The consortium developing Azerbaijan's Shah Deniz gas field will go ahead with the Front End Engineering and Design (FEED) phase of the estimated $25 billion stage II project, operator BP said on Tuesday.

The decision was announced at a meeting between Azeri President Ilham Aliyev and BP chief executive Bob Dudley in the Azeri capital of Baku.

We are pleased to announce this major step forward, said Rashid Javanshir, BP's president for Azerbaijan, Georgia and Turkey. Engineering studies, commercial agreements and the support of the state of Azerbaijan and other governments give the Shah Deniz consortium the confidence to embark upon this FEED phase. .

Shah Deniz, being developed by BP, Statoil and Azeri state energy company SOCAR, is estimated to contain 1.2 trillion cubic metres of gas, which European companies hope can supply them for decades, cutting their dependence on Russia.

Production was launched in 2006, with the second phase expected to start by the end of 2017. The project's second phase is set to produce 16 billion cubic metres (bcm) of gas per year.

Selection of the export route from Shah Deniz II is to be made by the consortium during this stage, when engineering studies will be refined, further wells will be drilled, commercial agreements will be finalised and key construction contracts will start, BP said.

The Shah Deniz consortium will make a final route selection in 2013, it said.

The Nabucco and Trans Adriatic Pipeline (TAP) consortia are vying to build the infrastructure to carry gas to Europe from the second phase of Azerbaijan's Shah Deniz gas field.

One more option is the South East Europe Pipeline from Turkey to the Romania-Hungary border, a route proposed by BP days before a deadline for consortia to submit bids in October last year.

(Writing by Margarita Antidze in Tbilisi; Editing by Hans-Juergen Peters)