BP’s Caspian gas project costs expected to increase 28 percent to $4.1 billion

BP said in mid-March that the estimated cost of stage one of its natural gas project in the Caspian Sea has risen 28 percent to $4.1 billion.

BP-operated Shah Deniz – also known as the Baku-Tbilisi-Erzerum gas pipeline project – is scheduled to starting shipping gas via Georgia to Turkey in late 2006. It was originally budgeted at $3.2 billion. But at a press conference BP Azerbaijan Vice President Robert Kelley said that the weak dollar, wage increases, inflation as a result of high oil prices, and problems with the original design of Shah Deniz have bumped up the costs. Earlier in March, Kelley had told reporters that BP would try to limit the cost overruns to 25 percent.

Kelley said final numbers will be released March 31 during a shareholders meeting.

Investment in the Caspian Sea gas project is expected to reach $1.3 billion in 2005. BP has a 25.5 percent stake in the consortium that has the license to develop the field, which involves building a 420 mile pipeline from Azerbaijan to eastern Turkey.

The pipeline, which is half completed, is expected to carry 231 billion cubic feet of gas per year when it reaches capacity.

The project is part of the much broader BP-led oil and gas development project in the region, which also includes the Baku-Tbilisi-Ceyhan (BTC) Main Export Oil Pipeline Project.

Other members of the Shah Deniz consortium include Statoil ASA, Socar (Azerbaijan’s state oil company), Lukoil, National Iranian Oil Co., Total SA and Turkey’s TPAO.

—Petroleum News