* Decision crucial for Europe to cut dependence on Russia
* EU Commission says route could carry a fifth of EU needs
* Statoil reduces stake in Shah Deniz II to 15.5 pct
* Sells 10 percent to SOCAR and BP for $1.45 bln
* Shah Deniz consortium and SOCAR extend contract up to 2048
By Nailia Bagirova
BAKU, Dec 17 (Reuters) - Backers of Azerbaijan's Shah DenizII gas project signed a final investment decision on Tuesday,scaling up its status as an alternative gas transit route toEurope as the continent tries to wean itself off Russian energysupplies.
Azeri President Ilham Aliyev told a ceremony in the capitalBaku that the project extension "will change the energy map ofour region and help the historical development of our country".
The European Commission said the decision to go ahead withenlargement of the scheme could see it supplying 20 percent ofEuropean Union needs in the long term.
Gas shipments via Ukraine have been a focus of EU andRussian anxiety for years and especially since 2009, when apricing dispute with Russia led to a cut-off of gas supplies toEU customers.
Since then, Europe has sought new suppliers and to bringUkraine into its orbit, while Russia has fought to retain itsinfluence over Kiev and to build alternative supply routes tosafeguard deliveries to its European customers.
Russian President Vladimir Putin on Tuesday threw Ukraine aneconomic lifeline, agreeing to buy $15 billion of Ukrainian debtand to reduce the price of Russian gas supplies to Ukraine byabout a third.
The documents signed in Baku include an investment decisionon Shah Deniz II, as well as the Trans-Anatolian (TANAP) andTrans-Adriatic (TAP) gas pipeline projects. Combined, theprojects will cost $35 billion, Aliyev said.
The field's proven gas reserves are estimated at 1.2trillion cubic meters of gas.
Project partner Statoil of Norway accompanied itsannouncement on the go-ahead with news it would reduce its stakein the consortium to 15.5 percent from 25.5 percent.
Statoil's move will increase the ownership proportions ofthe remaining players and fits a trend among top oil companiesto rein in spending by focussing on fewer big projects.
Statoil will sell the 10 percent to operator BP andAzeri state energy firm SOCAR for $1.45 billion in cash.
"It's a very good price ... The price is three times bookvalue while Statoil shares are traded at 1.3 times book value,"said John Olaisen, an analyst at brokerage ABG Sundal Collier inOslo. Other analysts said investors would welcome the move.
The Shah Deniz consortium, which includes Total, confirmed the sale that envisages BP buying 3.3 percent andSOCAR 6.7 percent.
"Both of these transactions are subject to conditions thatare expected to be satisfied in 2014," the consortium said in astatement.
BP Azerbaijan and the consortium said SOCAR and its partnersin Shah Deniz II had agreed to extend terms for the project by12 years to 2048.
"The extension of the Shah Deniz production sharingagreement to 2048 ... means we can plan for the very long termand part of that planning means undertaking new exploration forthe future of Azerbaijan and future of Shah Deniz beyond stagetwo," Al Cook, BP's vice-president, told reporters.
From around 2019, Shah Deniz II is expected to supply 16billion cubic metres (bcm) per year to Europe, including 6 bcmfor Turkey.
For graphics of gas pipelines to Europe use the link below:
ALTERNATIVE TO RUSSIA
European buyers have struggled to find alternatives toRussian gas producer Gazprom, whose contracts linkprices to oil, generally making it expensive compared to thespot market.
Gazprom covers a quarter of Europe's gas needs, with morethan 150 bcm of exports a year. In response to Europe's questfor Caspian supply, Gazprom proposed its $39 billion SouthStream project, which would pipe gas to northeast Italy throughthe Black Sea starting at the end of 2015.
The European Commission has said it does not oppose Russia'splans to diversify supply routes, bypassing Ukraine, but saysthey have to conform with EU law and are far from doing so.
"Shah Deniz II and the Southern Corridor pipelines will notonly change the energy map, but will give customers in Europedirect access to the gas resources of Azerbaijan for the firsttime," Bob Dudley, BP's group chief executive, said at thesigning ceremony on Tuesday.
Earlier this year, SOCAR and partners including BP andStatoil selected the TAP for potential gas deliveries to Europeover its Austria-based rival Nabucco West.
TANAP will be built from the Turkish-Georgian border toTurkey's border with Europe, with its preliminary total costestimated at $20 billion.
Buyers of Azeri gas from Shah Deniz II are Shell,Bulgargas, Gas Natural Fenosa, Greek DEPA, Germany's E.ON, France's GDF Suez, Italian regional utilityHera Trading, Switzerland's AXPO and Italy'sEnel.
BP (BP.)
