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In June 1996 Azerbaijani authorities signed a production sharing agreement (PSA) with seven oil companies for the Shah Deniz area of the southern Caspian Sea. The field came on stream in December 2006. Statoil had a share of 25.5% in the (PSA). Following the Shah Deniz Stage 2 Final Investment Decision (FID) Statoil has chosen to decrease its share to 15.5%.

BP is operator of the production sharing agreement, while Statoil is operator of the Azerbaijan Gas Supply Company (AGSC), commercial operator of SCP and holds the position as chairman of the Shah Deniz Gas Commercial Committee.

According to the operator, initial gas in place estimates for Shah Deniz is 930 billion cubic metres (7,500 million barrels of oil equivalent, including condensate).

Since the start of Shah Deniz production in late 2006 and up to the end of the first half of 2013, about 42.7 billion standard cubic metres (1,500 billion standard cubic feet) of Shah Deniz gas, and about 90 million barrels of Shah Deniz condensate were exported to the markets.

Shah Deniz Stage 1 has reached plateau production with production facilities running at the maximum capacity of 966 million standard cubic feet per day and approximately 55,000 barrels of condensate per day.

Gas and condensate from the field are piped to the Sangachal terminal south-west of Baku. From there the Shah Deniz gas is delivered to the market through the 42-inch South Caucasus Pipeline (SCP) via the Georgian capital of Tbilisi to the Turkish border. Then the gas is routed to Erzurum through the system belonging to the Turkish pipeline operator Botas.

The total length of the SCP is 690km (442km in Azerbaijan and 248km in Georgia). During the first half of 2013, SCP’s daily average throughput was about 12 million cubic metres (about 421 million cubic feet) of gas or about 73,000 barrels of oil equivalent. Condensate from the Sangachal terminal is delivered via the Baku-Tblisi-Ceyhan (BTC) pipeline to the Ceyhan port by the Mediterranean.

According to the gas sales agreement reached between Azerbaijan and Turkey in 2001, Shah Deniz Stage 1 exports up to 6.6 billion cubic metres per year (bcma) of Azerbaijani gas to Turkey. A similar but smaller export agreement was concluded between Azerbaijan and Georgia, while some gas is also sold locally in Azerbaijan.

Gas sales to Azerbaijan, Georgia and Turkey from Stage 1 are administered by AGSC and operated by Statoil on behalf of the partners.

As commercial operator of SCP, Statoil is responsible for commercial activities related to SCP.

Shah Deniz Stage 2 development

The giant Shah Deniz Stage 2 project is set to bring gas directly from Azerbaijan to Europe for the first time, opening up the Southern Gas Corridor.

Shah Deniz Stage 2 will be the first subsea hydrocarbon production activity in the Caspian Sea. The development will deliver gas through more than 3500 kilometres of pipelines through Azerbaijan, Georgia, Turkey, Greece, Albania and via the Adriatic Sea to Italy.

This Stage 2 development of the Shah Deniz field, which lies some 70 kilometres offshore in the Azerbaijan sector of the Caspian Sea, is expected to include two new bridge-linked production platforms; 26 subsea wells to be drilled with 2 semi-submersible rigs; 500 kilometres of subsea pipelines laid at up to 550 metres of water depth; and expansion of the Sangachal Terminal.

Annual production is expected to be about 16 bcma, twice as much as Stage 1. The SCP export system will be expanded accordingly, with a parallel 48-inch pipeline running through most of Azerbaijan and parts of Georgia, and new compressor stations being built at the Sangachal terminal and in Georgia.

On 25 October 2011 the gas sales contracts with Botas on sale of 6 billion cubic metres of gas per yes (bcma) was signed and the idea of the Trans-Anatolian Pipeline (TANAP) was conceived.

On 26 June 2012 the President of Azerbaijan, Ilham Aliyev, and the Prime Minister of Turkey, Recep Tayyip Erdoğan, signed an intergovernmental agreement related to this pipeline.

TANAP will be a new, predominantly 56-inch pipeline system crossing almost 1800 km through Turkey and connecting the Turkish-Georgian border with the Trans Adriatic Pipeline (TAP) on the Turkish-Greek border. Initial capacity of the pipeline will be 16 bcma of natural gas. TANAP is operated by SOCAR.

On 28 June 2013 the TAP pipeline was officially announced as the route for deliveries of natural gas from Azerbaijan to Europe.

The 520-km TAP pipeline will transport gas from the Caspian Sea through Greece, Albania, the Adriatic Sea and the Italian region of Puglia into Western Europe. The TAP pipeline will be linked to the Trans Anatolian Pipeline (TANAP) near the Turkish–Greek border before reaching southern Italy. The shareholder structure of the pipeline company is as follows: BP, SOCAR and Statoil (20% each), Fluxys (16%), Total (10%), E.ON (9%) and Axpo (5%).

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Signing of the gas agreement 19 September 2013

Signing of the gas sales agreements on 19 September 2013

On 19 September 2013 Azerbaijan signed agreements valued at some USD 100 billion with nine European buyers in Italy, Greece and Bulgaria regarding sale of just over 10 bcma of gas in total from Shah Deniz Stage 2 for a period of 25 years.

On 17 December 2013 Azerbaijan and the Shah Deniz consortium sanctioned the Shah Deniz Stage 2 project. The gas sales agreements concluded with European buyers on 19 September 2013 and the transportation agreements with SCP, TANAP and TAP came into force.