By Charles Coe

20-06-00 Norway's Statoil, one of the leading members of the BP-Amoco-led Shah-Deniz consortium, has come out strongly in favour of exporting Azerbaijan's natural gas reserves to Turkey and eventually to Southeast Europe.
Speaking at the Caspian Oil and Gas 2000 Conference in Baku on 8 June, Dr. Terje Halmo, general manager of gas for Statoil Azerbaijan, said that Azerbaijan's natural gas reserves could make a significant contribution to European energy supplies via a "South-eastern Energy Corridor" during the next 15 to 20 years.
Figures presented at the conference by Dr. Halmo suggested that Azerbaijan could be supplying Turkey with 16-30 bn cmpy and South-eastern Europe with 10-20 bn cmpy by 2020. Also during that time, Azerbaijan would have the potential to export 3-5 bn cmpy to southern Russia and an equivalent amount to Georgia and also ship 6-8 bn cmpy to Iran, while 12-15 bn cmpy would be used domestically.

This optimistic forecast for Azerbaijan's gas export future derives from the world-class discovery last year at Azerbaijan's offshore Shah-Deniz concession, in which Statoil holds a 25.5 % interest. The field is believed to contain reserves of around 1 t cm.
Dr. Halmo noted that the development of infrastructure, first and foremost to Turkey, was a key element in developing this scenario. The plan calls for an existing gas pipeline in Azerbaijan to be refurbished and a new connecting section of pipeline built through Georgia to Turkey.
The pipeline would be about 1,000 km in length and cost in the neighbourhood of $ 1 bn. Dr. Halmo said that in view of the fact that the European Union has recognised the Caspian region as source of energy, it could be expected that the EU would favour the creation of such a natural gas corridor.
Statoil, which is also a member of the BP-Amoco-led Azerbaijan International Operating Company (AIOC), has also endorsed the proposed Baku-Ceyhan crude oil pipeline, which could theoretically run in tandem with the gas pipeline to Turkey, thereby reducing some costs.
Earlier this month, Statoil proposed to SOCAR that a jointly owned and operated midstream gas development organisation be formed to process and export natural gas. Statoil told the Azerbaijanis that the proposed joint venture could draw upon Statoil's experience in gas development in Norway. The company said its proposal for midstream development would be phased and run parallel with the development of Shah-Deniz.
In making his case, Dr. Halmo suggested that the introduction of Azerbaijan as a close and reliable gas supplier would most likely induce an equilibrium shift in regional supply patterns. For example, he envisaged Russian supplies of natural gas to Turkey being delivered primarily through the Blue Stream pipeline once it becomes operational.
He also said he expected Russian supplies to Turkey to remain at around 16 bn cmpy instead of growing to 30 bn cmpy as predicted. Russian gas that currently travels to Turkey via the Balkan line would be convertedinto Balkan supply schemes or perhaps eventually directed further north in time, he said.

Preliminary talks between the Turkish government and the Shah-Deniz consortium concerning a gas sales agreement got underway in May. Last February, the consortium announced a scheme whereby it could start delivering 2 bn cmpy to Turkey by 2002 and increase this to 5 bn cmpy by 2005. Full field development of Shah-Deniz would then see steady increases in supplies from the field to Turkey that would reach 24-30 bn cmpy by 2020.
Dr. Halmo pointed out without elaborating that gas exports from Turkmenistan are disadvantaged by transit costs and other barriers. (Presently, negotiations between Turkmenistan and the Trans-Caspian Gas Pipeline group, comprised of Shell and PSG International, have stalled to the extent that the TCGP consortium has started to close offices and dismiss staff.)
Regarding Europe's future gas market balance, Dr. Halmo pointed out that during the next 10-15 years the western and eastern regions of the continent face the prospect of undersupply. Since all Eastern European countries aspire to join the EU, he said, it should be expected that EU policy on security of energy supply would influence future supply schemes such as this one. He added that Azerbaijan as a new source of gas supply for Southeast Europe could be introduced into a co-ordinated European gas grid that would help Europe avoid serious shortfalls and unbalance.
In his presentation, Dr. Halmo showed that a gap in natural gas demand in Europe would begin to open in 2002-2003 and increase steadily during the next decade, thus making a proposed energy corridor into Southeast Europe a strong contender as one solution to Europe's future energy demands.

Shah-Deniz shareholders include BP-Amoco (25.5 %, UK-US, operator); Statoil (25.5 %, Norway); Oil Industries Engineering and Construction or OIEC (10 %, Iran); LUKAgip (10 %, Russia/Italy); Elf Petroleum Azerbaijan (10 %, France); TPAO (9 %, Turkey); and SOCAR (10 %, Azerbaijan).