Kazakhstan, Azerbaijan to transport Kazakh crude through BTC pipeline

Eric Watkins
Middle East Correspondent

NICOSIA, June 6 -- Oil officials from Kazakhstan and Azerbaijan, confirming an earlier statement by Georgian President Eduard Schevardnaze, have announced plans to transport Kazakh crude oil through the Baku-Tbilisi-Ceyhan (BTC) Pipeline, now under construction.

The announcement coincides with plans by Naftrans, already a major investor in Georgia, to improve the oil transportation system in the region, largely through the construction of large tanker ships and improved port facilities aimed at bypassing the current Trans-Caucasian rail system.

Nadig Aliev, president of the State Oil Co. of the Azerbaijani Republic (SOCAR), and Kairgeldy Kabyldin, transport director for Kazakhstan's national petroleum company KazMunaiGaz, told reporters after a meeting in Baku on Tuesday that a deal between the two ex-Soviet republics would be signed by the end of this year.

"We are holding successful negotiations with our Azerbaijani counterparts, and I think they will lead to positive results: Kazakhstan's joining the Baku-Tbilisi-Ceyhan project. In any case, we plan to finish these procedures before the end of the year," Kabyldin said.

Shevardnadze announced the Kazakh deal on May 23 at a ceremony marking the beginning of construction of the Georgian segment of the pipeline in Tetri-Tskaro. Shevardnaze said Kazakhstan's offer would contribute to the successful development of the pipeline.

The agreement will be followed by contracts with the operator of the transport route between Baku and Kazakhstan's Caspian Sea port of Aktau. The operator will be an alliance of oil companies operating in Kazakhstan and together holding a 15% interest in the BTC project—ENI SPA, ConocoPhillips, INPEX Corp., and TotalFinaElf SA.

Kabyldin said some 140 million bbl/year of Kazakh oil would be shipped from Aktau to Baku for onward transport to Ceyhan through the 1,760 km pipeline, adding that SOCAR and KazMunaiGaz will soon begin studying economic and technical aspects of oil transport from Aktau to Baku.

Kazakhstan currently ships around 2 million tonnes/year of crude oil from Aktau to Baku, with onward transport by rail to the Georgian port of Batumi on the Black Sea.

Baku-based Caspian Shipping Co. (CSC) is currently the sole provider of tanker services to Azeri ports due to very favorable tariff conditions for Azerbaijan-registered vessels there. In 2002, CSC carried an estimated 7 million tonnes of oil to Azerbaijan.

CSC currently has 33 tankers along with 7 ferries, which are mainly used to ship rail tank cars (RTCs) carrying crude oil from Kumkol (Kazakhstan), and some products from Chimkent and Turkmenbashi refineries to Baku.

CSC has two additional 8,000 dwt tankers on order for delivery this year, with a further two of 12,000 dwt scheduled for 2004. This is likely to bring capacity to 23 million tonnes from the current 20 million tonnes.

Naftrans's plans
Meanwhile, however, Naftrans appears to be entering a note of competition into the route. A significant foreign investor in Georgia since August 1999 when it became the owner and operator of the Batumi Oil Terminal (BOT) on the Black Sea, Naftrans has announced plans to lease its first trans-Caspian oil tanker in 2006 to carry Kazakh crude from Aktau to Baku for shipment along the BTC pipeline.

Naftrans executives told a news conference in Baku on Monday they had reached agreement with the Krasnaye Barrikady shipyard in Astrakhan for the construction of three vessels with a total lifting capacity of 60,000 tons to transport crude oil from Aktau and Turkmenistan's port of Turkmenbashi to Baku and Batumi.

Under the agreement, the first vessel will be delivered in 2004. The three vessels will be able to transport 12 million tonnes/year of oil in 200 voyages compared with a reported 2,000 voyages now required due to the smaller sized vessels operated by CSC.

"Large vessels would allow to save up to $5/tonne on the trans-Caspian route," said Naftrans Director Oleg Vostrukhov. It currently costs oil shippers $32.5/tonne to send crude from the Kazakh port of Aktau to Batumi by sea and rail, he said.

Vostrukhov clearly has wider applications in mind than transport of Kazakh oil to the BTC pipeline, saying that investments in the region's other terminals, shipment, and unloading capacities will be required for optimal use of the new vessels—especially at Batumi.

In Batumi port, one pier is dedicated to the transportation of oil and oil products, and it has three berths for vessels as large as 60,000 dwt. There also is one single-point mooring facility just outside the port for vessels as large as 120,000-130,000 dwt.

The terminal is connected by pipelines to the storage facilities in and near Batumi, which consist of 124 tanks ranging in size of 1,000-10,000 cu m with a total storage capacity of 600,000 cu m.

Naftrans's subsidiary Alegratrans has already invested $60 million in the reconstruction of BOT and the creation of new capacities, Vostrukhov said. "New reservoirs with 500,000 tonnes of capacity were built at the terminal to store oil and oil products and transportation of liquefied gas has also been organized," he said.

"This made it possible to increase transportation of oil from the Caspian to Batumi to 8.6 million tonnes in 2002 from 3.3 million tonnes in 1998. Alegratrans plans to increase oil and oil product transportation to 9.6 million tonnes in 2003," Vostrukhov said.

But Alegretrans is ready to invest as much as $200 million in projects in the region, including construction of the tankers, after having clinched a deal with the US Great Circle Fund, mostly financed by the US government agency Overseas Private Investment Corp. (OPIC), which bought a 23% stake in Naftrans in March for $30 million.

Naftrans's projected investments appear linked to problems the firm has had with transport oil by rail from Baku to Batumi. Vostrukhov said that transportation of oil along the Baku-Batumi route is being hindered by stoppages in the work of the Azerbaijani railways, which harms the line's competitiveness.

In particular, stoppages in the rail network increased the cost of transporting oil and oil products along the Aktau-Batumi route from $29-30/tonne in 2002 to $32.5/tonne so far this year.

Rail line reliability
According to a report issued in February commissioned by the European Commission, the rail line between Baku and Samtredia is double-track and electrified, mainly operated by semiautomatic block systems. But the 120 km single-track section between Samtredia and Batumi is seen as one of the main structural weaknesses of the entire corridor.

The route's automatic block system has been out of order since the last civil war in Georgia, and the system is currently operated only semiautomatically, considerably restricting the maximum number of train pairs passing through the section every 24 hr, the EC report said.

In peak times, 18-19 trains (including 3 passenger trains) find their way to Batumi, with about 15-16 trains (including 3 passenger trains) moving in the opposite direction. The disparity occurs since outbound empty oil trains can carry more RTCs than incoming loaded trains.

"We doubt that with this level of organization on the route, we will be able to transport up to 15 million tonnes of oil and oil products, and forecasts of growth in oil production in the Caspian mean that we are now speaking of this level of transportation," Vostrukhov said.