Edinburgh (Platts)--28Jan2013/624 am EST/1124 GMT

Azerbaijan has agreed to extend the production sharing agreement for the giant Shah Deniz gas field for a further five years to 2036, enabling the BP-led consortium to lengthen the payback period from 13 to 18 years for its $20 billion investment in the second phase of the field, a senior Azerbaijani official told Platts Monday.

Elshad Nassirov, vice president of Azerbaijan's state oil company Socar, said that BP, Socar and their partners at Shah Deniz would sign a final investment decision for the giant second phase, intended to take production from 9 billion cubic meters/year to 25 Bcm/year, in October.

BP's vice president for Shah Deniz Development, Al Cook, said last week that first production from Shah Deniz 2, previously set for 2017, would now take place in 2018.

The original PSA, signed in 1996, was due to expire in 2031. Shah Deniz 2 is the centrepiece of a whole raft of interlocking projects whose total value is put by BP at $40 billion-$45 billion.

These include a massive expansion to the existing South Caucasus Pipeline from the Shah Deniz processing facilities at Sangachal near Baku to the Turkish-Georgian border; the planned TANAP pipeline from across Turkey from the border with Georgia to either its border with Greece or Bulgaria; and either the planned Trans-Adriatic Pipeline from the Greek-Turkish border to southern Italy or its great rival, the Nabucco West project, to run from the Turkish-Bulgarian border to the Baumgarten gas hub in Austria.

Shah Deniz 2 is intended to produce around 16 Bcm/year of gas, although the delay in initial production almost certainly means such a level will not be reached until 2020 at the earliest.

The aim is to carry 10 Bcm/year to European customers and 6 Bcm/year to Turkey.

The existing Shah Deniz Phase One project currently produces close to 8 Bcm/year and is expected to plateau out at around 9 Bcm/year.

--John Roberts, john_roberts@platts.com --Edited by Jonathan Fox, jonathan_fox@platts.com