* Decision crucial for Europe to cut dependence on Russia
* EU Commission says route could carry a fifth of EU needs
* Statoil reduces stake in Shah Deniz II to 15.5 pct
* Sells 10 percent to SOCAR and BP for $1.45 bln
* Shah Deniz consortium and SOCAR extend contract up to 2048
By Nailia Bagirova
BAKU, Dec 17 Backers of Azerbaijan's Shah Deniz
II gas project signed a final investment decision on Tuesday,
scaling up its status as an alternative gas transit route to
Europe as the continent tries to wean itself off Russian energy
Azeri President Ilham Aliyev told a ceremony in the capital
Baku that the project extension "will change the energy map of
our region and help the historical development of our country".
The European Commission said the decision to go ahead with
enlargement of the scheme could see it supplying 20 percent of
European Union needs in the long term.
Gas shipments via Ukraine have been a focus of EU and
Russian anxiety for years and especially since 2009, when a
pricing dispute with Russia led to a cut-off of gas supplies to
Since then, Europe has sought new suppliers and to bring
Ukraine into its orbit, while Russia has fought to retain its
influence over Kiev and to build alternative supply routes to
safeguard deliveries to its European customers.
Russian President Vladimir Putin on Tuesday threw Ukraine an
economic lifeline, agreeing to buy $15 billion of Ukrainian debt
and to reduce the price of Russian gas supplies to Ukraine by
about a third.
The documents signed in Baku include an investment decision
on Shah Deniz II, as well as the Trans-Anatolian (TANAP) and
Trans-Adriatic (TAP) gas pipeline projects. Combined, the
projects will cost $35 billion, Aliyev said.
The field's proven gas reserves are estimated at 1.2
trillion cubic meters of gas.
Project partner Statoil of Norway accompanied its
announcement on the go-ahead with news it would reduce its stake
in the consortium to 15.5 percent from 25.5 percent.
Statoil's move will increase the ownership proportions of
the remaining players and fits a trend among top oil companies
to rein in spending by focussing on fewer big projects.
Statoil will sell the 10 percent to operator BP and
Azeri state energy firm SOCAR for $1.45 billion in cash.
"It's a very good price ... The price is three times book
value while Statoil shares are traded at 1.3 times book value,"
said John Olaisen, an analyst at brokerage ABG Sundal Collier in
Oslo. Other analysts said investors would welcome the move.
The Shah Deniz consortium, which includes Total,
confirmed the sale that envisages BP buying 3.3 percent and
SOCAR 6.7 percent.
"Both of these transactions are subject to conditions that
are expected to be satisfied in 2014," the consortium said in a
BP Azerbaijan and the consortium said SOCAR and its partners
in Shah Deniz II had agreed to extend terms for the project by
12 years to 2048.
"The extension of the Shah Deniz production sharing
agreement to 2048 ... means we can plan for the very long term
and part of that planning means undertaking new exploration for
the future of Azerbaijan and future of Shah Deniz beyond stage
two," Al Cook, BP's vice-president, told reporters.
From around 2019, Shah Deniz II is expected to supply 16
billion cubic metres (bcm) per year to Europe, including 6 bcm
For graphics of gas pipelines to Europe use the link below:
ALTERNATIVE TO RUSSIA
European buyers have struggled to find alternatives to
Russian gas producer Gazprom, whose contracts link
prices to oil, generally making it expensive compared to the
Gazprom covers a quarter of Europe's gas needs, with more
than 150 bcm of exports a year. In response to Europe's quest
for Caspian supply, Gazprom proposed its $39 billion South
Stream project, which would pipe gas to northeast Italy through
the Black Sea starting at the end of 2015.
The European Commission has said it does not oppose Russia's
plans to diversify supply routes, bypassing Ukraine, but says
they have to conform with EU law and are far from doing so.
"Shah Deniz II and the Southern Corridor pipelines will not
only change the energy map, but will give customers in Europe
direct access to the gas resources of Azerbaijan for the first
time," Bob Dudley, BP's group chief executive, said at the
signing ceremony on Tuesday.
Earlier this year, SOCAR and partners including BP and
Statoil selected the TAP for potential gas deliveries to Europe
over its Austria-based rival Nabucco West.
TANAP will be built from the Turkish-Georgian border to
Turkey's border with Europe, with its preliminary total cost
estimated at $20 billion.
Buyers of Azeri gas from Shah Deniz II are Shell,
Bulgargas, Gas Natural Fenosa, Greek DEPA, Germany's E.ON
, France's GDF Suez, Italian regional utility
Hera Trading, Switzerland's AXPO and Italy's