Issue 1, 2015. February-March

   

BP COUNTRY HEAD: GEORGIA IS OFF TO A "RUNNING START" ON SHAH DENIZ PROJECT

An interview with BP's country manager, Chris Schlueter, about the Shah Deniz project and the impact of oil prices on BP's investment in Georgia.

Heather Yundt

As oil prices drop to the lowest levels since 2009, multinational energy companies — including BP — are scaling back. But the head of BP in Georgia says the project that makes up Georgia's largest private foreign investment will not be affected. and its existing operations in country will continue to operate full-scale.

"Yes, a decrease in the oil prices in to the forties affects [BP in Georgia], but it does not change our course at all in terms of what we operate here and how we operate," Chris Schlueter told Investor.ge. "In fact, our job is to keep the pipelines coming through Georgia running efficiently, reliably and safely, and there's nothing that changes about that."

"Like everywhere in the company, we have to tighten our belts a bit and make our choices about, 'Well, should we do this investment this year or next year?' on those things we've got choices on. You rethink some of your projects."

But not the Shah Deniz project. The Shah Deniz, a gas reservoir in the Caspian Sea the size of Manhattan Island, is one of the largest gas discoveries ever made by BP. The massive Shah Deniz project, now in its second stage, involves a nearly $45 billion investment to build the infrastructure to extract the gas and transport it along what's known as the Southern Corridor through Azerbaijan, Georgia and Turkey to Europe. Project planners estimate gas will begin to reach Turkey in late 2018 and Europe in late 2019 or early 2020. BP calls the project one of the most complex endeavors ever taken on by the oil and gas industry.

Schlueter, who took on the role of BP's Head of Country last year, said Georgia is now "off to a running start" on its part of the project, referred to as the South Caucasus Pipeline Expansion or SCPX.

"Whereas a year ago the project was all signatures and ceremony, we're now physically very busy in the country and will be for the next four years," he said. Georgia's SCPX part of the international project includes building a second pipeline along an existing corridor 62 kilometers inland from the Azerbaijani border, two compressor stations that will use their jet-engine force to boost the pressure of gas flowing through the existing pipeline and additional connections and metering for higher gas flows to Turkey and additional gas offtake for Georgia.

Like oil, natural gas prices have also recently fallen, though less dramatically. But gas, Schlueter stressed, is fundamentally different than oil. Big gas projects are based on long-term, not on today's prices.

"Gas is different. Gas is on demand. This project is justified from gas to be sold based on contracts that are already signed."

Europe's demand for gas continues to increase at the same time as domestic production decreases, he said, leaving the continent in need of other sources.

BP has signed a production-sharing agreement for the Shah Deniz that lasts until 2048, as well as 25-year-long gas contracts with 11 companies in seven countries. That long-term scope of the project, Schleuter said, protects it from the current low price of gas and short-term volatilities.

Russia's south stream

In January, Russian-owned Gazprom confirmed the cancellation of its controversial South Stream pipeline, which would have brought gas to Europe via the Black Sea.

Instead, the company announced it would opt to route the gas through Turkey instead. Despite this, Schlueter says the Shah Deniz project, including SCPX in Georgia, will remain on track as planned.

"There are so many different sources of inputs into energy in Europe and elsewhere in the world, and we're just one of those," he said. "Our project stays on course as scoped. It doesn't change."

While the Southern Corridor investment was justified and sanctioned solely on gas from the Shah Deniz, as with all resevoirs, supply from Shah Deniz will eventually lessen over time, Schlueter is confident that the pipeline could be used to carry gas from other locations in the future.

"When you build something as significant as this, which is a true new energy corridor for this part of the world, the chances are that just like the [Baku-Tbilisi-Ceyhan] pipeline for the oil, if you build it, they will come."

And that long-term investment, he said, will have a long-term positive impact on Georgia.

Schlueter points to a list of sustainable development projects BP has financed, which includes grants to individuals in communities along the pipeline to craft business plans and start businesses.

BP is also spending 20% of its SCPX Project capital expenditures on local goods and services. As BP operates according to international standards, the company's local contractors are required to boost their own standards, bringing up Georgia's standards overall.

The SCPX project is expected to create about 2,000 jobs in Georgia when construction reaches its peak in 2016. In addition, of the more than 500 BP employees involved in current operations, about 96% are Georgian nationals.

"We're heavily nationalized, which we're proud of," Schlueter said. "In Georgia, I think we have gotten there due to the caliber and the capability of the workers and the quality of employment that we offer. People rise to the challenge working for this company."

BP has operated in Georgia for nearly 20 years and has two oil pipelines and one natural gas line crossing the country. Schlueter said he's "tickled" to be in Georgia at a time when existing operations and a proven track record have led to strong community and government support and with the massive new SCPX project underway.

"We've earned the right [to build this new project] because people know how we operate; they know it's going to be a good-quality, safe, environmentally and socially responsible operation. Our proven track record demonstrates that we are not just coming in. We're actually going to improve things."

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