Crunch Time

In December 2013, the BP-led consortium signed the Shah Deniz II final investment decision (FID). What is the significance of this deal for BP and its operations in Azerbaijan?

The FID was an important milestone that enabled us to move our Stage II development plans forward to the execution phase. It was a historic step that the Shah Deniz partnership took together with Azerbaijan to embark upon what is one of the largest and most complex endeavors ever undertaken by the global oil and gas industry. However, I believe the significance of this project goes far beyond the oil and gas industry as it paves the way for Azerbaijan’s future and the region’s future. I have observed that when people talk about Stage II, before they mention the 16 bcm of gas that it will deliver, they talk about the opportunities that it will open up for all nations related to the project. This is a unique project designed to bring benefits to all countries on the way stretching from the Caspian Sea to the heart of Europe.

For BP, it is a new development opportunity enabling it to unlock Azerbaijan’s giant gas resources and delivering them to the regional and European markets. We are proud to be associated with such a project that will create a direct pipeline link between the Caspian and Europe for the first time in history. In fact, this project has an opportunity to open a new chapter in the development of Caspian resources and thus change the energy map of this region.

We are also proud that through this project we will deploy advanced subsea production technology in the Caspian Sea for the first time. The use of this technology in Azerbaijan will open up new opportunities for oil and gas developments in this region.

The project is among the biggest of its kind in the world. What are its implications in terms of human capital and resources required for BP?

Clearly, as a company we are privileged to be the operator of part of this huge Shah Deniz II/Southern Corridor project, which is expected to bring about $45 billion investment creating approximately 30,000 new jobs in the countries involved, including 10,000 in Azerbaijan. In addition, during the construction phase Azerbaijan will be able to utilize its fabrication facilities, barges and vessels, and other high quality industry resources. As a result of the project, the country will gain new onshore assets, offshore facilities and export infrastructure—all built to international standards.

The two planned platforms and most of the subsea installations for the Shah Deniz II project will be built in Azerbaijan. To do this, the technical and technological capacity of the construction yards near Baku will be enhanced. In addition, technical and functional parameters of several vessels to be engaged in subsea operations will be upgraded. A unique multipurpose vessel will be built at the newly commissioned shipyard in Baku to implement subsea construction work.

To deliver this giant project, we need to attract some of the best talent in Azerbaijan, in the region and indeed in the world—especially project managers, engineers, and technicians. New skills will need to be developed to operate the new high technology installations. Our nationalization plans target learning enhancement and development programs in order to further improve local talent. We are currently training over 150 local technicians specializing in the latest production technology. Over 500 welders will also be trained in the latest construction techniques in line with the highest international standards.

BP currently directly employs around 4,000 staff in Azerbaijan. We will further enhance this resource. Our aim is to ensure that by the end of 2018, 90% of our staff in Azerbaijan and Georgia is composed of Azerbaijani and Georgian nationals. Our construction contractors in Azerbaijan and Georgia are expected to mobilize a workforce of some 5,000 people this year for Shah Deniz initial construction activities. This number will nearly triple over the next four years.

How can the additional infrastructure that will be built in connection with the Shah Deniz II project, such as the Trans-Adriatic Pipeline (TAP) and the Trans-Anatolian Pipeline (TANAP), serve to export gas from other fields in Azerbaijan and from fields in neighboring CIS countries, such as Kazakhstan?

At this stage our focus is on delivering the Shah Deniz II project and the associated pipelines that will form the Southern Corridor. To export 16 bcm of Stage II gas, we will expand the South Caucasus Pipeline with a new 48″ pipeline loop in Azerbaijan and two compressor stations in Georgia. Across Turkey, Shah Deniz gas will be transported through the planned TANAP, which is expected to be a key part of the Southern Corridor. From the western border of Turkey, gas will flow through Greece and Albania to Italy via the TAP. In addition, as part of the sale of the 10 bcm of gas to Europe, 1 bcm will be sold to Bulgargaz at the TAP exit point in Greece and this requires development of a new interconnector.

While it is premature for us to speculate about other sources of gas for the Southern Corridor, we believe it will provide attractive opportunities for other sources in the future. This belief is based on the concept of the project that will be designed to allow all the sections of the pipeline to be scalable. We expect this ability of the Southern Corridor to bring new sources of supply to European markets will extend as additional supplies become available. When I say new sources I definitely mean additional supplies that can be anticipated with several gas opportunities in Azerbaijan including Shah Deniz Deep, Shafag-Asiman, and Azeri-Chirag-Gunashli (ACG) Deep that are being evaluated by BP and its co-venturers.

According to the FID, the Shah Deniz PSA was also extended until 2048. What prompted this decision and what how will it influence BP’s operations in the country?

These are two separate decisions. The PSA extension decision is based on Azerbaijan’s and the Shah Deniz partnership’s confidence that this giant filed has a great potential. In 2007, we discovered further major new gas-condensate resources in the Shah Deniz field.

At that time, one of our appraisal wells encountered a new high-pressure reservoir in a deeper structure below the currently producing reservoir. It represented a potentially significant find and was a tremendous success for the Shah Deniz partnership and for Azerbaijan. There will be further appraisals to add to our understanding of the new structure and the entire field. In addition, such a deep, high-pressure reservoir will require new technologies that are presently under development in the industry. Thus, there are very excellent opportunities for the future of Shah Deniz, and we are confident the field will continue to bring benefits to Azerbaijan and other regional and European countries for many decades to come.

President Ilham Aliyev began his third term in office in October 2013. What changes do you expect the new mandate to bring for the energy sector and the economy overall?

The country’s oil and gas projects including those operated by BP are key to the national economic growth and President Ilham Aliyev has always shown personal interest in these developments. His extensive political leadership experience combined with his deep knowledge of our projects and industry in general has been crucial to ensuring the success of Azerbaijan’s long-term oil and gas strategy and vision.

President Aliyev has always provided active support to our projects and we will continue to seek his guidance with regard to our future plans for the joint development of the country’s world-class oil and gas resources. We hope this support will continue as we work together with SOCAR to link Azerbaijan with Europe directly for the first time in the country’s history. We believe the realization of the plans to deliver Shah Deniz gas to Europe is fully in line with the government’s policy of utilizing the country’s resources for both economic growth and further enhancement of Azerbaijan’s role as a reliable energy supplier and a significant player on the international stage.

What do you anticipate to be the highlights of 2014 for the oil and gas sector in Azerbaijan and for BP in particular?

I believe the highlights of 2014 will be the progress of the Shah Deniz Stage 2 and South Caucasus Pipeline expansion projects that will boost visible wide scale construction activities at all sites and fabrication yards of the country including the Sangachal Terminal, ATA yard near Baku, Baku Deepwater Jackets Factory, and along the pipeline route. The project is now progressing at pace. We have already awarded most of the major engineering, construction, and supply contracts. Early works have already started in most areas. At some yards we have even started main works. In particular, at the ATA yard, we have already commenced fabrication of the platform decks. I am pleased to say that this happened three months ahead of schedule. We will continue contract awards throughout the year as part of the overall progress being made across multiple areas of this major development project.

In addition, 2014 marks the 20th anniversary of the signing of the ACG production sharing agreement, and the year started with a major milestone achieved by ACG—the start-up of oil production from the West Chirag platform. This platform is the eighth world-class offshore platform that we have started up and operate in a safe and efficient manner in the ACG field. It represents a big step forward towards stabilizing ACG’s production and increasing recovery. We will continue to focus on production as part of our primary commitment to delivering our operations safely and reliably in the Caspian.