UPDATE 1-AZERBAIJAN SAYS STILL WORKING WITH TURKEY ON GAS DEAL
Afet Mehtiyeva

Reuters
May 17 2010

BAKU, May 17 (Reuters) – Azerbaijan said on Monday it was still
working with Turkey on the technical details of a long-awaited gas
supply deal that could unlock Azeri gas reserves for the West.

The two sides were expected to sign the agreement on Monday, during
a visit by Turkish Prime Minister Tayyip Erdogan. He said it could
be signed when Azeri President Ilham Aliyev visits Turkey, without
specifying when.

"We discussed all issues related to gas transit with Turkey last
month. Technical work for signing these documents is ongoing," Aliyev
said after meeting Erdogan.

The deal on gas supply and transit, two years in the making, could
help unlock Azeri gas reserves for the West — in particular the
troubled 7.9 billion euro ($9.74 billion) Nabucco project — and
eventually trim Europe’s energy dependence on Russia.

Negotiations have been complicated by political tensions between
the Muslim allies over a bid by Turkey and Christian Armenia —
Azerbaijan’s enemy in the conflict over rebel Nagorno-Karabakh —
to bury a century of hostility and mend ties.

The rapprochement collapsed last month.

Precise details of the gas deal are unknown but it is expected to at
least resolve pricing differences over 6 billion cubic metres of gas
Azerbaijan currently sells to Turkey.

Analysts say it could trigger commercial talks on volumes from the
second phase of production at Azerbaijan’s Shah Deniz deposit in the
Caspian Sea, operated by BP (BP.L) and Statoil (STL.OL) and due to
come online by 2017.

Azerbaijan says it has agreed in principle on volumes Turkey would
receive from Shah Deniz II, which will produce an additional 16 billion
cubic metres per year on top of the current 9-10 bcm from Shah Deniz I.

Turkey has requested 6-7 bcm of gas from the second phase.

That would free up volumes of gas to flow to Nabucco, albeit at
a fraction of Russian current gas exports of 150 bcm. The Nabucco
project would nevertheless mark an important step toward cutting
dependence on Moscow, which supplies a quarter of the EU’s gas imports.

Nabucco aims to transport up to 31 bcm of gas annually from the Caspian
region to an Austrian hub via Bulgaria, Romania, Turkey and Hungary.

But it faces competition from Russia’s South Stream project, which
is due to start construction in 2012. Nabucco has been hit by delays
and problems in pinning down supplies. (Writing by Thomas Grove and
Matt Robinson; Editing by Sue Thomas).