Plans for pipelines everywhere around the Caspian, but for what oil?
Never has a death knell been sounded so loud on a project than on the building of the proposed Baku-Ceyhan
Recently David Woodward, chief executive of Azerbaijan's flagship consortium, said that given current production volumes and depressed oil prices, there is no need for the pipeline to the Turkish Mediterranean port.
Woodward said that the Azeri, Chirag and Guneshli offshore fields developed by the BP Amoco-led operating company contain only about 3 bn barrels of oil and that was around half of what is needed to make the project profitable.
Doubts have long been cast about the viability of the plan, currently estimated to cost around $ 3 bn. Although the proposal has strong U.S. backing, AIOC has continually delayed announcing its preferred pipeline route.
The Caspian offers significant production potential subject to markets and outlets for crude to be developed.
Azerbaijan has the potential to scale around 2 mm bpd by 2012. Add Kazakhstan and Turkmenistan, the most optimistic
forecasts are up to 4.5 mm bpd.
But exploration results have been disappointing and have led to two consortia pulling out of their concession in Azerbaijan and another considering its position. What is clear is that recoverable reserves close to 30 bn barrels, as estimated by the U.S. Department of Energy in 1997, are a gross exaggeration.
Although the region has the advantage of low production costs, transportation costs are punitive. The eternal problem
revolves around main pipeline issues linked with complex politics. The dilemma is heightened by the prolonged spell
of depressed oil prices.
At the current time there are four main export routes taking limited quantities of mainly Azeri oil to market. Three of these are to differing Black Sea ports. The fourth involves largely swap deals with Iran for Turkmenistan liftings.
Major pipeline projects include a downsized plan to transport oil from the giant Tengiz field in Kazakhstan to the Russian port of Novorossiysk. There are also three main alternatives under consideration for Azeri exports, of which Baku-Ceyhan is the most ambitious and expensive.
A further option is being provided by Iran tendering for the building of a pipeline from its Caspian Sea port of Neka to Tehran.
It is part of a three-phased plan for swap arrangements, but faces vocal political opposition from the U.S.
In a new review of the 'Caspian Conundrum,' Dresdner Kleinwort Benson research put current estimates of transport costs at between $ 4.1-$ 8 per barrel. It said that although these would fall once pipelines were constructed, the danger was that the process will be slower than envisaged.
Speculation is that AIOC decision on a major pipeline will continue to be deferred, if not abandoned in the near-term. In the meantime, the London-based investment bank is suggesting that the Persian Gulf represent a more palatable medium-term option than the Caspian.