EurasiaNet Business & Economics - Caspian Pipeline Construction Efforts Move Forward

BUSINESS & ECONOMICS

CASPIAN PIPELINE CONSTRUCTION EFFORTS MOVE FORWARD

Ariel Cohen 3/22/02

Efforts to build Caspian Basin export routes are continuing, even as the littoral states wrangle over control of the region’s abundant natural resources.

A major priority for the United States is the construction of a pipeline from Azerbaijan, via Georgia, to Turkey - known colloquially as the Baku-Tbilisi-Ceyhan route. Zeki Cakan, Turkey’s Minister of Energy and Natural Resources, visited Washington in mid March to firm up the US government’s commitment to pipeline construction.

A consortium led by the international major British Petroleum is wrapping up the Detailed Engineering Phase of the construction, which is scheduled for completion by mid-June. In July 2002, the consortium expects to begin land acquisition and construction of the 1,730-kilometer (over 1,000 miles) pipeline, including the Turkish section of 1,070 kilometers. The pipeline’s projected completion date is now 2005. The project is estimated to cost $2.9 billion. Turkey has promised to cover $1.4 billion - the costs of construction on its territory. Ankara hopes to recoup its investment by charging transit tariffs.

The BP-led consortium will seek 70 percent of the funding from international financial organizations, including the European Bank for Reconstruction and Development (EBRD) and the International Finance Corporation (IFC), which is the private financing arm of the World Bank. US government support for the project is viewed as crucial for the ultimate success of the venture, given the high level of expected international organization financing.

In Washington, Cakan confirmed that a natural gas pipeline from the Azerbaijani field of Shah Deniz would be built along the Baku-Ceyhan oil route. Thus, the gas project will capitalize on costly engineering work performed for the oil route. The gas pipeline capacity is expected to be 6.6 billion cubic meters a year. As Turkey already plans to receive large quantities of natural gas through the Blue Stream pipeline from Russia - a pipeline which is supposed to cross the Black Sea - Ankara will try to sell the Azerbaijani gas to third countries, possibly including Israel. Turkey’s main contractor for the project will be BOTASH, the national gas company.

The Baku-Ceyhan pipeline is particularly attractive for Turkey as it will reduce tanker traffic in the congested Bosphorus. The pipeline, at its peak capacity of 50 million metric tons a year, should replace 500 large tanker-runs per year.

The pipeline will provide the main export route for oil found at the Caspian Sea shelf off Azerbaijan. In addition, talks are being conducted between the international major ChevronTexaco and the Baku-Ceyhan consortium to allow shipping of some Kazakhstani oil through the pipeline in the future.

Today, oil from the vast Tengiz field is pumped by the Caspian Pipeline Consortium (CPC) route to the Russian port of Novorossiisk. However, other major finds in Kazakhstan, such as the giant Kashagan field, have few outlets to the global markets. The Russian major Lukoil is reportedly also interested to join the Baku-Ceyhan project.

In the background there is fast-growing Yukos, the second largest Russian oil company, which aggressively competes with Lukoil in the regional markets. Yukos may be interested in stepping into the Baku-Ceyhan project if talks with Lukoil fail.

Russian participation in the pipeline project, which bypasses Russia, became possible only recently, when policy-makers in Moscow, who had opposed the Azerbaijan-Georgia-Turkey route in the past, altered their position. [For background see EurasiaNet’s economics archive].

In a new development, Giorgi Chanturia, President of the Georgian International Oil Corporation, has suggested construction of a pipeline from the Russian port of Novorossiisk via the port of Supsa to the Turkish Georgian border.

Recent developments are encouraging for Turkey. Lukoil and Yukos interest indicates that Russia will no longer oppose the project, and provides a buy-in from important players with clout in Moscow. In addition, Turkish officials and executives interpret the deployment of American military advisors in Georgia as a US security commitment to Baku-Ceyhan. [For additional information see the Eurasia Insight archives].

Turkey itself is intent on making considerable investments in increasing Caspian Basin security. The Turkish government is not only is providing substantial assistance to the Georgian and Azerbaijani military establishments, it also has started aiding the Uzbek military. In 2001, Turkey provided $1.5 million in equipment to Uzbekistan. Turkish instructors also trained the Uzbek military in counter-terrorism/counter-insurgency tactics. Turkish military officials say assistance will be ongoing in 2002. Col. Faruk Sengun, the Turkish military attaché to Tashkent, said: "Turkey has suffered much from terrorism. We have decided to help Uzbekistan because we do not want our brothers to suffer from the same," the Anatolia news agency reported.

Editor�s Note: Ariel Cohen, Ph.D., is Research Fellow at The Heritage Foundation and the author of "Russian Imperialism: Development and Crisis" (Praeger/Greenwood, 1998).

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