Participants in a major project in Azerbaijan aimed at supplying natural gas to Turkey and Europe from the large Azerbaijani Shah Deniz field refreshed the contract terms for deliveries to Turkey.

From 2006-2018, the first phase of the project, the BP-led consortium constructing the Shah Deniz project supplied more than 10 billion cubic metres (bcm) of gas per year through the South Caucasus Pipeline to Azerbaijan, Georgia, and Turkey.

The second phase began production in 2018, increasing by 16 billion cubic meters of gas production to the overall capacity of 26 billion cubic meters.

Azerbaijan started supplying commercial natural gas to Europe from the second stage of the Shah Deniz project via its $40-billion Southern Gas Corridor in December 2020, when the corridor’s last part, the Trans-Adriatic Pipeline (TAP), became operational. The project hopes to reduce Europe’s dependence on supplies from Russia, which currently controls 34 percent of the continent’s gas market.

An initial contract for the purchase and sale of gas from the first stage of Shah Deniz between Turkish pipeline operator BOTAS, Azerbaijan's state energy firm SOCAR, and the international Shah Deniz consortium expired in April 2021, and the parties continued discussing a new mid-term contract until this announcement.

According to SOCAR, the new deal will expire at the end of 2024.

“According to the new contract, Turkey will receive from Shah Deniz-1 [half as much gas as from] the previous volumes. This decision was made both in connection with the gradual natural decline in Shah Deniz-1 resources and due to the fact that part of the gas from the first stage, by agreement between SOCAR and the project operator BP, will go to the internal growing needs of Azerbaijan,” SOCAR added.

According to a source, the new contract stipulates more flexible commercial conditions – actual spot prices for “blue fuel,” while in the previous long-term contract the gas price was tied to the “oil basket.”

In 2020, Azerbaijan exported to Turkey a total of 11.548 bcm of gas from both stages of the Shah Deniz development, 20.5 percent up from 2019.

In 2021, due to a pause in gas supplies from Shah Deniz-1 and with a decrease in contractual volumes from Shah Deniz-1, transportation volumes will be lower.

Shah Deniz reserves are estimated at 1.2 trillion cubic metres of gas, of which a little more than 12 percent has been extracted so far.

The participants in the Shah Deniz project are: BP (operator, 28.8 percent), TPAO (19 percent), SOCAR (16.7 percent), Petronas (15.5 percent), LUKOIL (10 percent), and NICO (10 percent).