Tough task of Azeri pipeline planners

First oil from Chirag field in the Caspian Sea was a major milestone for Azerbaijan and boosted confidence in the country's ambitious oil plans. Speaking at a conference in Baku in early June, Robert Erickson, chief operating officer of Azerbaijan International Operating Co. (AIOC), said Chirag created a bridgehead for further international investment. AIOC developed Chirag by putting new topsides on an existing half-completed platform and intends to install further platforms and floaters

June 22, 1998

3 min read

David Knott
London
[email protected]

First oil from Chirag field in the Caspian Sea was a major milestone for Azerbaijan and boosted confidence in the country's ambitious oil plans.

Speaking at a conference in Baku in early June, Robert Erickson, chief operating officer of Azerbaijan International Operating Co. (AIOC), said Chirag created a bridgehead for further international investment.

AIOC developed Chirag by putting new topsides on an existing half-completed platform and intends to install further platforms and floaters to develop Chirag, Azeri, and Guneshli fields together.

Chirag delivered first oil in November 1997, and in March 1998 the first cargo was lifted and sold from the Russian Black Sea port of Novorossiisk.

"We are currently managing two or three liftings a month," said Erickson, "and forecast that a total volume of 2 million (metric) tons will be lifted by the end of this year. Pipeline access to international markets is critical to our future."

AIOC spent $2.1 billion to build production to an expected 100,000 b/d of oil by yearend and plans to spend $10 billion more to boost output to 1 million b/d within the next 10 years.

Export options

AIOC used tankers and an existing pipeline to get early oil to market, but the limit of this route will be tested when throughput reaches 100,000 b/d.

Erickson said the Azeri government and AIOC have approached governments of countries through which a planned major export pipeline could pass, with a view to recommending a pipeline route by October 1998.

"Each option will be treated with an equal degree of seriousness," said Erickson, "but I cannot do better than quote the words of AIOC's first president, Terry Adams: 'It may go through Russia, it may go to Supsa or it may go to Ceyhan. And that's official.'"

Natik Aliyev, president of the State Oil Co. of Azerbaijan Republic (Socar), told delegates that in the meantime an 850-km, 115,000 b/d line from Baku to the Georgian Black Sea port of Supsa will be upgraded by September 1998 to take further Chirag oil.

Working party

Aliyev said that, while the planned capacity for the main export pipeline is 1 million b/d, there is potential for further export routes.

"Depending on the route," said Aliyev, "construction of the main export pipeline is estimated to cost $1.5-3 billion. In case serious problems arise with the capacity of the Straits of Bosporus, outlets to the Mediterranean bypassing the Bosporus through Turkey, Bulgaria, and Greece are being studied. Exporting oil south via Iran may also be economically attractive."

Given all these options, the pipeline working party-formed in September 1997 and comprising three Socar and three AIOC officials, with Azerbaijan's deputy prime minister as chairman-faces a daunting task.

"This group," said Aliyev, "will develop the structure of the future of the oil pipeline company, define the legal and commercial conditions for transporting the oil and the mechanism for operating and managing the pipeline, identify possible sources of financing, prepare a recommendation on final choice of the route, and submit it for consideration by the President of Azerbaijan in September 1998."