Azerbaijan sets up gas working group

Aug 30, 1999 02:00 AM

by Charles Coe

Azerbaijan's President Heidar Aliyev recently announced the formation of a working group designed to examine the exploitation of the country's natural gas reserves.
Comprised of government and foreign consortium representatives, the group is empowered to negotiate with foreign states, companies and financial institutions on the construction of gas pipelines as well as identify future markets.
The move follows BP-Amoco's announcement in June that it had discovered gas reserves of between 400 billion and 700 billion cubic meters in Azerbaijan's offshore Shah-Deniz field. It also came at the end of a visit to the region by U.S. Secretary of Energy Bill Richardson, who while in Baku urged President Aliyev to support the proposed trans-Caspian Pipeline (TCP), which would carry some 16 billion cubic meters of natural gas per year from Turkmenistan to Turkey across Azerbaijani territory. Aware that Baku now has natural gas export ambitions of its own, Richardson stressed the need forAzerbaijan and Turkmenistan to "cooperate and not compete" and acknowledged that Baku "needs to play a key role in the trans-Caspian Pipeline."
The formation of the working committee has been in the cards for some weeks, but the timing of the announcement of its official formation on August 18 was undoubtedly meant to drive home the point to Washington and Ashgabat, the next stop on Richardson's itinerary. Baku has indicated that it will insist on a sizeable allocation of the TCP's capacity to export its own gas to Turkey and suggested that it could withdraw its support from the project if it is not given due consideration.
Relations between Baku and Ashgabat have been complicated in recent years by a territorial dispute involving the ownership of offshore Caspian oilfields, but Baku has indicated in the past that it would not let this dispute interfere with its support for the TCP. However, Baku means to show its determination by proposing the rehabilitation of a Soviet-era gas line.

Earlier this month, Deputy Prime Minister Abid Sharifov, who heads the new working group, said that renovation of the gas line would cost some $ 683 million, while an extension of the pipeline to the Turkish border would cost $ 40-$ 50 million. Through this pipeline, Azerbaijan would be capable of exporting small volumes of natural gas to Turkey within a year and eventually export up to 10 billion cubic meters per year.It has been suggested that the renovated Soviet-era gas line could be incorporated into the TCP, a proposal which, if actually feasible, could prove to work more in Azerbaijan's favour, considering that interest for funding yet another pipeline proposal in the Caspian might be scant. Though Baku has signalled to Ashgabat that it could pre-empt the TCP, it is hard to say where the Azerbaijanis might get the money -- unless the foreign partners in the Shah-Deniz consortium are prepared to find funding. It should be noted that Shah-Deniz operator BP-Amoco also leads the Azerbaijan International Operating Company (AIOC), which is at the centre of the Baku-Ceyhan crude oil export pipeline debate, a key element of which is funding.
Over the last month, the TCP project has received a boost. Shell Exploration BV signed a letter of intent with the U.S.-led consortium PSG International to join forces in making the gas pipeline a reality. Shell had previously conducted a feasibility study for Turkmenistan on a gas export pipeline routed through northern Iran. PSG, a joint venture between Bechtel Enterprises Holdings Inc and GE Capital Structured Finance Group, and Shell will each hold 50% of the $ 2.5 billion TCP pipeline system. Other investors are expected to join in time. PSG plans for TCP to be operational by 2002.
Azerbaijan's natural gas working group includes Deputy Prime Minister Sharifov plus Natik Aliyev, President of the state oil company SOCAR; Ilham Aliyev, vice-president of SOCAR; Ali Adadov, a presidential aide; Valekh Aleskerov, head of SOCAR's foreign investment department; Andy Hopwood, president of BP-Amoco in Azerbaijan; Tor-Ivar Pedersen, president of Statoil in Azerbaijan; and Jean-Francois Daganaud, general manager of Elf Petroleum Azerbaijan.

The Shah-Deniz consortium members include: BP-Amoco (25.5%), Statoil AS (25.5%), Socar (10%), Elf Petroleum Azerbaijan BV (10%), LUKAgip NV (10%), Iran's Oil Industry Engineering and Construction or OIEC (10%) and Turkish Petroleum Overseas Co Ltd (9%).

Source: NewsBase
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