BP faces Shah Deniz 'budget hike'

Going higher: at Shah Deniz in Caspian Sea

BP and its partners in the Shah Deniz project are reportedly facing a cost increase of as much as $5 billion to develop the second phase of the Caspian Sea gas field off Azerbaijan.

Phase two of the scheme is now estimated to cost between $28 billion and $30 billion, compared with the original budget of $25 billion, president of state oil company Socar, Rovnaq Abdullayev, was quoted as saying by Bloomberg.

A final investment decision on the second phase of Shah Deniz is due to be made at the end of this year by the BP-led operating consortium comprising heavyweights Lukoil, Total and Statoil, as well as Socar, Turkiye Petrolleri and Naftiran Intertrade.

The partners have already approved spending of $6 billion on construction of platforms and infrastructure next year, according to the Socar chief.

Shah Deniz is seen by European Union countries as a key source of future gas supplies to cut dependence on gas from Russia, which currently supplies about 25% of the continent’s demand for the fuel.

Abdullayev, speaking to reporters in Azeri capital Baku before the New Year, said first gas from Shah Deniz is due to flow to the EU by the end of 2017 or early 2018.

However, the sovereign debt crisis in Europe has hit energy demand, sinking gas prices and therefore hitting the potential profitability of gas projects, especially those such as Shah Deniz based on pipeline exports to the continent.

Earlier this year, Gazprom was forced to put on hold the Shtokman gas project in the Barents Sea off Russia due to concerns over commerciality after Norwegian partner Statoil decided to hand back its stake in the scheme.

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