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Saturday, December 30, 2006

Shah Deniz gas field halts production after leak

26 December 2006 - Reuters - Azerbaijan's Shah Deniz gas field has halted production due to a leak, just after its launch by operators BP and Norway's Statoil this month, Azeri state energy firm SOCAR said on Tuesday. The news is second major setback for BP in less than a month as the oil major was forced to cut oil production at the neighbouring Caspian Sea oilfield due to technical problems and reduce exports via a giant pipeline to Turkey. The gas production halt will also further reduce chances of neighbouring Georgia getting bigger volumes from Baku to cut its reliance on Russia amid a gas pricing dispute with Moscow. "A gas leak was discovered on the first well ... Works have been halted and the problem is not expected to be resolved before January," SOCAR's first deputy head Khoshbakht Yusifzade told reporters. Yusifzade said the leak had been discovered last week some 800-900 metres deep in the well, which was expected to pump 5.6 million cubic metres of gas and 2,500 tonnes of gas condensate a day. It was the only well pumping gas from the field while more wells should be drilled next year. SOCAR's President Rovnag Abdullayev said the first well should resume production within 20 days or around mid-January. Industry sources have said BP cut oil output by around 40 percent to 400,000 barrels a day at the giant Caspian Sea oil deposit called Azeri-Chirag-Guneshli or ACG, from early December. BP said production was back to normal on Dec. 13. The $4 billion Shah Deniz project began commercial production on Dec. 15. The bulk of gas is due to be exported to Turkey via the territory of Georgia. Georgia needs 1.8 bcm a year and has been previously buying all of it from Russia at $110 per 1,000 cubic metres. Last week, Russia's gas monopoly Gazprom said Georgia agreed to buy 1.1 bcm of gas in 2007 at $235. Georgia hopes to buy gas from Azerbaijan at $110-$120 from the second half of 2007 if Azerbaijan and Turkey agree to allow it to bite into their quotas. Turkey confirmed on Tuesday the deal has yet to be reached to cede a part of its Shah Deniz quota to Georgia and it might be concluded in one week. It said it expected to receive its first gas from the field in July. Shah Deniz has reserves of over 1 trillion cubic metres of gas and is expected to produce 8.4 billion cubic metres of gas after it reaches peak production by 2009. Shah Deniz's other shareholders are Russia's LUKOIL, France's Total and the Iranian and Turkish state oil firms.

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