Page 5 - FSU OGM Week 22 2021

FSUOGM COMMENTARY FSUOGM

the cost of delivering gas to European markets “The non-renewal of the Shah Deniz 1 con-
may be too high,” the OIES report notes. tract underlines that the future of such financing
This marks Turkey as potentially the most is in doubt,” the report states. “As the propor-
attractive market for Shah Deniz’s gas, as it offers tion of spot sales rises in Turkish and European
higher prices than are available in Azerbaijan markets, project financing will have to be struc-
and is closer than Europe. “But the unresolved tured in new ways. The protection from price
contract negotiations suggest that the Azeri sales risk afforded by sellers by long-term contracts
strategy will have to become more flexible,” the will not be available. This in turn will throw into
report says. This strategy will have to undergo a sharper relief Azerbaijan’s higher cost of deliver-
drastic revision if there is a longer-term reduc- ies to European markets.”
tion in Turkish purchases. SGC also succeeded in no small part thanks
“A key different between the two sides is that, to support from the EU, with its policy of diver-
while it is in the consortium’s interests to main- sifying energy supply. The pipeline operators
tain steady output of gas and condensate, [the] may not be able to count on this kind of sup-
Turkish import strategy is based on increasing port this time around, given the bloc’s push to
the flexibility of offtake,” the report states. decarbonise.
Turkey has steadily been shifting its import Changing market conditions could affect
mix in favour of spot-based LNG purchases whether Frances’s Total takes a final invest-
and away from piped supplies under long-term, ment decision (FID) on the second stage of the
oil-indexed contracts. Between 2014 and 2020, Absheron gas project, which will ramp up the
the share of LNG more than doubled from 14.8% field’s output from 1.5 to 5.0 bcm per year. They
to 31%, while Gazprom lost considerable market could also have an impact on development of
share. other fields, including Umid-Babek, Karabagh
“Botas has created a very diversified, and and Ashrafi/Dan Ulduzu/Aypara and Shaf-
flexible, supply portfolio, and effectively served ag-Asiman, the report says.
notice on pipeline importers that their sales “All of these projects may potentially sup-
strategies will have to change,” the report says. ply gas for Azerbaijan and/or the SGC, but not
A revised contract between the Shah Deniz in any substantial volumes in this decade,” the
consortium and Botas will entail lower volumes, report states, noting the less favourable market
given the field’s natural decline, the report notes. and political conditions in Europe and Turkey.
Botas could also secure a lower gas price and a “The market trends highlighted by the
reduced take-or-pay obligation. non-renewal of the Shah Deniz contract will add
to the difficulties, associated with the high cost of
Azeri supply delivering Azeri gas to Europe, of expanding the
To expand SGC, Azerbaijan will need to increase Southern Gas Corridor,” the report concludes.
its Caspian Sea gas production and attract the “Even the most optimistic assumptions about
necessary investment to fund the project. SGC’s upstream development do not suggest that sub-
realisation was supported by 25-year gas sales stantial quantities of additional gas will be availa-
agreements with European gas distribution ble in the 2020s. There are no plausible scenarios
companies, which ensured the developers that under which the transport infrastructure expan-
they would make a return on their investment. sion will be completed in this decade.” ™

Week 22 02•June•2021 www. NEWSBASE .com P5