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EU, Azerbaijan Sign Agreement For Natural Gas Supplies

Azerbaijan committed Thursday (January 13) to supply natural gas to the European Union, the first written pledge paving the way for Europe's bid to tap the huge Caspian energy reserves, as the bloc seeks to diversify its supply sources.

"Azerbaijan commits to supplying substantial volumes of gas over the long term to the European Union, while Europe provides access to its market for them," the European Commission said in statement, after European Commission President Jose Manuel Barroso and Azerbaijan's President Ilham Aliyev signed a joint declaration in Baku Thursday.

The accord bolsters energy ties between the EU and the Caspian region, positioning Europe to improve its energy diversification and avoid excessive dependence on Russian natural gas exports, which are virtually the only gas source for Eastern European countries.

Gas from Azerbaijan will be the first to flow to Europe from the region, opening up a supply route which the EU calls the Southern Gas Corridor. "Azerbaijan will provide sufficient gas to enable the creation of the Southern Corridor," the EU said.

At least three pipeline projects are seeking to transport that gas, and their sponsors are currently negotiating purchase agreements with the consortium that is developing a Caspian offshore field, from where the gas will flow starting in 2017.

Shah Deniz II is expected to add roughly 16 billion cubic meters of annual production, 10bcm of which would be ready for export to the EU. BP PLC (BP) and Statoil ASA (STO) each own 25.5% stakes of Shah Deniz. The State Oil Co. of Azerbaijan, or Socar, OAO Lukoil Holdings (LUKOY) of Russia, France's Total SA (TOT) and National Iranian Oil Co. all own 10% each, while Turkey's TPAO owns 9%.

The consortium is set to pick a buyer for the gas in the first part of this year.

Source: The Wall Street Journal

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