Many pipelines lead to the West

Feb 25, 1997 01:00 AM

The AIOC will find geopolitics a decisive factor in deciding where to build a new export pipeline for its oil, since all the competing options are largely commercially competitive. Executives in the Azerbaijan International Oil Company, AIOC, $ 8 bn Caspian project said a decision whether to build a pipeline with a terminus in Russia, Georgia, Turkey or the Balkans would hinge on a cauldron of regional politics. Russia, smarting over its loss of control over oil flows from the former Soviet republics, is battling to influence exports from Caspian deals. But neighbouring Georgia, whose outlets are not dogged by the congestion seen at Russia's Black Sea outlet of Novorossiisk, also has a strong hand to play. Complicating the game is the position of Turkey, which is not keen to see increased tanker traffic through the already-crowded Bosphorus and which wants an export outlet to its Mediterranean port of Ceyhan. The options to bring Caspian oil to world markets include a link to the Black Sea through Russia or Georgia; to the Mediterranean via Ceyhan in Turkey; and options bypassing the Bosphorus, including a Balkan link between Bourgas in Bulgaria and Alexandroupolis in Greece.
"A Black Sea terminus is commercially viable, all things being equal, and within the Black Sea, the Russian and Georgian options are competitive with each other," said AIOC spokesman Greg Rich. "The bypass option is cost-competitive with Ceyhan. Geopolitics will probably have an influence." All potential transit countries are lobbying fiercely to carry the oil, but Rich said AIOC was not yet in talks with governments in the countries.
AIOC, led by British Petroleum and Statoil, must report its choice by mid-June to shareholders and the Azeri government, the host of its Caspian project. The group needs a new pipeline for its planned output of up to 800,000 bpd from its Azeri, Chirag and Guneshli reserves in the Azeri sector of the Caspian by 2010.
AIOC will produce its first oil in August -- even though Moscow has not yet sealed a transport agreement with Chechnya, through which some of that oil will pass, using an existing pipeline. It expects early output of 100,000 bpd. But Western markets will not see that oil, which will use existing pipelines in Russia and Georgia, until the end of 1997.
"Realistically, we don't expect to begin to have oil across the (Russian) border until the end of the year," Rich said, adding it would take time to fill up the northern route pipeline linking the Azeri capital Baku via the Chechen capital Grozny to Russia's Black Sea port of Novorossiisk. The time-lag between output and transport buys AIOC time while Moscow and independence-minded Chechnya hammer out a deal to send AIOC oil via the Chechen link.
Unlike the selection of a main export route, the issue of Chechnya's cut in transit fees does not involve AIOC directly. "Under our agreement with the Russian Federation, we turn over custody of the oil at the border and they give it back to us at Novorossiisk," Rich said. "Honestly, in the light of day, it's in their interest to sort this out -- they're going to want to see this work."
AIOC's second export route for early oil, from the Sangachal oil terminal near Baku to the Georgian Black Sea port Supsa, will not be ready until the end of 1998, making progress in Moscow's and Grozny's talks on Chechen pipeline fees crucial.
"I know that AIOC is planning to use both the Russian and the Georgian routes," said a senior source at one of the two companies leading the AIOC consortium. The Azeri section of the Russian link is ready and there is a new pump station North of the Azeri border. But some parts of the link through Chechnya still require work. Refurbishing and construction on the Georgian link could theoretically be hastened to give AIOC faster use of both early export options -- but it would still not speed exports. "The other side of the question is, would you accelerate the Georgian route," Rich said. "(But) Baku-Supsa is a long pipeline and it will take a lot of barrels to fill it," he said, referring to the 900 km (560 mile) link.

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