Energy & Mining

The Corridor Awaits

Shah Deniz II

With new plans to increase production, the opportunities for Azerbaijani gas exports are starting to gallop ahead.

The corridor has implications for the upstream sector in Azerbaijan, including the onshore Sangachal oil and gas terminal, and six other countries that would become end-receivers of the gas or host three interconnected pipeline segments, namely the South Caucasus Pipeline expansion (SCPX), the Trans-Anatolian Pipeline (TANAP), and the Trans-Adriatic Pipeline (TAP). When completed, the project will enable the delivery of 16 billion cubic meters of gas per annum (bcma) to Europe, 6 bcma of which will be absorbed by the Turkish market. The investment in the upstream portion of the project and the SCPX is estimated at $28 billion, whereas the total investment in the project, which includes TAP and TANAP, will be closer to $50 billion, according to estimates from Azerbaijan’s Ministry of Energy.

The main shareholders in the Shah Deniz II field will be BP, with a 28.8% stake, SOCAR (16.7%), Statoil (15.5%), Total (10%), Lukoil (10%), Iran’s NICO (10%), and Turkey’s TPAO (9%). According to undisclosed sources, but not verified by Total, as of February 28, 2014, the French multinational was considering withdrawing from the Shah Deniz II consortium to focus on fields in which it is the operator. According to the sales agreements also signed at the end of 2013, the purchasers of the gas exported via this route will be Turkey’s BOTAÅž, the Georgian Oil & Gas Corporation, Axpo Trading, Bulgargaz, Greece’s DEPA Public Gas Corporation, ENEL, E.On, Gas Natural Aprovisionamientos, GDF Suez, HERA Trading, and Shell.

On December 17, 2013, the Shah Deniz consortium and the government of Azerbaijan also agreed to the extension of the existing Shah Deniz Production Sharing Agreement (PSA) by 17 years, from 2031 to 2048, thus enabling a long-term arrangement that will allow enough time for the companies involved to recover their investments.


The Shah Deniz field was discovered in 1999 by BP and represents the supermajor’s largest gas discovery to date. Located off the shores of the Absheron Peninsula, 70 kilometers from Baku, the field is estimated to hold over 1 trillion cubic meters (tcm) of gas. According to the Shah Deniz Production Sharing Agreement, BP is the field operator. Exports from the field started in late 2006 and were directed to Georgia and Turkey. The first stage of the field’s development required a $6 billion investment and has the capacity to produce 9 bcma.

In 2007, the consortium discovered an even deeper deposit under the existing Shah Deniz field, which was named Shah Deniz Deep and which is another possible source of gas for export once developed. Between 2008 and 2013, Azerbaijan signed various agreements with Turkey and the EU, and studies were conducted that paved the way for the subsea design of the Shah Deniz II and the choice of route for three corridors, SCPX, TANAP, and TAP, which was selected in June 2013 over the other alternative, Nabucco West.

The second stage of the field’s development will involve the construction of two offshore platforms connected by a bridge, from which 26 subsea wells will be drilled. The gas will then be transported through a network of 500 kilometers of subsea pipelines first to the Sangachal terminal, and from there to Georgia, Turkey, and Europe. The project will have a tremendous impact on the Azerbaijani economy, as it will represent the largest FDI project in the country and will create 10,000 jobs in the construction phase alone (2014-2018).

It will also have a significant impact on the other countries along the Southern Energy Corridor route, particularly small economies like Georgia and Albania. For example, this project represents the largest ever foreign investment in Georgia, which will host not just SCPX, but also two 120 MW compressor stations. The Azerbaijani state-oil company, SOCAR, has already become the largest taxpayer in neighboring Georgia. Albania will also benefit from the largest construction projects in its history in the form of a compression station near the town of Fier.


Operated by BP and located 55 kilometers south of Baku, the Sangachal Terminal occupies an area of 542 hectares, which makes it one of the world’s largest and an important link between Azerbaijan’s oil and gas and international markets. In addition to storage facilities, the terminal is endowed with processing facilities, a head pump station, and a control room that monitors the transfer of oil along the BTC oil pipeline. When working at full capacity, the terminal’s processing capacity will be 1.2 million barrels per day (bbl/d) of oil and 41.5 million cubic meters (mcm) of gas per day.


If all goes according to plan, by 2018 Turkey will receive the first 6 bcma of natural gas from Azerbaijan, while Greece, Bulgaria and Italy will receive 10 bcma through the TANAP and TAP in 2019. The initial construction contracts for the project were awarded in early 2014 to Bechtel International and Enka İnşaat ve Sanayi for the expansion of the SCPX in Georgia, which includes the construction of two 120 MW compressor stations, of a pressure reduction and metering station, and of a 16-kilometer access road. Chicago Bridge & Iron was awarded a similar contract, while in the upstream sector, Wood Group Kenny Ltd, DrillTec Gmbh, CSM Bessac, Apply Emtunga, and KBR won various contracts for the initial subsea drilling, construction of two rigs and ancillary facilities, the 500 kilometers of subsea pipelines, and the expansion of the Sangachal oil and gas terminal.

While the planning stage of the Southern Gas Corridor has required certain choices to be made, it is clear to all those involved that developing this project will open up a world of possibilities to fuel the European market, currently the world’s largest importer of gas, with Azerbaijani and Central Asian gas. From the Shah Deniz Deep field, which lies under the existing Shah Deniz field, and the gas resources associated with Azerbaijan’s veteran oil field, the Azeri-Chirag-Gunashli, to the possibility of including Iraq, Iran, and even Kazakhstan and Turkmenistan on the list of gas suppliers, should the Trans-Caspian pipeline become a reality, the possibilities are endless.

On the demand side, the Shah Deniz II Consortium is also keeping its options open. While the Nabucco West route was ruled out last June in favor of TAP, ­Azerbaijani authorities still dream of reaching markets like Austria, which they see as a natural customer for its gas, one day.

You may also be interested in...



Reconstruction in 2021?

View More

Green Economy

Saving Absheron

Azerbaijan and Pollution

View More


Baku Calling

Azerbaijan’s Economic Challenges

View More


Intourist Out-tourist

Top 3 Post-Soviet Travel Destinations

View More

Energy & Mining

Azerbaijan’s Floating Solar Plant

The future of solar energy?

View More

Energy & Mining

Caspian: Sea or Lake?

Five countries in definition deadlock

View More

Real Estate & Construction

Wood for the Trees

Building in Baku

View More
Release the Brakes


Release the Brakes

Joint automotive production

View More
View All Articles