Oil Report

Gazprom says prepared to raise Azeri gas purchases

MOSCOW, Jan 11 (Reuters) - Gazprom GAZP.MM, Russia's state-run gas giant, pledged on Monday to buy all of the gas exported by Azerbaijan, staking its claim to an expected upsurge in output by the ex-Soviet state amid competition from rivals.

Azerbaijan expects a significant increase in natural gas production when it launches the second phase of its Shakh Deniz project in the Caspian Sea. European consumers want some of this gas to feed into the Nabucco pipeline, which will bypass Russia.

“We will buy all the gas that Azerbaijan can supply,” Gazprom Chief Executive Alexei Miller said in a statement.

“No upper limit has been set for gas purchase volumes,” Miller said. “There are no such limits in any Gazprom agreement.”

Gazprom signed a contract with Azerbaijan last year to purchase up to 500 million cubic metres of gas in 2010. Rovnag Abdullayev, chief executive of Azeri state energy firm SOCAR, said on Dec. 26 these volumes could double. [ID:nLDE5BP051]

This gas is likely to come from the first stage of the Shakh Deniz project. When the second phase becomes operational in several years, Azerbaijan will have much more gas -- potentially 16 billion cubic metres a year -- to offer.

Baku could potentially supply much of the gas needed to fill the Western-backed Nabucco pipeline, an alternative route for European consumers reliant on Russia for a quarter of their gas.

But it has other options for gas from the project, which is being led by StatoilHydro STL.OL and BP BP.L. As well as other routes through the 'Southern Corridor' to Europe, Baku could also sell its gas to Russia, Georgia or Iran. (Reporting by Anton Doroshev, writing by Robin Paxton)