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Azerbaijan gas for Europe receives $1b boost

Azerbaijan's Caspian Sea gas reserves are poised for a multibillion dollar development. Photo: EBRD
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Azerbaijan’s Caspian Sea gas reserves are poised for a multibillion dollar development. Photo: EBRD

Multilateral banks and a syndicate of commercial banks will provide US $1 billion to finance development of an Azerbaijan offshore gas field feeding Southern Gas Corridor from the Caspian Sea to Europe.

The Asian Development Bank (ADB) and the European Bank for Reconstruction and Development (EBRD), with the participation of the Black Sea Trade and Development Bank (BSTDB), are arranging a financing package of US $1 billion for a landmark offshore natural gas field project in Azerbaijan, Shah Deniz stage II, that is crucial for energy security and a common gas market in Europe, EBRD said.

The long awaited push to the Azeri gas project is especially welcome in the current climate of depressed investment in oil and gas, a response to the declining market prices for both, industry experts told The Middle East in Europe.

The development of the gas field will bring gas to southeastern Europe, a region substantially dependent on coal and on gas from a single source of supply. The gas will be transported through a chain of pipelines – including the existing South Caucasus Pipeline which will be extended under the project – as well as through the planned Trans-Anatolian and Trans-Adriatic pipelines. This network of pipelines will transport the gas from Azerbaijan via Georgia and Turkey to Greece and Bulgaria, and on to Italy, from where it can reach wider Europe.

“This will be the largest gas field development project undertaken in Azerbaijan, generating more economic opportunities and helping to boost closer regional ties with Georgia and Europe,” said Michael Barrow, Deputy Director General of ADB’s Private Sector Operations Department. “ADB’s involvement has helped catalyse long-term bank financing support from commercial banks.”

“This project is one of the EU’s highest priorities for the energy sector. It is key for energy security because it diversifies routes and sources of gas supply,” said Riccardo Puliti, EBRD Managing Director for Energy and Natural Resources. “It helps cut carbon emissions by providing a bridge fuel for renewables and replacing coal. The project will also be a very big step towards the market-based hub pricing for gas which will bring Europe closer to a common gas market.”

“Supporting regional cooperation and energy efficiency in the Black Sea region are strategic priorities for BSTDB. We are happy to contribute to this project demonstrating strengthened synergies among development partners to foster sustainable growth in our member countries,” said Igor Leshukov, BSTDB Vice President, Banking.

The financing will be extended to Lukoil Overseas Shah Deniz Ltd, a subsidiary of Lukoil, which has a 10 per cent interest in the Shah Deniz II gas field.

The EBRD and ADB will each lend US $250 million to the project on their own accounts (A-loans) and BSTDB will provide a US $60 million parallel A-loan alongside the EBRD and ADB. The remainder of the financing will be provided by a group of commercial lenders – Bank of China, London branch; ING Bank N.V; Société Générale; and Unicredit Bank Austria AG, under the EBRD/ADB B-loan umbrella. One more commercial bank will join the syndicate at a later stage to complete the financing, EBRD said.

The total cost of the Shah Deniz II development by the operating consortium of companies (BP, TPAO, Petronas, SOCAR, Lukoil, NICO and SGC) is expected to top US $47 billion, EBRD says.

BP will build and operate the project facilities. Production from the project is expected to begin in 2018 and will help provide jobs for over 16,000 people through to 2022.

Author: Editor

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