Azerbaijan Extends Shah Deniz Agreement

Azerbaijan has extended the production sharing agreement (PSA) behind the Shah Deniz gas project for an extra five years, a top official said.

The extension is taken as a sign of improving relations with the operator, energy major BP. Azerbaijan's biggest gas field and one of the largest in the world began producing gas in 2006 and has a production capacity of 8 billion cubic metres a year from its first phase. Its second phase is due to start production in 2018 and reach another 16 bcm in annual output.

"We have agreed to extend the Shah Deniz PSA from 2031 to 2036, and the Shah Deniz partners will now proceed with phase 2," Elshad Nassirov, vice president of the Azeri state oil company SOCAR, told Reuters in Davos, the world economic gathering in Switzerland, last week.

Relations between Azerbaijan and BP soured last year over falling output at the BP-operated Azeri, Chirag and Guneshli (ACG) oilfields - output that is crucial to Azerbaijan's economy. BP Chief Executive Bob Dudley visited Azerbaijan in December to try to repair relations after Azeri President Ilham Aliyev accused the company of making "false promises."

The other partners in the Shah Deniz consortium are Norway's Statoil and French giant Total.