Future of Baku-Novorossiisk export pipeline in doubt


MOSCOW�State Oil Co. of Azerbaijan Republic (SOCAR) has resumed crude exports to the Russian Black Sea port of Novorossiisk, although the volume is just a trickle. But the future of the Baku-Novorossiisk export route remains in question, as Azerbaijan International Operating Co. has made clear its preference for either of two alternate routes.

Out of desperation, Russian pipeline operator Transneft recently said it was prepared to offer financial incentives to companies pledging to export oil production from the Caspian Sea area through the Baku-Novorossiisk line (OGJ Online, July 25, 2000). Flow through the line was cut off for more than 3 weeks, when the Azeri government ordered all SOCAR crude output to be diverted to build up domestic fuel oil supplies for the coming winter.

Transneft angrily charged that Baku had violated the terms of a 1996 intergovernmental agreement on Azeri oil exports via Russia. SOCAR received a letter from Transneft demanding $29 million in compensation for lost transit tariff revenues.

SOCAR resumed the flow of exports to coincide with a visit to Baku by Russian Deputy Foreign Minister Viktor Kalyuzhny. The volume of Azeri oil moving north is reportedly only about 1,000 tonnes/day, 20% of the pre-June rate.

Apparently trying to defuse growing tension, Kalyuzhny said the $29 million fine could be avoided. He invited Azerbaijan to consider raising its volume of oil exports via Novorossiisk, saying arrangements could be made to avoid the current problem of mixture with lower-quality Siberian crude.

AIOC prefers alternate routes
Shareholders of Azerbaijan International Operating Co. (AIOC) have already approved a project to increase the capacity of the competing Baku-Supsa oil export pipeline. The increase will be carried out as part of the project for further exploitation of Chirag oil field, which stipulates a 20% increase in production at the Chirag 1 platform, where about 100,000 b/d of oil are being produced at present, AIOC Pres. David Woodward told reporters last week. (Drilling of the 15th well at Chirag-1�a water injector�is slated to begin by mid-August.)

Woodward said minor changes would be made to equipment at pumping stations along the pipeline to increase capacity, requiring an investment of only a few million dollars. The costs of increasing capacity will be less than $1/bbl of additional oil shipped, he said.

Work is due to begin in early 2001 and to be completed by the middle of that year.

Woodward said AIOC does not intend to transport its oil via the Baku-Novorossiisk line because of the quality problems that result from the mixing of Azeri crude with Russian oil. This reduces the price that can be secured for the oil.

The differential between the price of a barrel of oil transported from Novorossiisk and one transported from Supsa is $5. Therefore, it is not profitable for AIOC to transport its oil via the Baku-Novorossiisk route, and the company intends to do this only if there are breakdowns on the Baku-Supsa pipeline.

As for BP's involvement in the group of sponsors backing the Baku-Ceyhan main export pipeline project, Woodward said BP has voiced its desire to participate in the group of sponsors, provided there are enough other companies and financial terms are favorable. He added that tenders would be announced for detailed engineering of the main export pipeline route only after the group of sponsors is formed.

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