Looming Shah Deniz Decision Turns On TAP

BMI View: The impending final investment decision on phase II of the Shah Deniz project, expected on December 17th, has led the TAP consortium to begin preparations for its 870km pipeline into Europe. Tenders for materials are due to be issued in early 2014 if Shah Deniz moves forward, as we expect, though negotiations with the 55,000 land owners in Greece, Albania and Italy could impact the scheduled construction start in 2015.

Following the announcement that a decision is expected to be made on phase II of the Shah Deniz field on December 17 th, the Trans-Adriatic Pipeline (TAP) consortium is moving forward with plans in an effort to meet its targeted start up in 2019. The TAP will transport up to 10bn cubic metres (bcm) of gas from an expansion of the Azeri Shah Deniz field from the Kipoi on the Greek-Turkish border, through Greece and Albania, then under the Adriatic to San Poca in Southern Italy. The pipeline is scheduled to begin construction in 2015 with first deliveries commencing in 2019.

Pending a much anticipated positive final investment decision (FID) on the second phase of the Shah Deniz project, the partners in TAP will send invitations for tenders in early 2014. BP, which operates the Shah Deniz field, is due to take a decision to undertake an expansion to produce a further 16bcm of gas on December 17 th. We fully expect this to move forward as supply agreements for the full volume have been signed, and the project has the backing of Turkey and the EU.

Azerbaijan To Take A Slice Of The Pie
Imports Of Gas Into Europe By Country 2012 & 2019, %

Looming Shah Deniz Decision Turns On TAP

BMI View: The impending final investment decision on phase II of the Shah Deniz project, expected on December 17th, has led the TAP consortium to begin preparations for its 870km pipeline into Europe. Tenders for materials are due to be issued in early 2014 if Shah Deniz moves forward, as we expect, though negotiations with the 55,000 land owners in Greece, Albania and Italy could impact the scheduled construction start in 2015.

Following the announcement that a decision is expected to be made on phase II of the Shah Deniz field on December 17 th, the Trans-Adriatic Pipeline (TAP) consortium is moving forward with plans in an effort to meet its targeted start up in 2019. The TAP will transport up to 10bn cubic metres (bcm) of gas from an expansion of the Azeri Shah Deniz field from the Kipoi on the Greek-Turkish border, through Greece and Albania, then under the Adriatic to San Poca in Southern Italy. The pipeline is scheduled to begin construction in 2015 with first deliveries commencing in 2019.

Pending a much anticipated positive final investment decision (FID) on the second phase of the Shah Deniz project, the partners in TAP will send invitations for tenders in early 2014. BP, which operates the Shah Deniz field, is due to take a decision to undertake an expansion to produce a further 16bcm of gas on December 17 th. We fully expect this to move forward as supply agreements for the full volume have been signed, and the project has the backing of Turkey and the EU.

The tender for material supply and land rights will begin in early 2014 if phase II of the Shah Deniz goes ahead, as we expect it to. This should allow the project sufficient time to keep to its target of supplying gas by 2019. It is crucial that the process starts as soon as possible due to the large number of land owners from which the TAP consortium requires rights of way.

According to a Reuters report, as many as 55,000 land owners in Greece, Albania and Italy will be involved in the process. Negotiations to gain access to land and rights of way will be the biggest hindrance to progress of the project. While at the current point developments remain on schedule, negotiating with such an extensive number of land owners could result in delays if proposals are rejected. Given the early stage of the project, it is perhaps too early to assess the level of opposition or the likelihood of delays. However while we are not currently pricing in any significant setbacks to the current timeline, we do highlight the potential downside risk of negotiating with 55,000 land owners. The TAP consortium is intending to begin construction of the pipeline in 2015.

Azerbaijan To Take A Slice Of The Pie
Imports Of Gas Into Europe By Country 2012 & 2019, %

The TAP pipeline is a crucial aspect of Europe's efforts to find new suppliers of natural gas to mitigate the dominance of Russia in its energy market and open up the Southern Corridor. Azerbaijan, along with the Trans-Anatolian Pipeline (TANAP) and TAP, are thus expected to play a role in this development by 2019.

Azerbaijan Upstream Projects
Project Targeted Plateau (bcm)
SDI 8
SDII 16
Deep Gas ACG 6
Absheron 10
Umid/Babek 8
SOCAR Fields 5
Source: SOCAR, BMI

We note that successfully bringing TAP online would be a major coup not only for Europe's energy diversification strategy but for Azerbaijan's desires to play a role as a significant energy supplier to the continent. Although initial capacity on TAP will see exports of 10bcm per annum, scalable infrastructure would eventually allow volumes to double reaching 20bcm. The opening of an export route into Europe will strengthen the case for development of several stalled but highly prospective prospects the Caspian Sea.

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