Caspian deadlines

A major Caspian region oil export pipeline must be approved soon to keep exploration active, witnesses have told a US Senate foreign relations subcommittee.

Apr 20th, 2000

A major Caspian region oil export pipeline must be approved soon to keep exploration active, witnesses have told a US Senate foreign relations subcommittee.

John Wolf, US ambassador for Caspian energy issues, said that, unless governments approve terms soon, "It would be a stretch" to get a Baku-Tbilisi-Ceyhan oil export pipeline completed by 2004.

David Goldwyn, US assistant energy secretary for international affairs, said Caspian region reserves are comparable to those in the North Sea. The region has 16-32 billion bbl of reserves, he said, and the postulated resource could be as much as 186 billion bbl more-equal to a quarter of reserves in the Middle East.

"The Caspian region will never replace the Middle East as a primary source of supply, but it will limit the extent of the growth of world oil and gas dependence on the Middle East."

Goldwyn said that, since 1995, international oil companies have pledged to spend up to $90 billion in the Caspian region and so far have spent $5-10 billion.

Reserves needed

BP Amoco PLC is a 34% owner of the Azerbaijan International Operating Co., the major potential shipper on the oil export line to Ceyhan, Turkey.

Ralph Alexander, BP Amoco group exploration and production vice-president, said, as the pipeline is currently envisioned, companies must commit to shipping about 6 billion bbl.

"To this date, AIOC and the state oil company of Azerbaijan have approximately 4 billion bbl waiting for an export solution. Even if all the individual AIOC partners commit their oil to the pipeline, this is one-third short of the volumes required for the pipeline to work."

BP Amoco is working to get other producers and the governments to pledge more oil and "with multilateral lending institutions to find innovative ways to help finance the project."

Alexander said, "We are now at a critical juncture. The governments of Turkey, Georgia, and Azerbaijan have yet to finalize the agreements providing the legal and commercial terms for the pipeline (OGJ, Apr. 3, 2000, Newsletter).

"So far, the delays in achieving an export solution have resulted in an approximate 6-month delay to the next phase of AIOC's project and production start-up. Investment in offshore field development and pipelines will not go forward until these agreements are finalized."

Next steps

Wolf said that, after the governments approve the terms, project sponsors will negotiate basic engineering and financial terms and launch an effort this summer to gain throughput commitments.

He predicted, "With the right tariff, sufficient barrels of oil will be pledged to make this line commercial."

Wolf said the "situation is more complicated" for the proposed Trans-Caspian Gas Pipeline (TCGP). A competing line to move Russian gas across the Black Sea to Turkey is being constructed.

Wolf said, "While the economic case for TCGP seems easily demonstrated, political differences [between Azerbaijan and Turkmenistan] have blocked forward movement.

"My sense is that the current TCGP consortium has an excellent offer on the table. Delay puts at risk the benefits that would accrue to all the parties involved."

More in General Interest