Georgia and Shah Deniz II Gas Project

The Georgian government said it expects “USD 400-700 million investment” in the country from implementation of second phase development of Azerbaijan’s Shah Deniz offshore gas field to supply around 10 billion cubic meters of gas per year to EU from 2019 via Georgia and Turkey.

A signing ceremony of the final investment decision, paving way for USD 28 billion Shah Deniz II project by the BP-led consortium, was held in Baku on December 17.

One of the elements of the project is upgrading capacity of already operating South Caucasus Pipeline (SCP), which now can handle transportation of 7 billion cubic meters of gas per year from Azerbaijan to Turkey via Georgia. SCP expansion is required to accommodate about 16 billion of cubic meters of gas per annum on top of its current capacity, which is planned to be produced as a result of the Shah Deniz II project from additional 26 new subsea wells. First gas from Shah Deniz II project is expected by 2018 for consumers in Turkey and Georgia with an annual amount of 6 billion cubic meters and a year later additional 10 billion cubic meters of gas is expected to be transported to Greece, Bulgaria and Italy. The project also entails construction of the Trans Anatolian Gas Pipeline (TANAP) across Turkey and construction of the Trans Adriatic Pipeline (TAP) across Greece, Albania and into Italy.

Expansion of the 690km long South Caucasus Pipeline (SCP), which was launched in 2006, envisages building of a new pipeline with the length of up to 400 kilometers 55 of which will be built in Georgia in parallel to existing SCP. In addition, construction of two compression stations is also planned in Georgia.

The Georgian government said that the country will receive about USD 400 or possibly USD 700 million in foreign direct investment as a result of implementation of the project.

But according to an official brochure of the Shah Deniz II project, its implementation is expected to provide USD 2 billion in foreign direct investment to Georgia and 20% of the capital expenditure is planned to be spent on goods and services provided by local Georgian suppliers. About 2,000 jobs are expected to be created on construction projects in Georgia. Pipes and other construction materials will be shipped via port of Poti on Georgia’s Black Sea and then onwards by railway to Azerbaijan.

The Georgian government said that the deal envisages allowing Georgia to buy 5% of gas transported through the pipeline under preferential price.

“I am convinced that this is just a start of long-term and sustainable multilateral energy cooperation. Next step shall be targeted to the advancements of Trans-Caspian development and intensifying talks with other countries of the Caspian region,” Georgian PM Irakli Garibashvili said in his address to the ceremony in Baku on December 17.

Among other foreign dignitaries present at the ceremony where Azerbaijani President Ilham Aliyev; leaders of Albania, Bulgaria, Croatia, Montenegro, as well as The UK foreign secretary William Hague; Italian Foreign Minister Emma Bonino and others.

EU Energy Commissioner Günther Oettinger, who was also present, hailed the project as a “breakthrough”. Through further enlargement of the Southern Gas Corridor, he said, the EU will have the potential to meet up to 20% its gas needs in the long term.

EU Commission President José Manuel Barroso said in a statement on December 17 the project “is a strategic door opener for stronger European energy security.”

This post is also available in: ქართული (Georgian) Русский (Russian)


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