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Azerbaijan Signs New Gas Deals With Europe, Snubs Russia

Rovnag Abdullayev (L), the president of Azerbaijan's 'Shah Deniz,' shakes hands with Gianfilippo Mancini, director of the Market Division of the Enel Group, Italy's national electric company, during a signing ceremony in Baku September 19, 2013.
Azerbaijan signed contracts on Thursday to supply European buyers with gas, offering an alternative supply source to Russia towards the end of the decade.

Moscow has increased its diplomatic efforts to bring oil- and gas-rich Azerbaijan closer to its orbit as Russian President Vladimir Putin has been keen to restore influence over former Soviet republics.

However, his trip to Azerbaijan last month yielded few results, dashing Moscow's hopes of challenging the dominance of Western energy giants there.

Earlier this year, Azeri state oil company SOCAR and partners, including BP and Statoil, selected the Trans Adriatic Pipeline (TAP) for potential gas deliveries to Europe, following more than a decade of planning, dealing a blow to Russia's aspiration for tighter control over gas routes.

SOCAR said on Thursday that buyers of Azeri gas from its Shah Deniz II project are Shell, Bulgargas, Gas Natural Fenosa, Greek DEPA, Germany's E.ON, French GDF Suez, Italian regional utility Hera Trading, Swiss AXPO and Italian Enel.

‘Groundbreaking’ move

“It is a groundbreaking contract as it secures supplies to Europe from a new supply region for decades at conditions reflecting European gas markets,” Christopher Delbruck, the newly appointed CEO of E.ON Global Commodities SE, said in a statement.

He added that E.ON's contract with SOCAR spans 25 years during which the company will get 40 billion cubic meters (bcm) of gas.

European buyers have struggled to find alternatives to Russia's gas producer Gazprom, whose contracts link prices to oil, generally making it expensive compared to the spot market.

Gazprom covers a quarter of Europe's gas needs with over 150 bcm of its exports a year. In response to Europe's quest for Caspian supply, Gazprom proposed its $39 billion South Stream project which would pipe gas to northeast Italy through the Black Sea starting from the end of 2015

Italy to get lion’s share

Shah Deniz is expected from around 2019 to feed 16 bcm of gas per year to Europe, with 10 bcm earmarked for Europe and six bcm for Turkey.

Half of the gas is destined for Italy, a SOCAR official said.

“Around eight billion cubic meters of gas will be shipped to the Italian market, where European buyers will be getting it for their facilities in the country [Italy],” Elshad Nasirov, SOCAR's vice president, told reporters.

Two years ago, the consortium expected around 40 bcm per year of demand for its gas, but more realistic buyer demands had reduced the figure, BP's Vice President of Shah Deniz Development, Al Cook, told Reuters in March.

SOCAR will act as an operator of sales from Shah Deniz II. Statoil is a sale operator from Shah Deniz I.