. The field is operated by BP which has a share of 28.8%.

Other partners include TPAO (19%), SOCAR (16.7%), Petronas (15.5%), LUKOIL (10%) and NIOC (10%).

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SHAH DENIZ STAGE 2 After producing its first commercial gas in December 2006, the Shah Deniz gas plant at Sangachal Terminal became fully operational in July 2007 and the potential of this major gas project began to be realised by consumers in Azerbaijan, Georgian and Turkey.

Stage 2 of the Shah Deniz project is a whole different operation to Stage 1 and involves huge infrastructural developments as well as many complex sales arrangements but so far it seems that things are going to plan for BP and its partners. Al Cook, BP’s Vice President Shah Deniz Development confirmed in a recent interview the details and scale of the titanic effort underway to complete Stage 2 on time and on budget.

“Stage 2 builds on Stage 1 which came on stream eight years ago.

For the last few years we’ve been exporting seven to nine bcm of gas per year to Azerbaijan, Georgia and Turkey. What we’re doing now is looking at Stage 2 which is a major project and we see production tripled over the next few years adding a further 16 bcm of gas per year to the production that we already have. This project will build on BP’s success in developing the Stage 1 field and developing the South Caucasus pipeline and will now see that gas transported not just to Azerbaijan, Georgia and Turkey but on to countries in Europe; Bulgaria, Italy, Albania and Greece.

building entirely new pipelines with our partners, like SOCAR and Botaş in Turkey, which will take the gas across turkey through the Trans Anatolian Pipeline and on all the way to Italy through the Trans Adriatic Pipeline,” he said during an interview at IHS CERAWeek 2014.

Bringing gas from Azerbaijan to Italy through this new network of pipelines not only means that the long-discussed ‘Southern Gas Corridor’ can now be made into reality, it also means that the market for gas in Europe could change dramatically thanks to this

imports.

At the moment these imports come from LNG (by ship) or by three main pipeline routes from Russia, Norway or North Africa.

We believe that the Caspian will be the beginning of what is the fourth major supply route to bring gas into Europe. The foundation asset of the fourth major supply route is Shah Deniz.”

When the Final Investment Decision (FID) for the Stage 2 development of the Shah Deniz gas field was taken in December 2013, gas sales contracts with nine

“We’re building two new platforms offshore in the Caspian Sea, we’re drilling 26 new wells, we’re expanding the Sangachal Terminal, we’re expanding the South Caucasus Pipeline system through Azerbaijan and Georgia and

new source as Andy Lane explains: “In Europe indigenous production is declining quite dramatically, particularly in the North Sea and in Holland so we see that over time there will be a growing gap of gas supply that needs to be filled by

European companies came into effect. As a result some 10 bcma of Shah Deniz gas is expected to be delivered for 25 years to customers in Italy, Greece and Bulgaria. In addition, some six bcma of Shah Deniz Stage 2 gas will be delivered

© Stuart Conway

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©BP plc

to consumers in Turkey. All gas sales and transportation contracts will be managed by the Azerbaijan Gas Supply Company established by Shah Deniz co-ventures under the operatorship of SOCAR. At the event of the FID announcement, Rovnag Abdullayev, President of SOCAR said: “This is a truly historic day for Azerbaijan.

our nation. Secondly, it establishes Azerbaijan as an important energy supplier to Europe, fulfilling a vision we have had for so many years.

Thirdly, it brings benefits to countries stretching from the Caspian Sea to the heart of Europe through creating a direct transportation link between the Caspian and the European gas markets.”

direct access to the gas resources of Azerbaijan for the first time. The final investment decision today would not have been possible without years of cooperation between many companies and many countries. I am proud that BP can be part of this historic moment, and grateful for the efforts of so many people in making this possible. As well as creating tens of

This is the first time that our country and this region has embarked upon such an ambitious gas project. This project paves the way for Azerbaijan’s future and the region’s future. Firstly, it enables us to unlock Azerbaijan’s giant gas resources for the benefit of

Group Chief Executive of BP, Bob Dudley said: “Very few projects have the ability to change the energy map of an entire region. Shah Deniz 2 and the Southern Corridor pipelines will not only change the energy map, but will give customers in Europe

thousands of jobs along the route of the pipelines in Azerbaijan, Georgia, Turkey and Europe, this project represents the largest ever foreign investment to Azerbaijan.

“I am particularly pleased that we have agreed terms for extending

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SHAH DENIZ STAGE 2 the Shah Deniz Production Sharing Agreement up to 2048. This enables BP and our partners to work in partnership with Azerbaijan in appraising future stages of Shah Deniz. BP’s discovery of the new Shah Deniz Deep field in 2007 demonstrates the potential in this area beyond Shah Deniz Stage 2,” he added.

OUTLOOK One important thing to remember is that although this is a vitally important project for BP and its partners, the need for something like this would not have arisen if there was not the necessary demand in the European markets. With on-going tensions in Russia and the aforementioned indigenous production declines, the market in Europe does need this type of investment to ensure security of gas supply in the long-term future.

“As population grows around the world and economies continue to develop, energy consumption continues to rise,” explains Lane.

“BP’s 2030 global outlook forecasts that total energy consumption will rise by 40% between now and 2030 and primary energy consumptions; that’s coal, oil and gas; will make up 80% of consumption. Within those fossil fuels, gas will continue to be the fastest growing of the three commodities. Already in Europe, gas makes up 30% of consumption across the whole of the continent and while demand in Europe as a whole will remain fairly flat (particularly in northern Europe where markets are more mature) in southern Europe, particularly Turkey, we do see demand growing quite significantly.

“We are very busy working on the full field development of the

Shah Deniz project that will bring an additional 16 bmca of gas to the European market and the Turkish market,” he says.

PARTNERSHIPS One of the major successes of Shah Deniz Stage 1, and something which has continued into Stage 2, is the way that BP and its partner companies have managed to engage with other companies and countries and arrange stable political, commercial relationships for the benefit of everyone.

“This is a strong partnership between the companies and countries involved,” said Al Cook, during his IHS CERAWeek 2014 interview. “Over the last five years that we’ve been developing Shah Deniz Stage 2, we’ve built up a really good track record of putting political

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Shah Deniz platform - Photo Shahin Abasaliyev - Statoil

SHAH DENIZ STAGE 2 and commercial agreements in place which form the foundation of the project and which enabled us to take a Final Investment Decision last year.

“These commercial and political agreements bind the companies and countries together in a way that we can now take on this ambitious project ($45 billion of capital), in order to export this gas to new markets.

What gives us confidence that we can do this is the previous projects we’ve been involved with, the Baku– Tbilisi–Ceyhan project and the South Caucasus project, which year after year have demonstrated the reliability of Azerbaijan’s gas supply and they’ve developed the ability BP has to develop projects that cross multiple countries and above all, they’ve demonstrated that we can produce oil and gas reliably from the Caspian Sea to markets in the region but also, in

the case of oil, worldwide.”

Exciting partnerships have been developed with many companies, small and large, and each company’s work relies on the productivity of other contractors so organisation and punctuality is vitally important. Some of the world’s foremost companies in some of the world’s most exciting industries are involved in Shah Deniz Stage 2; take PETROFAC for example; an international oil and gas facilities service provider. In July, PETROFAC signed a contract reportedly worth £5 million to provide maintenance build capabilities.

This work will cover new onshore, offshore and pipeline assets in the Azerbaijan sector of the Caspian Sea. Plant Asset Management, the asset performance management consulting business of PETROFAC, will be responsible for the delivery of

this work.

Steve Johnson, Vice President of Plant Asset Management said: “We are thrilled to be supporting BP with one of their most ambitious projects and for the further opportunity to highlight the skills of our high calibre consultants, engineers, developers and analysts.”

There is a long way to go with Shah Deniz and first gas from Stage 2 is not expected until 2018 with supplies to Georgia and Turkey. Gas deliveries to Europe are expected just over a year after first gas.

The gas will travel 3,500 kilometres, up to elevations of over 2,500 metres, and through pipelines that are over 800 metres below the sea, and all in the name of bringing Azeri gas to Europe and officially creating the fourth major supply route for gas into the continent

Leading delivery of asset performance management solutions to the oil and gas sector in the North Sea and beyond.

As part of the Petrofac Group, Plant Asset Management delivers reliability, maintenance, integrity and safety consultancy services across the entire asset lifecycle, enabling: • Legislative compliance • Reduced risk • Optimised costs across life of field and life extension

For further information please contact Barry Hulse via: Email: barry.hulse@petrofac.com | Tel: +44(0)1224 247187 | Web: Petrofac.com

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