BP seals mega-deal in £28bn Azerbaijan pipeline

OIL major BP has pulled off its second mega-deal in as many days after its consortium partners yesterday gave the green light to a $45 billion (£28bn) plan to pump gas from the Caspian Sea into Europe.

BP is expanding its operations in Azerbaijan extracting gas from the Caspian Sea. Picture: Stuart W Conway

The European Union said that the deal to go ahead with stage two of the Shah Deniz project could provide up to 20 per cent of the continent’s energy needs.

Commentators suggested that the project would help to wean Europe off its dependence on Russian gas.

The investment decision triggers plans to expand the South Caucasus pipeline through Azerbaijan and Georgia, to construct the Trans-Anatolian gas pipeline (Tanap) across Turkey and to construct the Trans-Adriatic pipeline (Tap) across Greece, Albania and into Italy.

Gas from the Shah Deniz II project is expected to begin flowing in 2018 to Georgia and Turkey and then on to Europe the following year. BP’s deal to operate the gas supply system lasts until 2048.

The buyers for the gas from Shah Deniz II are Axpo, Bulgargas, Depa, Enel, Eon, Gas Natural Fenosa GDF Suez and Shell.

Bob Dudley, BP’s chief executive, said: “Shah Deniz II and the southern corridor pipelines will not only change the energy map, but will give customers in Europe direct access to the gas resources of Azerbaijan for the first time.”

Ilham Aliyev, Azerbaijan’s president, added that the project will “change the energy map of our region and help the historical development of our country”.

News of the deal came a day after BP signed a $16bn agreement to help develop shale gas reserves in Oman over the next 30 years.

The Khazzan project involves releasing “tight gas” – which is harder to reach than conventional fields – and will act as a showcase for BP’s technology.

City analysts noted that the two projects would help to swell BP’s gas reserves.

Peter Hutton, an analyst RBC Capital Markets, said: “With the approval of this project, we expect BP to take significant additions to reserves, with the combination of Shah Deniz Two and Oman having the potential themselves to take BP to close to 100 per cent reserve replacement in 2013.”

Norwegian driller Statoil yesterday said it had sold a 6.7 per cent stake in the Shah Deniz II project and the South Caucasus pipeline to the State Oil Company of Azerbaijan Republic (Socar) and a 3.3 per cent holding to BP for $1.45bn in total. John Olaisen, an analyst at brokerage ABG Sundal Collier, said: “It’s a very good price. The price is three times book value, while Statoil shares are traded at 1.3 times book value.”

Oil drillers are regularly selling stakes in projects to concentrate on fewer but larger deals.

From 2019, Shah Deniz II is expected to supply 16 billion cubic metres (bcm) per year to Europe, including six bcm for Turkey.

European buyers have struggled to find alternatives to Russian gas producer Gazprom, whose contracts link prices to oil, generally making it more expensive than the spot market.

Gazprom meets a quarter of Europe’s gas needs, with more than 150 bcm of exports a year.