Southern Gas Corridor: BP’s decision to make even higher stakes

Trend analytical center expert Azer Ahmadbayli

BP is interested in obtaining a significant share in the Trans Adriatic Pipeline (TAP) gas pipeline or in Nabucco-West project, vice-president of the company developing "Shah Deniz" field Al Cook said, ArgusMedia reported.

In late June, a consortium of companies developing Azerbaijani major gas field "Shah Deniz" must announce which of the two projects - Nabucco-West or South-Eastern Europe (SEEP) gas pipeline will be Central European (Austria) supply route within "Southern Gas corridor". The winner of this pair will compete for the leadership with TAP project, previously chosen as the southern European (Italy) direction of gas supply.

A final choice of which of the remaining projects will open "Southern Gas Corridor" must be made in summer 2013.

BP's intention to buy a significant share in one of the two projects can be a circumstance that will significantly affect the further actions of all concerned parties, including European financial institutions and change existing conditions and agreements.

First, the address emphasis made by BP stipulates that the company's own concept for the gas delivery to Europe.

Second, as a member of Shah Deniz consortium, BP will sell gas and be co-owner of the transport artery. It will be able to participate in making final decisions on such issues as the definition of tariff prices for pumping, which, as at least, is not bad for the other vendors participating in the consortium.

Thirdly, the final decision on choosing the route depends on the BP as one of the key shareholders of Shah Deniz. Therefore, the possible acquisition of shares will further strengthen the competition between the two remaining transport projects until the selection of one of them. In other words, realizing that BP will buy shares of the winning project, each project will make every effort to succeed. The competition will force them to revise the existing proposals and propose new, perhaps more favorable for the Shah Deniz consortium.

Finally, such a step, in general, will greatly enhance the entire content of the concept of Southern Gas Corridor. In terms of importance for the opening of the corridor to Europe this decision of BP to some extent can be compared with the decision of Azerbaijan and Turkey on the construction of the Trans-Anatolian gas pipeline (TANAP).

Interest in equity in the projects of gas transportation to Europe is not only the desire of the British company. Last summer, SOCAR already stated that, regardless of which of the pipeline projects will be eventually selected for the transportation of Azerbaijani gas to
Europe from the Shah Deniz field, SOCAR intends to acquire equity in it. It is possible that other key stakeholders of Shah Deniz - Statoil and Total - have similar plans.

By the way, increase in the number of shareholders, apparently, will also apply to the TANAP, where the Turkish Botas and SOCAR have 80 and 20 per cent stake, respectively. SOCAR at the very high level already expressed support for joining the project of other international companies involved in development of Shah Deniz and engaged in gas production in the region.

The reason for such intentions of BP, SOCAR, and perhaps others is to become participants of transportation, to be aware of the situation inside and have the opportunity to influence the transport policies of the project to deliver gas at all section. SOCAR head Rovnag Abdullayev said European buyers should be aware that the Shah Deniz consortium and Azerbaijan should implement the multi-billion dollar investment to be able to supply gas to Europe, and for that, "our task as suppliers of gas is not just to export gas, and make it at the best price."

The Southern Gas Corridor is a major energy project for the EU. It is intended to diversify routes and sources of supply. It is aimed at ensuring EU energy security. Gas to be produced within the second phase of Azerbaijani Shah Deniz gas field development is considered as the main source for the project. Reserves of the Shah Deniz field are estimated at 1.2 trillion cubic meters. The second stage of Shah Deniz provides for an annual production of 16 billion cubic meters of gas.