Foreign Correspondence

[Amaunet]

Caspian oil producers see brighter future through new pipeline

by Amelie Herenstein 24/05/2005 07:53

PARIS, May 24 (AFP) - The four-billion-dollar Baku-Tbilisi Ceyhan pipeline, a US-backed energy initiative to be inaugurated Wednesday, will transform the Caucasus and Turkey into an energy bridge between the Caspian and the rest of the world but its impact on oil prices will likely be limited, experts say.

The 1,770 kilometer-long (1,094-mile) pipeline is to ship a million barrels of Caspian oil to Turkey's Mediterranean coast daily once it is up and running by the end of the year.

Built with financial support from the United States, which is hoping to reduce its dependence on fuel from the volatile Middle East, the pipeline was initiated in 1994 as part of Azerbaijan's so-called "deal of the century" -- a massive oil contract signed in the early 1990s to develop Caspian Sea oil.

British oil giant BP holds a 30 percent stake in the consortium running the pipeline. Other consortium members include Azerbaijan's state oil company SOCAR, Amerada Hess, ConocoPhillips, Eni, Inpex, Itochu, Statoil, Total, TPAO and Unocal.

The Caspian region produces a light crude of high quality but has suffered from its distance from the world's major consumers -- North America, Europe, China and Japan.

The new pipeline that runs from Azerbaijan, through Georgia and then into eastern Turkey will both make exporting the region's oil easier and boost investment in the area.

"The objective is to have a multiplicity of export routes to enable the region to completely open up," said Jean Claude Nawrot, managing director of Total Azerbaijan.

"If you have only one export route you are subject to tariffs that are not negotiable," he noted, adding that the Baku-Tbilisi-Ceyhan pipeline would be justified even without the current high price of oil.

Producing countries in the region such as Kazakhstan, Azerbaijan, Turkmenistan and Uzbekistan currently have to chose between using the Russian pipeline network, which anaylsts say is inefficient and has monopolistic tendancies, or using tankers.

But there are currently insufficient tankers to meet rising demand -- world demand for oil is set to reach 84.3 million barrels a day this year.

And tankers, which present a threat to the environment, also have to deal with the bottleneck of the Bosphorus to get from the Black Sea into the Mediterranean.

The Baku-Tbilisi-Ceyhan pipeline has sparked its fair share of controversy however, particularly over its enormous cost and the ecological risk it presents to the regions it passes through.

But Christof van Agt, a specialist on Central Asia and the Caspian with the Paris-based International Energy Agency, feels the project is more than justified.

"I think the current situation in oil market, the economic development of the region, the environmental constraints in the Bosphorus and other straits vindicate the rationale for this project," he said.

"It's clear that the world market needs new and independent supply routes," he explained, pointing to Russia's current grip on producing countries in the region and on their customers.

Moncef Kaabi, an analyst with Ixis Corporate and Investment Bank, played down the impact on markets of the new pipeline however.

"This is not new capacity that's coming on-stream," he said. "It's existing oil that can now be better transported. All that will achieve is to relieve the pressure on tankers."

The Caspian can not hope to provide serious competition to the Middle East, he added.

The million barrels of oil a day that Baku-Tbilisi-Ceyhan is scheduled to carry is just under half the region's daily output of 2.2 million barrels. In comparison, Saudi Arabia alone produces 9.5 million barrels a day.

Kaabi also warned that "the Caucasus is a zone of unrest."

© AFP 2005

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