Caspian pipeline plans tied to available oil

That is the view that Jan H. Kalicki, U.S. Department of Commerce Counselor, gave in a speech to the Offshore Technology Conference earlier this month.

Eventually, producers in the eastern Caspian region will rely on a Baku-Ceyhan pipeline as much as oil producers off Azerbaijan. Kalicki said, "We will see the creation of a phased, integrated approach to exporting oil from the eastern Caspian to Baku via barges and later, by a trans-Caspian oil pipeline."

On the gas side, a trans-Caspian pipeline will be a vital link to Turkish and European gas markets not only for Turkmenistan, but also for Azerbaijan and eventually Kazakhstan and Uzbekistan.

The goal of U.S. policy in the Caspian region has always been to "facilitate an outcome that promotes the best interests of companies and countries."

Kalicki sees U.S. efforts culminating in the realization of at least three desirable transportation solutions for oil and gas: the Caspian Pipeline Consortium (CPC) and the Baku-Ceyhan oil pipelines and the trans-Caspian gas pipeline.

Caspian region importance

Like no other place in the world, development of offshore oil and gas resources in the Caspian region presents not only technical but also commercial and political challenges, said Kalicki, who also serves as Ombudsman for Energy and Commercial Cooperation with the New Independent States.

At midyear 1999, upstream and downstream activities in the region are continuing at strong levels with an outlook for greater development activity. After years of being constrained by lack of export infrastructure, Tengizchevroil-the Chevron Corp.-led venture that operates Kazakhstan's supergiant Tengiz oil field-has reached production levels of more than 200,000 b/d through the expanded use of traditional export methods such as tankers and railroads.

Also, Kalicki noted that CPC recently obtained the final permits and approvals needed to begin work on its Tengiz-to-Novorossiisk pipeline. Groundbreaking for that project was slated to begin in Novorossiisk last week.

Kalicki reviewed a list of recent oil exploration developments that afford much to be optimistic about Caspian upstream. It is a region of significant petroleum resources, with the potential to yield up to 90 billion bbl of oil, he said.

Oil lines

Last month saw the inauguration of the Supsa oil terminal on the Georgian Black Sea coast that will serve as the near-term outlet for Azerbaijan International Oil Co.'s (AIOC) Caspian oil production.

Completion of the western early-oil route running from Baku to Supsa and the opening of the Supsa terminal provide AIOC with much-needed flexibility for its oil exports, said Kalicki. And the opening of the route represents a key step in the development of multiple oil pipelines from the Caspian region.

Moreover, he noted recent progress between the regional governments and AIOC on the Baku-Ceyhan pipeline. Kalicki said that AIOC appears to be moving towards Baku-Ceyhan as its preferred long-term oil export route, suggested by the signing of the Istanbul Protocol in mid-April. This protocol noted the significant progress in negotiations between the various parties on the Baku-Ceyhan pipeline and the interest expressed by all parties in expediting further negotiations concerning the development of this main-port pipeline route.

Kalicki also cited the key document package that the parties hope to finalize by mid-July. This four-document package would consist of an intergovernmental agreement, a host government agreement, a turnkey contract related to the construction of the Baku-Ceyhan pipeline, and a Turkish government guarantee that the costs of pipeline construction will not exceed pre-set limits.

The next step, said Kalicki, will be to set up a main export pipeline company to build the Baku-Ceyhan pipeline. That company will be responsible for such tasks as conducting detailed engineering studies and acquiring needed financing.

Companies on both sides of the Caspian should be included in the export pipeline company, he said, because a Baku-Ceyhan route makes such great sense for oil exports from Kazakhstan and Turkmenistan, which are fairly remote from world markets.

Kalicki said he could foresee when the current system of barging smaller amounts of Kazakh and Turkmen oil across the Caspian to Azerbaijan could be greatly expanded to provide much-needed volumes for the Baku-Ceyhan pipeline.