New deadlines for achieving target level of gas production at Shah Deniz revealed

As more wells are commissioned and the subsea pipeline network is completed, it is expected that by 2024, cumulative production from the Shah Deniz gas condensate field (under the first SD1 and second SD2 phases), located on the shelf in the Azerbaijani sector of the Caspian Sea, will slightly exceed the target level of 26 billion cubic meters, according to the report of the Asian Development Bank (ADB) on the completion of the Shah Deniz Gas Field Expansion Project, for the implementation of which the bank provided a loan guarantee to cover up to 95% of commercial loans worth up to $526 million, Report informs.

“The target of beginning gas deliveries to the Republic of Turkiye by late 2018 and to Europe by late 2020 was achieved. Some delays were experienced in 2020 due to the COVID-19 pandemic. As a result, the annual gas production level of 26 bcma that was expected to be achieved at appraisal by 2022 is now expected to be achieved by 2024,” reads the report.

The Shah Deniz Gas Field Expansion Project is transformational. It has expanded development of one of the largest gas fields in the world, which will help more than double gas production from the field, from less than 10 bcma in 2015 to more than 26 bcma in 2024; and increase the country’s gas production by 67% during the same period (from 29 bcma in 2015 to more than 48 bcma in 2024), according to the report.

“This will help strengthen the Azerbaijani economy and create more fiscal space for economic diversification. The project will also contribute to enhancing Europe’s energy security, by providing (along with the midstream pipelines) a southern corridor for gas supply to Europe, which has traditionally obtained gas from the Russian Federation and the Middle East. Recently, SGC and the government have started exploring the use of SGC’s excess reserves for renewable energy projects,” ADB noted.

Shah Deniz also produces gas condensate, which is mixed with crude oil at the onshore terminal in Sangachal and exported.

So, according to the ADB, the tasks to start gas supplies to Turkiye by the end of 2018 and to Europe by the end of 2020 have been completed. The actual deadline for completion of the project’s infrastructure has been extended beyond 2020. Of the 500 km of new underwater pipelines, 451 km have been built as of the end of 2021.

Shah Deniz gas field is one of the largest in the world with reserves of more than 1 trillion cubic meters of gas and 2 billion barrels of condensate. The development of the gas field is carried out on the basis of a public-private partnership between Azerbaijan and the state, SOCAR and Southern Gas Corridor CJSC and four international companies led by BP.

Exploration, development and production at the field is carried out on the basis of a Production Sharing Agreement (PSA) signed in 1996. In accordance with the documents signed on December 17, 2013 in Baku, the contract for the development of Shah Deniz was extended from 2036 to 2048, and the share participation of SOCAR and BP (project operator) in the project increased to 16.7% and 28.8% respectively.

Share distribution among the parties to the agreement is as follows: BP - operator (29.99%), AzSD (14.35%), SGC Upstream (6.67%), Lukoil (19.99%), NICO (10%) and TPAO (19 %).