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."
BANNED RALLY: The opening of a US-backed pipeline sparked anti-government protests, leading to a violent scuffle between baton-wielding police and protesters
AFP , BAKU Monday, May 23, 2005,Page 6
Police broke up a banned anti-government rally in Azerbaijan Saturday, arresting and beating dozens of protestors as part of a crackdown on the opposition linked to the opening of a major US-backed oil pipeline.
For hours, the streets of Baku became a tangle of protesters and baton-wielding riot police amid the traffic.
No figure was available for the number of injured, but a reporter saw police flogging several protestors with rubber batons, knocking at least one man unconscious and beating a reporter for the daily Zerkalo newspaper.
A senior police officer at the scene, Kamal Velishov, denied that police had used force, "I have seen nothing of the sort," he told reporters.
Estimates varied for the number of protestors attending the banned rally. Police said 500, and Ali Kerimli, the leader of the opposition Popular Front of Azerbaijan party, said "thousands."
Kerimli, whose party took part in the rally along with two other opposition parties and members of the Yokh youth movement -- which is modeled on movements that helped topple the regimes in Georgia and Ukraine -- said 300 people were arrested. According to official data, only 45 were arrested.
Azerbaijani police officers with riot shields and truncheons block the area against demonstrators in Baku, Azerbaijan on Saturday. Police beat protesters with truncheons and detained dozens of opposition demonstrators, dispersing crowds that pressed toward the planned site of an anti-government rally that was prohibited by authorities in Azerbaijan. PHOTO: AP
Authorities refused to allow the rally on the grounds that it fell too close to the opening ceremony for the US$4-billion Baku-Tbilisi-Ceyhan pipeline (BTC), which US Secretary of State Condoleezza Rice was due to attend on Wednesday.
The rally was preceded by a crackdown on the opposition in which 30 people were arrested over the past few days.
The opposition alleged the arrests were an attempt to derail the protest rally, which it called to demand a fair vote in parliamentary elections in November.
Hundreds were arrested and one man died in protests over contested presidential elections in 2003 in which Ilham Aliyev replaced his ailing father Heydar Aliyev in the former Soviet Union's first dynastic succession of leaders.
The US embassy in Baku said on Friday it was concerned by the government crackdown because it cast doubt on the legitimacy of the parliamentary elections.
The embassy joined the Organization for Security and Cooperation in Europe in calling for the restoration of the right of free assembly in Azerbaijan.
Norway's ambassador to Azerbaijan, Steinar Gil, attended the rally and said the reaction of the authorities to the protest discredited Aliyev.
"I saw harsh violence at the hands of the police, I saw a bloodied man; these people are not a threat," he said of the protestors.
"Azerbaijan had the chance to show that it was a normal country with democratic principles," Gil said. He also said it would be an embarrassment if opposition figures remained in detention when a host of foreign dignitaries attended the pipeline's opening.
Azerbaijan's prosecutor general, Zakir Garalov, earlier defended the crackdown.
"Those who think they can violate public order on the eve of the celebration are mistaken," he said. "The state's interests are above those of political functionaries," he added,referring to opposition figures.
The BTC pipeline, which will ship Caspian oil to the Mediterranean, was built with financial support from the US. The British oil company 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, TPAO and Unocal.
Tensions between authorities and opposition were approaching boiling point ahead of the November vote, which the Council of Europe described as a crossroads where "we may become witnesses either to fair and free elections or a bloody confrontation between thousands."
Iraq suspends oil exports to Turkey because of shortage
Hard to tell if this is political. Oil exports have been suspended to the Turkish port of Ceyhan because of a production shortage in the northern fields of Kirkuk at the same moment the BTC pipeline is to start feeding Ceyhan.
Other players who would like to see the project fail are terrorist groups operating along the pipeline route. Such groups strive to weaken the governments they oppose by denying them revenue from the pipeline. The Turks, for example, are a long way away from reaching a settlement with the Kurds and are involved in fighting with the Kurdish Workers' Party (PKK). Until the Kurdish issue is resolved, Kurdish groups might want to derail the project. #msg-6444481
-Am
Iraq suspends oil exports to Turkey because of shortage
By Hassan Hafidh, Associated Press, 5/24/2005 09:52
BAGHDAD, Iraq (AP) Iraq has suspended oil exports to the Turkish port of Ceyhan because of a production shortage in the northern fields of Kirkuk, an Iraqi official said Tuesday. The northern pipeline and facilities regularly are sabotaged by insurgents.
In the south, Iraq's oil output has fallen by nearly 190,000 barrels a day since Monday because of technical problems, said the Oil Ministry official, who asked not to be named for security reasons.
''There has been no pumping from Kirkuk to Ceyhan since Saturday and the pipeline won't be pumping until probably Thursday,'' the official told Dow Jones Newswires, adding that there was not enough crude to pump.
He said pumping has continued sporadically for the past two weeks. On Friday and Saturday, the pipeline pumped a total of 200,000 barrels, bringing stores of Kirkuk crude at Ceyhan export terminal to 2.2 million barrels.
Iraqi officials say the country's northern oil production has been averaging 500,000 barrels per day, of which about 380,000 barrels are being pumped to nearby refineries for domestic use. The remaining 120,000 barrels a day are kept in storage tanks at the pumping stations or at Beiji refinery.
Baghdad needs to fill its storage facilities in Ceyhan, whose capacity is estimated at 7.6 million barrels, before deciding how to sell the accumulated crude.
Persistent sabotage of the pipeline network and facilities has kept Kirkuk exports shut in for most of this year.
Meanwhile, production from the oil-rich south has fallen from 1.85 million barrels a day to 1.66 million barrels because the gas separation stations at the southern oil fields have failed, the official said.
Oil exports from the south have been averaging 1.4 million-1.5 million barrels a day.
The technical problems are not expected to impact exports from the south immediately, because oil is held in storage near the offshore oil terminals. However, if the problems persist, exports will fall, the official said.
Hassan Hafidh is the correspondent of DowJones Newswires in Baghdad.
ISTANBUL - Turkey's heartland of Anatolia - the massive plateau that serves as a land bridge between Asia and Europe - is dotted with the remains of 13th-century inns, reminders of the merchant caravans that traveled the fabled east-west Silk Road.
Some 800 years later, Turkey is again trying to take advantage of its strategic location. Today, instead of caravansaries it is building pipelines, and instead of silk and spices the products are less romantic: oil and natural gas.
A major part of this plan becomes a reality Wednesday, when the new Baku-Tbilisi-Ceyhan (BTC) pipeline, a $4 billion, 1,093-mile project that brings Caspian Sea oil to Turkey's Mediterranean coast will be inaugurated. It should be fully operational by the end of 2005.
The pipeline - built by a consortium of 11 companies, including British Petroleum, the American firm Unocal, and Turkey's national oil corporation - is designed to bring a non-Middle Eastern source of oil to the West. This would loosen Russia's and Iran's grip on the transport of Caspian and Central Asian oil by creating a new route that is friendlier to the United States and Europe.
For Turkey, which has few energy supplies of its own, the pipeline is the initial step in its effort to become a major energy player, not as a producer but as a transit point. In an era when countries are increasingly looking to diversify their energy sources, Turkey hopes to establish itself as a kind of energy supermarket, betting that controlling oil routes will turn out to be as strategically valuable as producing the stuff.
"Geographically, Turkey is endowed with advantages, so we would like to use those advantages to give Turkey a role as a supplier of energy resources," says a senior Turkish foreign ministry official involved in energy issues. "It gives Turkey relevance."
The Department of Energy estimates that by 2025, 68 percent of oil consumed by the US will have to be imported, up from 58 percent today. A similar trend is expected in Europe.
"That means that the West will be more dependent on energy transportation corridors," says the Turkish official. "Our American friends are very keen on guaranteeing the flow and enhancing energy supply security."
But growing political dissent across the Caucasus and central Asia - encouraged by President Bush in his visit to Georgia this month - is complicating matters ahead of Wednesday's event.
On Saturday, Azerbaijani police beat protesters, some reportedly holding portraits of Mr. Bush, who rallied in Baku, shouting "Freedom!" and "Free elections!" Washington wants greater democracy across the region, but it also wants stability, and it counts Azerbaijan, a mostly Muslim country of 8 million, as an ally in the war on terror.
Turkish planners envision a country crisscrossed by pipelines, carrying oil, gas, and natural gas. Turkish officials say they plan to spend some $80 billion over the next two decades to develop the country's energy infrastructure.
The BTC is initially expected to carry close to 1 million barrels of oil per day, most of it ending up in the Turkish port of Ceyhan, where it will be loaded onto tankers. By most measures, it's a drop in the oil bucket - Saudi Arabia alone pumps 7 million barrels per day - but Brenda Shaffer, research director of the Caspian Studies Program at Harvard University in Cambridge, Mass., says in today's energy markets, even a small amount can have a big impact on prices.
"On a world level, every development of oil that's outside of OPEC changes the dynamic of the market in a number of ways," says Ms. Shaffer. "The more sources that are outside of OPEC, the less it can control world oil prices.
The pipeline has had a wider regional impact even before the oil has begun to flow, Shaffer says. "A lot of the positive benefits have already started happening," she says. "The money that has arrived in the region is allowing for economic growth in Azerbaijan and Georgia, and is helping with stability. The security relationships [between the three BTC countries] have become more crystallized because of the cooperation."
Construction of the BTC was accompanied by vocal security and environmental concerns. The pipeline is built underground to deter terrorist attacks and minimize the possibility of rupture, but it still snakes through areas prone to earthquakes and political unrest.
Critics also question whether the BTC and Turkey's other pipeline dreams will yield the dividends it hopes for.
Bulent Aliriza, a researcher at the Center for Strategic and International Studies in Washington points out that a much larger pipeline runs from Iraq to Turkey, but it gave Ankara little influence over Saddam Hussein during the time he was in power.
"There are limits to the political leverage that a pipeline gives," he says.
What may ultimately make the difference in Turkey's long-range energy plan are the changing needs of the European Union (EU), which it hopes to join. An EU paper on energy policy issued in 2000 designated Turkey as an "energy corridor" that should be developed.
"It was originally a US strategic thing, to get around Iran and Russia," says Gareth Winrow, an energy and foreign policy expert at Istanbul Bilgi University. "Now there is the EU wanting to diversify its resources and build new pipelines.
"These things are coming together - US interests, EU interests, and Turkish interests, and it's something Turkish officials know they can play on."
• Material from the Associated Press was used in this report.
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