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. Last Updated: 07/27/2016

Azerbaijan Takes On Gazprom in Europe

Natural gas from Azerbaijan will soon reach Europe as the former Soviet state tries to compete with Gazprom for market share, the country's president said.

Statoil, Norway's top oil company, is the operator of the $3.2 billion Shah Deniz field, which may hold 1 trillion cubic meters of gas, enough to supply western Europe for two years. Statoil and BP, Total, Eni and LUKoil, all partners in the field, plan to ship gas to Turkey, Greece and other European states.

"Azerbaijani gas will be soon delivered to Europe," Azerbaijan's President Ilham Aliyev said in an interview. "Azerbaijan will become an additional and reliable supplier to European consumers."

Azerbaijan may take market share from Gazprom, which ships about a quarter of the gas Europe consumes because it is closer and it will have lower transport costs, Aliyev said. Gazprom said it will make at least $16.5 billion from fuel exports this year.

State Oil Co. of Azerbaijan holds a 10 percent stake in the Shah Deniz field. The project partners plan to lay a pipeline to Turkey through Georgia to ship the first gas in 2006.

OMV, Austria's largest oil company; Mol, Hungary's largest oil and gas company; and Botas, Turkey's gas shipping company, have set up a unit to evaluate building the pipeline, the partners said this month. They expect to complete the study by the end of the year. The pipeline itself may be built by 2009.

Aliyev also weighed into a tax dispute with LUKoil, saying international experts should rule whether Russia's top oil producer has to pay additional taxes in Azerbaijan after the company sold its stake in the BP-led exploration venture.

The Azerbaijan Tax Ministry claims LUKoil still owes as much as $200 million in taxes after selling 10 percent of Azerbaijan International Operating Co., which is developing three fields in the Caspian Sea, according to Aliyev. LUKoil sold its stake in the project in 2002 to Inpex Corp., a unit of Japan National Oil Corp., for $1.35 billion.

"There is a provision on the first production-sharing agreement signed in 1994 about assignment of the share from one owner to a new owner," Aliyev said. "The way that it's put in the contract is the peculiar way. You can treat it is as you like, therefore international expertise is needed to clarify it."

LUKoil, which still holds stakes in three more exploration projects in Azerbaijan, plans to quit projects where it does not have a controlling stake to improve efficiency and cut costs. It plans to raise crude pumping by as much as 7 percent to 1.7 million barrels per day this year.

LUKoil spokesman Dmitry Dolgov refused to comment on the tax issue.

AIOC is developing the Azeri-Chirag-Gunashli offshore oil fields in Azerbaijan.