EurasiaNet Business & Economics - BTC: Kazakhstan Finally Commits to the Pipeline

BUSINESS & ECONOMICS

BTC: KAZAKHSTAN FINALLY COMMITS TO THE PIPELINE
6/19/06

Kazakhstan has finally committed to shipping oil via the US-backed Baku-Tbilisi-Ceyhan (BTC) pipeline. Although hailed as "a significant historical event" by some officials, the initial level of Kazakhstan’s involvement will be modest. Meanwhile, Iran surprised regional observers by revealing a desire to ship oil via BTC. Experts are generally skeptical of the Iranian proposal, saying it is designed to relieve international pressure against Tehran.

Kazakhstani President Nursultan Nazarbayev and his Azerbaijani counterpart Ilham Aliyev signed a pipeline agreement on June 16 in Almaty. Aliyev was in Kazakhstan’s commercial capital to attend the Conference for Interaction and Confidence-Building Measures in Asia. A formal opening ceremony is now scheduled for July 13 at the Turkish terminal at Ceyhan. A Turkish Foreign Ministry statement asserted that Kazakhstan’s participation in BTC would strengthen regional security. "The BTC pipeline Project was a concrete example of cooperation in the Caucasian and Caspian region," the Turkish Foreign Ministry statement said.

Aliyev said the BTC agreement would serve as the foundation of a "model alliance" between Azerbaijan and Kazakhstan, the Trend news agency reported. "Now it [BTC] becomes a biggest oil pumping artery of the region," Aliyev stressed

Kazakhstan is expected to transport about 3 million tons of oil through the pipeline this year, according to news reports. The amount will rise to roughly 7.5 million tons over the medium term, and once the necessary infrastructure is in place and BTC’s capacity is expanded, Kazakhstan has pledged to transport 25 million tons of oil via BTC.

The agreement confirms Kazakhstan oft-stated desire to export energy via BTC. Nazarbayev earlier this year committed to ship upwards of 67 million tons of oil per year via a Russian-controlled pipeline. [For background see the Eurasia Insight archive].

Some experts believe significant Kazakhstani participation is needed to make the pipeline profitable. BTC has already started to deliver oil to western markets. [For background see the Eurasia Insight archive].

Alain Przybysz, a representative of the French energy conglomerate Total, estimated that it would cost upwards of $4 billion to prepare the necessary infrastructure -- including an 800-kilometer pipeline, as well as oil storage facilities -- to link Kazakhstani oil from the Kashagan field to the BTC export route. Despite the high costs, many experts believe it is worthwhile for Kazakhstan to participate in BTC. "Kazakhstan may save $5 per ton of oil switched from the Russian-backed KTK [Tengiz-Novorossiisk] pipeline to BTC," said Inglab Ahmadov, director of the Public Finances Monitoring Center (PFMC), a Baku-based non-governmental organization. [PFMC is supported by the Open Society Institute-Assistance Foundation Azerbaijan, which is affiliated with the Open Society Institute (OSI) in New York. EurasiaNet operates under OSI’s auspices]. .

A week before Kazakhstan committed to the pipeline, an Iranian official said Tehran wanted to explore the BTC export option. "We are currently exploring for oil in the southern Caspian [Sea]. Our relations with Azerbaijan have been developing so successfully that, if we get positive results in the southern Caspian, we could discuss the issue," Mahmoud Khagani, the Caspian Department chief of the Iranian Oil Ministry, told reporters in Baku on June 9. Khagani was in the Azerbaijani capital to attend an energy conference.

Khagani’s unexpected announcement was widely seen as politically motivated. Azerbaijan has found itself caught in the middle of the US-Iranian confrontation over Tehran’s nuclear research program. [For background see the Eurasia Insight archive]. Both the United States and Iran have expended considerable diplomatic resources to influence Azerbaijani President Ilham Aliyev’s administration. The prospect of Iranian oil flowing through BTC may be just an enticement for Azerbaijan to maintain a moderate political position toward Iran, some political analysts believe.

Skepticism pervades among Baku experts about Iran’s desire to follow-up on its BTC query. Ilham Shaban, editor of Turan-Energy, a regional oil & gas newsletter, said it is unlikely that the Iranian sector of the Caspian Sea possesses large oil reserves. "In mid-1990s six exploratory wells were drilled in the Iranian sector of the Caspian Sea. But they have brought no results. Then five exploratory wells were drilled in various places of southern part of Azerbaijani sector of the Caspian. Their analysis proved that there are either no hydrocarbon reserves in the southern section of the Caspian, or they are unprofitable from commercial viewpoint. That is why Khagani’s words should be considered as a political statement rather than realistic plan for the future," Shaban said in an interview with EurasiaNet.

Khagani’s main aim was to create the appearance that "Tehran is for cooperation in the Caspian Sea, and thus soften international pressure against Iran," Ilham Shaban added.

The Central Eurasia Project aims, through its website, meetings, papers, and grants, to foster a more informed debate about the social, political and economic developments of the Caucasus and Central Asia. It is a program of the Open Society Institute-New York. The Open Society Institute-New York is a private operating and grantmaking foundation that promotes the development of open societies around the world by supporting educational, social, and legal reform, and by encouraging alternative approaches to complex and controversial issues.

The views expressed in this publication do not necessarily represent the position of the Open Society Institute and are the sole responsibility of the author or authors.