AZERBAIJAN - The Shah Deniz Venture.

The shareholders in the Shah Deniz consortium are: BP (25.5%), Statoil (25.5%), Total (10%), LUKoil (10%), Socar (10%), NaftIran or Nico (10%) and TPAO (9%). Nico has acquired the 10% equity from OEIC, an affiliate of state-owned National Iranian Oil Co. (NIOC).

Development of the Shah Deniz field in water depths of between 50 and 600 metres some 70 km south-east of Baku began in July 2002 - with Technip having done the design. The project included construction of a fixed gas production platform (based on Technip's TPG 500 concept), other infrastructure and the drilling of 10 wells to depths of up to 6,500 metres each. These were to be followed by sub-sea wells in 300 metres of water. The field is planned to produce at the initial rate of 8.6 BCM/year of natural gas and 37,000 b/d of condensate from late 2008. Production will rise to 16 BCM/year of gas and over 70,000 b/d of condensate when the field is fully developed. The gas and condensate are pumped to the mainland through two pipelines, each 100 km long, to Sangachal. The gas is processed at a plant built in Sangachal.

Statoil announced on May 4, 2006, that the final gas and condensate production platform had been installed. It said the gas from Shah Deniz was mainly to be piped through the Sangachal terminal and from there to Turkey, but some of the gas was sold to Azerbaijan and Georgia. The condensate is piped to Ceyhan for export. Statoil is commercial operator and responsible for gas sales, contract administration and business development for Shah Deniz. Statoil is also involved in a local gas marketing business in Azerbaijan; but Azerigaz is about to take over much of its functions where the local market is concerned.

BP on Nov. 14, 2007, announced a big gas-condensate find in Shah Deniz from the SDX-04 appraisal and exploration well, some 70 km south-east of Baku, in a deeper structure below the currently producing reservoir. In addition, during the appraisal phase, the well encountered gas condensate in the currently producing horizons extending the field to the south. Test flows were at the maximum capacity of 35 MCF/day. Results confirmed sufficient gas at Shah Deniz for a second phase of development. Although further work was required to define the find, BP said Phase-2 was likely larger than Phase-1's 8.6 BCM/year capacity.

The well was drilled to a Caspian-record depth of more than 7,300 metres. BP Azerbaijan CEO Bill Schrader said: "Such a deep, high pressure reservoir will require new technologies that are presently under development in the industry". BP later said it was studying the new found the best way of developing Phase-2 in 2008-09, after which a final investment decision for that phase will be taken.

BP has estimated the "potential recoverable resources" of Shah Denis' Phase-1 at 15 TCF of natural gas and 600m barrels of condensate. However, other industry and trade sources, employing widely different definitions of "reserves", estimate the phase's size to be as high as 35 TCF.

With the confirmation of a major new gas find below the existing reservoir, BP now says there is enough gas to justify Phase-2 for a total gas output of more than 17 BCM/year by 2012/13. This by then will feed the Nabucco pipeline to Europe which will be built along the South Caucasus Pipeline and from the Turkish-Greek inter-connector system on to other European markets. The Vienna-based Nabucco JV is particularly keen on seeing Phase-2 of Shah Deniz ready to feed this pipeline from early 2013.

The South Caucasus Pipeline (SCP), also known as "Baku-T'bilisi-Erzurum", is the conduit for Azerbaijan's gas exports. This runs parallel to the BTC oil pipeline for most of its route before connecting to the Turkish gas grid near the town of Horasan. The SCP, designed for a capacity of 233 BCF/year, was completed in the autumn of 2006.

On March 12, 2001, Azerbaijan had its first major natural gas export deal when it concluded an agreement to supply Turkey with natural gas beginning in 2004. In February 2003 the deal was renegotiated. In 2004 the Turkish state-owned pipeline and gas utility company Botas told AIOC its market could not take Azeri gas before late 2006.

As a result, BP went slow in its Shah Deniz development work and the contract with Botas was renegotiated for a new delivery schedule. But even that was not met as Botas was slow in getting its 1,076-km section of the pipeline implemented according to the new schedule. That section was completed in 2007.

The Shah Deniz PSA was signed in 1996. The first phase of the Shah Deniz field's development was officially approved on Feb. 27, 2003, and estimates placed its cost at over $4 bn, a 25% increase from a previous budget. Phase-1 entailed installation of a fixed offshore platform, two sub-sea pipelines to bring the hydrocarbons ashore, and an onshore gas-processing terminal built adjacent to the oil terminal at Sangachal, near Baku.

Shah Deniz consortium members began producing gas for export during the spring of 2007, several months after the planned start. The field produced 100 BCF/year (2.8 BCM/year) of gas and about 30,000 b/d of condensate in 2007. It will be producing about 304 BCF/year of gas and 45,000 b/d of condensate in 2008.

The cost of developing Phase-2 of Shah Deniz will be "at least $10 bn", according to Jan Heiberg, vice-president of Statoil Azerbaijan.

Phase-2 is expected to help Europe lessen its dependence on Russian gas imports via deliveries through the new Turkey-Greece-Italy inter-connector gas pipelines which will feed Nabucco.