(EnergyAsia, April 19 2012, Thursday) — The consortium developing Azerbaijan’s Shah Deniz gas reserves has reached an important milestone with its decision to start work on the front-end engineering and design (FEED) of the project’s estimated US$25 billion stage 2 development, operator BP has announced.

The UK major, which owns a 25.5% stake in the consortium, revealed this following Tuesday’s meeting in Baku between its group chief executive Bob Dudley and Azerbaijan’s President Ilham Aliyev.

The Shah Deniz Stage 2 project aims to produce 16 billion cubic metres of gas per year from the Caspian Sea mostly for exports to markets in Turkey and Europe that form the ‘Southern Gas Corridor’ from end-2017.

BP said with the FEED decision, the consortium will refine engineering studies, drill more wells, complete commercial agreements and start key construction contracts.

The consortium’s other shareholders include Norway’s Statoil (25.5%), Azerbaijan’s SOCAR (10%), France’s Total SA (10%), LukAgip, a joint venture company of Italy’s Eni and Russia’s LUKoil (10%), Iran’s NIOC (10%), and Turkey’s TPAO (9%).

Perhaps, most importantly, the Shah Deniz consortium will finalise its selection of export routes across Turkey and into Europe. Countries and companies competing to dominate the natural gas markets and supplies in the region covering Central Asia to Western Europe have been vying to build separate pipeline networks.

Azerbaijan’s support for the BP-led consortium’s proposal is crucial as the country holds one of the world’s largest untapped natural gas fields with the Shah Deniz reserves alone estimated at more than 30 trillion cubic feet.

Rashid Javanshir, BP’s President of the Azerbaijan, Georgia and Turkey Region, said:

“We are pleased to announce this major step forward. Over the past two years we have made substantial progress on all the individual components of this mega-project. Engineering studies, commercial agreements and the support of the state of Azerbaijan and other governments give the Shah Deniz consortium the confidence to embark upon this FEED phase.

“With over 30 trillion cubic feet of gas resources, Shah Deniz is truly a giant field. With more than 26 wells, two new platforms, a terminal expansion and up to 4000km of new pipelines to Europe, this chain of major projects represents one of the largest oil and gas developments in the world.”

Shah Deniz Stage 2 is expected to add a further 16 billion cubic metres per year (bcma) of gas production to the approximately 9 bcma from Shah Deniz Stage 1.

As part of Stage 2 development, located some 70 km offshore in the Caspian Sea, the consortium is expected to install two new bridge-linked production platforms, drill 26 subsea wells with two semi-submersible rigs, build 500 km of subsea pipelines at up to 550m of water depth, undertake a 16 bcma upgrade of the South Caucasus Pipeline (SCP), and expand the Sangachal terminal. It will build additional pipeline capacity to transport Shah Deniz gas through Turkey and Europe.

Last October, the consortium signed gas sales and transit agreements with BOTAS, the Turkish pipeline company, and the Turkish government, within a wider agreement between the governments of Azerbaijan and Turkey.

Since then, agreements have been signed to allow the Trans Anatolia Pipeline developers to start engineering studies for potential gas transportation across Turkey. Three options are being considered to carry gas into Europe: the Trans Adriatic Pipeline (TAP) with a route to Italy, Nabucco West taking gas from Turkish-European border through Eastern Europe to the West and the South East Europe Pipeline (SEEP) taking gas through Hungary, Bulgaria and Romania. The Shah Deniz consortium will make a final route selection in 2013.