How might Shah Deniz I contract be renegotiated?

Gas Materials 28 May 2021 14:20
Baku, Azerbaijan Trend News Agency Leman Zeynalova
How might Shah Deniz I contract be renegotiated?

The Shah Deniz I contract with Botas is likely to be renewed eventually, Trend reports quoting Simon Pirani, Senior Research Fellow, Oxford Institute of Energy Studies.

The 2001 contract for delivering 6.6 billion cubic meters of gas per year to Turkey from Azerbaijan expired on Apr.16 and no new agreement has been signed so far.

“The background is a solid economic and political relationship: Turkey now imports two thirds as much gas from Azerbaijan (11.5 bcm in 2020) as from Russia (16.2 bcm); and the two governments, who signed intergovernmental agreements that underpin gas sales and transit agreements, are on good terms. Nevertheless, the stand-off in negotiations, and interruption of flows, is indicative of changing market trends – which in turn may produce changes in Azerbaijani upstream producers’ gas sales strategies,” said Pirani.

The expert believes that first, volumes are likely to be reduced, as the field is in natural decline, and Botas is also contracted to purchase 6 bcm/year from Shah Deniz II until 2033.

“Second, the buyer will push for price formation at a lower level, in line with market trends.14 Third, the ToP obligation will surely be cut from its previous level, 80 percent. Due to the importance of maintaining steady output of condensate, as mentioned above, this is an issue on which the Shah Deniz consortium may be reluctant to give ground – while, for Botas, increasing the flexibility of offtake has become central to its gas purchasing strategy.”