Pipeline from nowhere to somewhere

Jul 25, 2006 02:00 AM

by Thomas Goltz

For over a decade, its many detractors referred to it mockingly as the "pipeline to nowhere." But on July 13, international oilmen celebrated the official opening of the 1,760 km Baku-Tbilisi-Ceyhan (BTC) pipeline that now connects the hydrocarbon riches of the Caspian Sea to the eastern Mediterranean.
It's been a long journey.

First mooted during the immediate post-Soviet chaos of Azerbaijan as a means of exporting unknown quantities of hydrocarbon resources to the West in exchange for ill- defined political favours, the Baku-Ceyhan pipeline concept quickly acquired the status of geopolitical fantasy. Russia and Iran both argued strongly that Caspian crude should reach international markets only via the pipeline and terminal systems already in place in those two countries.
But the main problem facing proponents of a Baku-Ceyhan line was not political, but economic. Assessments of Azerbaijani reserves in the early 1990s proved to be highly inflated. Making matters worse was the big dip in crude oil prices in 1998/99, when oil fell to $ 11 a barrel. At those rates (a mere six years ago!) the idea of sinking an estimated $ 2.5 bn into a new export pipeline from Azerbaijan to the world seemed like a joke.

But that didn't take into account the unflagging efforts of the late authoritarian president of Azerbaijan, Heydar Aliyev, to promote the "do-ability" of the BTC. Arguably the most unorthodox of his stratagems was to commission a cohort of 20-odd adventurers to travel down a speculative version of the pipeline route and deliver the first symbolic barrel of Azerbaijani crude oil from Baku to Ceyhan aboard a dozen nostalgic, Soviet-era side-car motorcycles.
I was the creator of the "oil odyssey," and we delivered the goods -- for the record, long before BP boss Sir John Browne came around to sanctioning the BTC.

President Aliyev (father of the current president, Ilham Aliyev) died in 2003, but not before breaking symbolic earth in Azerbaijan for the first sectionof the meandering BTC. I wish he could have seen it. It is the most state-of-the-art pipeline in the world, traversing desert, forest, multiple rivers, mountains, high plateaus and eight climatic zones -- and all underground, leaving scarcely a trace of the construction process.
Cost overruns pushed the project from the initial $ 2.5 bn to something closer to $ 4 bn, but with the price of oil nudging $ 80 a barrel, investors are not complaining too loudly. There are rumours that both Iran and Russia are now toying with the idea of opening up negotiations to move some of their crude via the BTC.

For Azerbaijan, the biggest question at present is what to do with the so-called "wall of money" that will start to accrue once the oil begins to flow. Some observers are already predicting a bad case of pending "Dutch disease" -- by which an increase in oil revenues renders a country's manufacturing less competitive by raising the exchange rate -- unless Baku manages to divert both state and private investment into the non-oil sector and addresses the subject of income disparity between the new rich and the growing number of disgruntled or desperately poor.
For now, the question of the political ramifications of future oil-related wealth is on hold as investors, citizens and former pipe-dreamers celebrate the realization of what is now a "pipeline to somewhere."

I hope my zany motorcycle circus of six years ago played some little part in this process.
I also hope that the current leadership of Azerbaijan will use the occasion of its new-found wealth to win more than just fair-weather friends and address some of the urgent social issues at play here on the shore of the Caspian.

Thomas Goltz is the author of three books on the post- Soviet Caucasus and a memoir of his days as an itinerant actor in Africa, "Assassinating Shakespeare." He is currently a visiting scholar at the University of Montana, Missoula.

Source: International Herald Tribune
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