Lukoil Receives $1b Loan for Shah Deniz Project

Lukoil Receives $1b Loan for Shah Deniz Project

The Asian Development Bank and the European Bank for Reconstruction and Development, with the participation of the Black Sea Trade and Development Bank, are arranging a financing package of $1 billion for a landmark offshore natural gas field project in Azerbaijan, Shah Deniz stage II, that is crucial for energy security and a common gas market in Europe.

The development of the gas field will bring gas to South Eastern Europe, a region substantially dependent on coal and on gas from a single source of supply. The gas will be transported through a chain of pipelines—including the South Caucasus Pipeline that will be extended under the project—as well as through the planned Trans-Anatolian and Trans-Adriatic pipelines.

This network of pipelines will transport the gas from Azerbaijan via Georgia and Turkey to Greece and Bulgaria, and on to Italy, from where it can reach wider Europe.

“This project is one of EU’s highest priorities for the energy sector. It is key for energy security because it diversifies routes and sources of gas supply,” EBRD managing director for energy and natural resources, Riccardo Puliti, was quoted by Azer News as saying.

“It helps cut carbon emissions by providing a bridge fuel for renewables and replacing coal. The project will also be a very big step towards the market-based, hub pricing for gas which will bring Europe closer to a common gas market.”

The financing will be extended to Lukoil Overseas Shah Deniz Ltd, a subsidiary of Lukoil, which has a 10% interest in the Shah Deniz II gas field.

EBRD and ADB will each lend $250 million to the project on their own accounts (A-loans), and BSTDB will provide a $60 million parallel A-loan alongside EBRD and ADB. The remainder of the financing will be provided by a group of commercial lenders. One more commercial bank will join the syndicate at a later stage to complete the financing.

The total cost of the Shah Deniz II development by the operating consortium of companies (BP, TPAO, Petronas, SOCAR, Lukoil, NICO and SGC) is expected to top $47 billion.

BP will build and operate the project facilities. Production from the project is expected to begin in 2018 and will help provide jobs for over 16,000 people through to 2022.

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