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Azeri Gas Sells Big in Europe

Bottom Line: Europeans are lining up for Azeri gas futures from Shah Deniz, playing to Baku’s tune of multiple customers.

TANAPAnalysis: At the gas sale of the century in Azerbaijan’s capital Baku, on 19 September, nine European companies signed 25-year contracts to buy from Azerbaijan’s Shah Deniz field for Phase II production. The contracts will start probably around 2019, when the first gas is piped to Europe through the Azeri-led Trans-Anatolia Pipeline (TANAP) with Turkey, which links up to another planned pipeline, the Trans-Adriatic Pipeline (TAP) that will go through Italy and up to Western Europe.

The buyers include:

•    Gaz de France: 65 bcm (2.6 bcm per year)
•    E.ON Ruhrgas (Germany): 40 bcm (1.6 bcm per year)
•    Gas Natural Fenosa (Spain): 25 bcm (1 bcm per year)
•    Bulgargaz (Bulgaria): 25 bcm (1 bcm per year)
•    Hera Trading (Italy): 7.5 bcm (300 mcm per year)
•    Axpo Holding (Switzerland): unknown volume
•    Shell: unknown volume
•    ENEL (Italy): unknown volume
•    DEPA (Greece): unknown volume

Recommendation:  These contracts will become effective as soon as the Shah Deniz consortium makes its final investment decision on Phase II production, which could be by the end of this year. Construction should start in the second half of 2014, and the first flow to Turkey should be around 2018—and a year later to Europe. We’re looking at about $200 billion in supply contract revenues from just these nine contracts. What Azerbaijan is hoping to do here is keep the buyers diverse, and it also wants to be connected to the buyers, which is why TANAP and TAP are particularly important pipelines in this game. TANAP should start construction in 2014, with hoped-for completion in 2018. TAP should start construction in 2015 and be completed in 2019.




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