By Dmitry Zhdannikov
DAVOS, Switzerland, Jan 25 (Reuters) - Azerbaijan hasextended the production sharing agreement (PSA) behind the ShahDeniz gas project for an extra five years, a top official saidon Friday, in a signal of improving relations with the operator,Britain's BP.
Azerbaijan's biggest gas field and one of the largest in theworld began producing gas in 2006 and has a production capacityof 8 billion cubic metres a year from its first phase. Itssecond phase is expected to start production in 2018 and reachanother 16 bcm in annual output.
"We have agreed to extend the Shah Deniz PSA from 2031 to2036, and the Shah Deniz partners will now proceed with phase2", Elshad Nassirov, vice president of the Azeri state oilcompany SOCAR, told Reuters in Davos.
Relations between Azerbaijan and BP soured last year overfalling output at the BP-operated Azeri, Chirag and Guneshli(ACG) oilfields - output that is crucial to Azerbaijan'seconomy.
BP Chief Executive Bob Dudley visited Azerbaijan in Decemberto try to repair relations after Azeri President Ilham Aliyevaccused the company of making "false promises".
Nassirov said talks about an extension of the ACG productionsharing agreement beyond 2024 were continuing.
The partners in the Shah Deniz gas project aim to ship Azerigas by a new pipeline to Europe, reducing its dependence onRussia for energy supplies. BP said this week it was targeting2018 as the phase 2 start date.
"There is (a) green light for the building of the pipelinefor phase 2," Nassirov added in a reference to the pipelinestage as far as Turkey.
Beyond Turkey, Shah Deniz partners BP, Statoil,Total and SOCAR are set to choose by mid-2013 whetherto transport via the Nabucco-West pipeline into Austria or therival Trans-Adriatic pipeline (TAP) into Italy.
TAP's partners are EGL AG of Switzerland with 42.5 percent,Statoil with the same sized stake, and Germany's E.ON RuhrgasEONGn.DE with 15 percent.
Nabucco's six equal partners are Austria's OMV AG,Germany's RWE AG, Hungary's MOL through itsgas pipeline operator FGSZ, Turkey's Botas, BEH of Bulgaria andRomania's Transgaz.
The Shah Deniz group has options to take a 50 percentinterest in each of the two projects.