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BP-Led Shah Deniz 2 Gas Project Needs $50 Billion Investment

The BP Plc-led Shah Deniz 2 natural gas project will require as much as $50 billion in investment to open up a new supply route to Europe across Turkey, according to Azerbaijan's state energy company.

"In a project like this, we have to invest $25 billion into drilling and production," Elshad Nasirov, vice president of the State Oil Company of Azerbaijan said in an interview in the capital of Baku. "Another $25 billion will be invested in different transportation projects from Baku to Turkey, across Turkey and from Turkey to the EU. So, in total, it makes $50 billion."

BP and the Azerbaijani government cleared the second phase of the Shah Deniz project last month, approving the start of the so-called front-end engineering and design process. The project will expand the field's production by 16 billion cubic meters a year, with first exports due by 2017 or 2018.

Azerbaijan currently exports gas from the first phase of the Shah Deniz project to Georgia and Turkey via the South Caucasus Pipeline, or SCP. The pipeline, also led by BP, connects the Sangachal terminal south of Baku to Turkey's eastern town of Erzurum via Georgia.

The Shah Deniz group, which also includes Socar, Statoil ASA (STL) and Total SA (FP), earlier announced plans to expand the capacity of the SCP from 8 billion cubic meters a year.

Azerbaijan and Turkey signed a memorandum of understanding in December to build a 2,000-kilometer (1,240-mile) pipeline, known as Tanap, across Turkey. Socar holds 80 percent of Tanap, estimated to cost $5 billion to $7 billion. Turkey's state pipeline company Boru Hatlari Ile Petrol Tasima AS, or Botas, and energy company Turkiye Petrolleri AO have a combined 80 percent.

Mr. Nasirov said an inter-governmental agreement on Tanap is planned to be signed by June 30.

Tanap will be linked up with one of three pipeline projects vying for the right to export Shah Deniz gas, i.e. Nabucco West, a revised version of the EU-backed Nabucco project, BP's South EastEurope Pipeline and the Trans-Adriatic Pipeline, or TAP, that's being developed by Statoil, EGL AG and EON Ruhrgas AG.

Source: Bloomberg

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