Saipem/Azfen Joint Venture Wins $735 Million Contract for Shah Deniz Gas Pipeline Project

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Researched by Industrial Info Resources (Sugar Land, Texas)--A joint venture between Saipem Contracting Netherlands BV (Amsterdam) and Azfen JV (Baku, Azerbaijan) has won a contract to build a natural gas pipeline to expand the South Caucasus Pipeline in Azerbaijan and Georgia. BP plc (NYSE:BP) (London, England) awarded the US$735 million contract for the 428-kilometer (km) pipeline loop. The contract agreement between BP and Saipem/Azfen was signed on Monday in Baku.

The start of work is scheduled for January 2015, with mechanical completion of the Georgian section expected by the end of 2016, and the Azerbaijan section by the end of 2017. The contract includes construction of the pipeline and associated above-ground installations, including block valves, a pigging facility and tie-ins in Azerbaijan and Georgia, as well as the construction of a second pipeline loop (59 km) and associated above-ground installations in Georgia.

AZFEN J.V. was established in January 1996 by the State Oil Company of the Azerbaijan Republic (60% ownership) and TEKFEN Construction and Installation Company Incorporated of Turkey (40% ownership).

Azfen and Saipem each have a 50% stake in the pipeline extension project. Given its holdings in Azfen, Tekfen is expected to receive $147 million from the project.

Gordon Birrell, BP's president for the Azerbaijan-Georgia-Turkey region, said most of the work under the ShahDeniz 2 project will be finished by 2017.

Partners for the development of the ShahDeniz field are: Azerbaijan's state-owned energy company, SOCAR, with a 16.7% share, BP (28.8% share), Norway's Statoil (15.5% share), Iran's NICO (10% share), France's Total S.A. (NYSE:TOT) (10% share), Russia's Lukoil (10% share) and Turkey's state-owned oil company TPAO (9% share).

A final investment decision on the second phase of Azerbaijani ShahDeniz offshore gas and condensate field's development was made on December 17, 2013. The gas from the field will first go to the European market. It is expected to produce 16 billion cubic meters (bcm) per year from 2019, with 10 bcm earmarked for Europe and 6 bcm for Turkey.

Shah Deniz I has been pumping gas since 2006 and has an annual production capacity of about 10 bcm of natural gas. The gas to be produced in the second phase of the Shah Deniz field's development will be exported through expansion of the South Caucasus Pipeline and construction of the Trans-Anatolian Gas Pipeline (TANAP) and the Trans-Adriatic Pipeline (TAP). The route is a strong alternative for Europe to cut its dependence on Russian imported natural gas. Currently, the EU imports more than one third of its natural gas needs via pipelines across Ukraine.

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