Questions still hover over pipeline projects following Richardson's Caspian tour

Aug 19, 1999 02:00 AM

by Charles Coe

U.S. Secretary of Energy Bill Richardson toured Turkey and the Caspian states of Azerbaijan and Turkmenistan last week, reaffirming Washington's commitment to an East-West energy corridor and urging the parties concerned to look beyond the concept's financial and political hurdles.
"The East-West corridor, including an oil pipeline from Baku to Ceyhan and oil and gas pipelines across the Caspian, would help all the affected nations achieve their common goals: stability, prosperity, regional integration and the development of democracy," Richardson said in Istanbul on August 17.
In Turkey, the U.S. energy secretary focused on the proposed Baku-Ceyhan crude oil pipeline, the future of which depends to a great extent on decisions yet to be made by the Baku-based, BP-Amoco-operated Azerbaijan International Operating Company (AIOC). And while the much-debated oil pipeline remained a key topic of discussion in Baku, talks there -- and in Ashgabat -- also centred on the trans-CaspianPipeline (TCP).
Originally conceived as a conveyor for Turkmenistan's huge natural gas reserves to the Turkish market and beyond, the TCP has become a political issue. Azerbaijan has demanded that it be allocated a share of the proposed pipeline, which will carry up to 16 billion cubic meters per year, to export its own newly-discovered natural gas reserves.
Together, Baku-Ceyhan and the TCP are the essence of the U.S.-conceived East-West energy corridor, upon which American geopolitical thinking for Central Asia hinges. Bringing the pipelines into operation would create a solid link between the West and the Caspian's valuable hydrocarbon resources -- and conceivably reduce both Russian and Iranian influence in the region.
Washington is therefore keen to persuade Baku and Ashgabat to set their offshore territorial dispute aside and get the AIOC to endorse Baku-Ceyhan as its main export pipeline (MEP). "We're pursuing an endgame strategy for both Baku-Ceyhan and the TransCaspian Pipeline," Richardson said during his tour.
To this end, the Turkish and Azerbaijani working groups set up to discuss Baku-Ceyhan will meet this week in Washington, where emphasis will be placed on financing. Furthermore, while in Ashgabat, Richardson proposed that Turkmenistan, Azerbaijan, Georgia and Turkey sign an agreement committing themselves to support the TCP.
To the AIOC, the issues surrounding Baku-Ceyhan centre not so much on geopolitics but on cost and crude supply. These issues have yet to be resolved. The 1,700-km pipeline, which would carry up to 1 million barrels per day, suits the political interests of Washington and Ankara. But the AIOC estimates the pipeline's cost at $ 3.7 billion and argues that for now, the volume of crude needed to make the project viable isn't there.
For the AIOC, it makes more sense to double the capacity of the 100,000-bpd Baku-Supsa pipeline, which began operations last April. Washington and Ankara are not keen making the Georgian Black Sea port into the MEP terminus. This would increase tanker traffic through the Bosporus Straits, a prospect to which Turkey has been objecting for years, and leave Caspian oil exports too close to Russia's sphere of influence. However, Washington has said that if the AIOC does choose to expand Baku-Supsa, it would like to see the expansion done as part of the Baku-Ceyhan project.
The AIOC, meanwhile, believes that Caspian crude output may not suffice to make Baku-Ceyhan viable until late in the next decade. The consortium puts its own offshore reserves at 4.5 billion barrels but says proven reserves of 6 billion barrels are needed to justify an MEP the size and length of Baku-Ceyhan. Also, the AIOC's production schedule envisions that maximum output of around 800,000 bpd will begin in 2007, while for the moment, Baku-Ceyhan is not expected to become operational until 2005.
Last November, the AIOC delayed making a decision on an MEP route, much to Turkey's dismay. Until recently, Ankara has argued that Baku-Ceyhan could be built for $ 2.4 billion, suggesting also that it would cover cost overruns. This estimate changed last May to $ 2.7 billion, following a review of specifications insisted upon by the AIOC.
Furthermore, the Turkish government's ability to play any role in financing Baku-Ceyhan is now in serious question following the earthquake that struck the Istanbul area on August 17. Initial estimates of damage have been put at $ 5 billion, while some Turkish economists have calculated the overall damage to the Turkish economy may be $ 20 billion or more.
Turkish officials made it clear that Richardson's visit to the region and Ankara's current efforts to secure financing for Baku-Ceyhan were no coincidence. In Washington, the working committees are scheduled to meet with the international financial institutions likely to underwrite Baku-Ceyhan: the World Bank and its affiliate, the International Finance Corporation (IFC); the U.S. Export-Import Bank; and the Overseas Private Investment Corporation (OPIC). Ankara says it is working to have the financing in place by the time Turkey's Prime Minister Bulent Ecevit visits Washington in late September.
By that time, all those involved with Baku-Ceyhan may have a slightly better idea of where the project stands. In mid-September, the presidents of Turkey, Georgia and Azerbaijan are to meet to sign yet another document committing themselves to Baku-Ceyhan, and the AIOC is expected to make a decision on whether to proceed with the next stage of development of its offshore Azeri, Chirag and Guneshli oilfields, a move that could boost overall output to 400,000 bpd by 2003.
Richardson's outlook, however, is not overly optimistic. He said last week he hopes that all aspects of the project could be wrapped up within a year.

Source: NewsBase
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