New delay for Shah Deniz 2 final investment decision

A final investment decision on the second-phase development of the giant Shah Deniz gas and condensate field off Azerbaijan has been delayed by half a year to the end of 2013 and cost estimates have once again risen by between 15% and 20%, writes Kama Mustafayeva.

Revised phase two investment is now estimated at between $28 billion and $30 billion, according to state oil company Socar president Rovnag Abdullayev.

The original budget for the stage-two development about two years ago was estimated at $20 billion and subsequently raised to $25 billion.

The Shah Deniz partnership, including BP, Statoil, Total, Lukoil, TPAO, Iran’s Nico and Socar have already approved expenditure of $6 billion this year on phase two, Abdullayev said.

The financing will be used for pre-drilling of production and injection wells for future subsea development as well as expanding onshore gas terminal facilities in Sangachal, BP sources said.

BP has already drilled several wells in the future development area, with drilling continuing this year using two semi-submersibles — the Istiglal and Maersk’s Heydar Aliyev.

First gas from Shah Deniz 2 will flow to Turkey by the end of 2017 with delivery to the European Union in 2018, said Abdullayev.

However, sources close to the project said that further cost overrun would make the gas project commercially unviable.

“The cost estimate of $25 billion is almost a critical level. Further increases in the project budget could ruin its commercial attractiveness and arouse concern over investment,” one said.

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