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Azerbaijan Says Still Working with Turkey on Gas Deal

ilham_erdogan_2Azerbaijan said on May 17 it was still working with Turkey on the technical details of a long-awaited gas supply deal that could unlock Azeri gas reserves for the West.

The two sides were expected to sign the agreement on May 17, during a visit by Turkish Prime Minister Tayyip Erdogan.

He said it could be signed when Azeri President Ilham Aliyev visits Turkey, without specifying when.

"We discussed all issues related to gas transit with Turkey last month. Technical work for signing these documents is ongoing," Aliyev said after meeting Erdogan.

The deal on gas supply and transit, two years in the making, could help unlock Azeri gas reserves for the West - in particular the troubled 7.9 billion euro ($9.74 billion) Nabucco project - and eventually trim Europe's energy dependence on Russia.

Negotiations have been complicated by political tensions between the Muslim allies over a bid by Turkey and Christian Armenia - Azerbaijan's enemy in the conflict over rebel Nagorno-Karabakh - to bury a century of hostility and mend ties. The rapprochement collapsed last month.

Precise details of the gas deal are unknown but it is expected to at least resolve pricing differences over 6 billion cubic metres of gas Azerbaijan currently sells to Turkey.

Analysts say it could trigger commercial talks on volumes from the second phase of production at Azerbaijan's Shah Deniz deposit in the Caspian Sea, operated by BP and Statoil and due to come online by 2017.

Azerbaijan says it has agreed in principle on volumes Turkey would receive from Shah Deniz II, which will produce an additional 16 billion cubic metres per year on top of the current 9-10 bcm from Shah Deniz I.

Turkey has requested 6-7 bcm of gas from the second phase.

That would free up volumes of gas to flow to Nabucco, albeit at a fraction of Russian current gas exports of 150 bcm. The Nabucco project would nevertheless mark an important step toward cutting dependence on Moscow, which supplies a quarter of the EU's gas imports.

Nabucco aims to transport up to 31 bcm of gas annually from the Caspian region to an Austrian hub via Bulgaria, Romania, Turkey and Hungary.

But it faces competition from Russia's South Stream project, which is due to start construction in 2012. Nabucco has been hit by delays and problems in pinning down supplies.

Source: Reuters

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