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BP gas deal boosts Azerbaijan export options

A new exploration deal in Azerbaijan could put Dudley's company in the middle of a battle for the country's gas exports

BARELY settled in his job as BP's new boss, Bob Dudley has made his mark.

In Baku, on 7 October, Dudley agreed a production-sharing agreement that will see BP join state-owned Socar to explore and develop the Shafaq-Asiman deep-water structure, 125 km southeast of Baku. Socar says the field could hold 300bn-0.5 trillion cubic metres (cm) of natural gas. BP says its knowledge of the basin suggests the structure would hold gas, not oil.

The deal followed a July heads of agreement and its signing further strengthens BP's presence in the country: it holds a 25.5% stake in the huge, 1 trillion cm Shah Deniz gasfield; and operates the AIOC venture producing the 1m barrels a day (b/d) Azeri-Chirag-Guneshli oilfield, the country's largest oil development, and the 1m b/d Baku-Tbilisi-Ceyhan pipeline, which delivers oil from Azerbaijan to the Mediterranean.

Shafaq-Asiman lies in water depths of around 700 metres with a reservoir depth of around 7,000 metres. The deal boosts Azerbaijan's already considerable gas-production prospects, which include the 16bn cm/y planned for the phase-two development of Shah Deniz. The first phase is already producing 8bn cm/y. Shah Deniz's reserves are just shy of 1 trillion cm. With that field's output figures in mind, Shafaq-Asiman could yield production of as much as 12bn cm/y.

That prospect will heat up the battle for control of Azerbaijan's exports. The consortium behind the Nabucco project, a proposed 31bn cm/y pipeline to import central Asian and Middle Eastern gas into Europe, wants Azerbaijan to be one source to support its infrastructure. Analysts continue to doubt that the Nabucco partners, led by Austria's OMV, will find sufficient gas to fill the remainder.

Russia's Gazprom, reluctant to cede any of its market share in central Europe to Nabucco, also wants to handle Azerbaijan's growing exports. With rising demand for natural gas in Russia, Gazprom needs to sew up supply agreements with Central Asian producers if it is to make more gas available for its own proposed export projects to Europe. These include the second phase of the Nord Stream pipeline through the Baltic Sea to Germany and the planned $35bn South Stream project, which would export 63bn cm/y to customers in central Europe – the same market targeted by Nabucco.

In September, Socar agreed to double its sales to Gazprom from next year to 2bn cm/y. Although, in 2008, Azerbaijan's President Ilham Aliev turned down Russia's offer to buy all the country's future gas production, Gazprom has since claimed that the county "gives priority to increasing its export volumes for Russia".

The tussle for future Caspian gas will, for now, be focused on output from Shah Deniz phase two, which both Russia and the Nabucco partners claim will flow their way. With the prospect of future output from Shafaq-Asiman, Azerbaijan's centrality to the strategic battle for Europe's gas needs will only grow.

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