MANILA, PHILIPPINES (7 December 2016) – The Asian Development Bank (ADB) will provide $1 billion in private and public sector assistance to expand Azerbaijan’s Shah Deniz II, one of the world’s largest gas fields. 

The assistance comprises a $500 million private sector loan to the Southern Gas Corridor Closed Joint Stock Company (SGC) and a $500 million sovereign-counterguaranteed partial credit guarantee. The guarantee will back $526 million in commercial loans made by a consortium of international banks to SGC, which is 51% owned by the Azerbaijan government and 49% by the State Oil Company of the Azerbaijan Republic.

The ADB assistance will provide additional revenues that the government can direct to social spending and to continued efforts to diversify the hydrocarbon-dependent Azerbaijan economy. 

“ADB, through its private sector window, has already demonstrated strong support to the Shah Deniz gas field expansion through its direct assistance to this project in 2015,” said Michael Barrow, Director General of ADB’s Private Sector Operations Department. “The proposed assistance to Southern Gas Corridor is a continued testament to ADB’s belief in the development impact of this important project, and the importance of crowding in commercial capital to support Azerbaijan’s funding needs for the project.”

“The expansion of the Shah Deniz gas field is key for Azerbaijan’s economy, providing the country a long-term revenue stream and diversifying its gas exports to Europe,” said Sean O’Sullivan, ADB Director General for Central and West Asia Department. “ADB’s support will help generate economic opportunities for the private sector, create thousands of jobs, and help boost Azerbaijan’s ties with neighboring countries and Europe.”

Shah Deniz is located offshore in the Caspian Sea, about 70 kilometers from Azerbaijan’s capital, Baku. The field’s annual gas production capacity is expected to increase from about 10 billion cubic meters (bcm) to 26 bcm. The additional gas will be exported through a chain of pipelines — called the Southern Gas Corridor — via Georgia and Turkey on to Greece, Albania, and Italy from where it can reach wider Europe. This is the first step in creating an alternative for gas deliveries to Europe from the Caspian region.

The total cost of the Shah Deniz II expansion project, being developed by a consortium of companies, is expected to top $26 billion. BP will build and operate the project facilities. Production from the project is expected to begin in 2018, and will help provide employment for over 19,000 workers through the construction phase, and create 1,800 permanent jobs.

ADB’s participation is expected to play a leading catalytic role in the country, facilitating increased large-scale, long-term commercial financing from international banks to participate in this and upcoming projects. ADB will help further improve corporate governance and transparency in the oil and gas sector in the country, while encouraging the government in its efforts to reinstate its compliant status with the Extractive Industries Transparency Initiative. 

In 2015, ADB approved a $475 million loan facility for Lukoil Overseas Shah Deniz to partly fund its share of the Shah Deniz gas field expansion. 

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, ADB in December 2016 will mark 50 years of development partnership in Asia. It is owned by 67 members—48 from the region. In 2015, ADB assistance totaled $27.2 billion, including cofinancing of $10.7 billion.

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