Azerbaijan’s Star rising in Turkey

by David O'Byrne

Turkey and Azerbaijan have further cemented their close relations with the signing of a $3.29bn credit agreement for the Turkish subsidiary of Azeri state oil company Socar, for the construction of a 10bn tonnes a year oil refinery to be constructed at Aliaga on Turkey’s Aegean coast.

The credit package, formally agreed on Friday, is both the largest single project finance agreement in Turkish history and, at 18 years, the deal with the longest maturity to date.

It is also the most diverse, involving no fewer than 23 international financial institutions, including Santander, BNP Paribas, Deutsche Bank, Unicredit and Société Générale as well as the Exim banks of the US, Japan, Canada, Spain and Italy.

Socar will contribute a further $2.4bn to the $5.69bn project, of which around $800m has already been invested.

The Socar Turkey Aegean Refinery, or Star, will be constructed by a consortium of Tecnicas Reunidas of Spain, Saipem of Italy, GS Engineering & Construction of South Korea and Itochu of Japan.

It is the latest example of an increasingly close economic relationship between Turkey and its eastern neighbour Azerbaijan and comes only a week after the signing of agreements for TPAO, Turkey’s state oil company, to buy Total’s 10 per cent stake in Azerbaijan’s Shah Deniz gas field and for Botas, Turkey’s state gas transit company, to take a 30 per cent stake in the Azeri-Turkish Trans Anatolian gas Pipeline (Tanap) to carry gas from Shah Deniz to Europe.

Speaking at Friday’s signing ceremony, Taner Yildiz, Turky’s energy minister, noted that with the Star refinery the total investment in oil and gas sector projects involving the two countries was expected to rise to around $45bn by 2018.

Star is far from the only example of Azeri investment in Turkey’s downstream oil sector. When operational in 2018, it is slated to supply the adjacent Petkim petrochemical plant, itself 61 per cent owned by Socar, with 1.3m tonnes a year of naphtha feedstock, saving the company as much as $100m a year.

The bulk of the rest of the refinery’s output, including 4.95m tonnes a year of low sulphur diesel, are destined for the Turkish market. That should help reduce Turkey’s import dependency and may cut as much as $2.5bn from the government’s current account deficit in the process.

Also speaking at the signing Shahin Mustafayev, Azerbaijan’s development minister, noted that Turkey is his country’s main trading partner, with more than 1,000 Turkish companies active in Azerbaijan, a figure he said could only increase.

Cooperation between the two countries is set to deepen further with the development of the 31bn cubic metre a year Tanap gas pipeline, which will run nearly 2,000 km across Turkey to its border with Greece. From there it will connect to the 20bn cu m/yr Trans Adriatic Pipeline or TAP project being developed by a consortium of Socar, BP, Statoil, Fluxys, Total and E.ON, which will carry gas through Greece and Albania and across the Adriatic to Italy.

Reports last week quoted Socar officials as saying that Total and E.ON were looking to leave the consortium, a move which if confirmed could open the road for Botas to join, further extending Turkish-Azeri energy cooperation into Europe.

(http://blogs.ft.com)

Bakudaily.az