Multilateral banks and a syndicate of commercial banks have arranged a US$1bn financing package for the development of the Shah Deniz stage II, a gas field project in Azerbaijan powering the Southern Gas Corridor from the Caspian Sea to Europe.

The European Bank for Reconstruction and Development (EBRD) and the Asian Development Bank (ADB) will each lend US$250mn to the project on their own accounts (A-loans) and Black Sea Trade and Development Bank (BSTDB) will provide a US$60mn parallel A-loan alongside the EBRD and ADB.

The remaining financing will be provided by Bank of China, ING, Société Générale and UniCredit, under the EBRD/ADB B-loan umbrella. One more commercial bank is expected to join the syndicate at a later stage to complete the financing.

The financing will be extended to Lukoil Overseas Shah Deniz, a subsidiary of Lukoil, which has a 10% interest in the Shah Deniz II gas field. Shah Deniz II’s development is operated by consortium of companies including BP, TPAO, Petronas, SOCAR, Lukoil, NICO and SGC, and the estimated total cost is around US$47bn. BP will build and operate the project facilities.

Not to be confused with Gazprom’s Southern Corridor, the Southern Gas Corridor will help diversify Europe’s energy supply and reduce its energy dependency on Russia. The pipeline’s network starts from the Caspian Sea in Azerbaijan, crosses into Georgia (extending the existing South Caucasus pipeline), and Turkey through the Trans-Anatolian pipeline, to arrive via the Trans-Adriatic pipeline in Greece, Albania and Italy, from where the gas can reach the rest of the continent.

“This project is one of the EU’s highest priorities for the energy sector. It is key for energy security because it diversifies routes and sources of gas supply,” says Riccardo Puliti, EBRD managing director for energy and natural resources. “It helps cut carbon emissions by providing a bridge fuel for renewables and replacing coal. The project will also be a very big step towards the market-based hub pricing for gas which will bring Europe closer to a common gas market.”

“Supporting regional co-operation and energy efficiency in the Black Sea region are strategic priorities for BSTDB. We are happy to contribute to this project demonstrating strengthened synergies among development partners to foster sustainable growth in our member countries,” adds Igor Leshukov, BSTDB vice-president, banking.

Production from the project is expected to begin in 2018 and will help provide jobs for over 16,000 people through to 2022.