ECONOMY

New pipeline set to open up Caspian oil fields to the West

BAKU – Britain’s BP starts work tomorrow on a $2.9-billion oil pipeline from the land-locked Caspian Sea to Turkey which will put crude from the region into the reach of world markets. The 1,110-mile (1,790-kilometer) link from Azerbaijan, long dismissed as a costly dream, became feasible after the oil major found more oil in the Caspian. Russia abandoned its original hostility to the US-backed project, which bypasses Russian territory, after the September 11 attacks. «This is, of course, an amazing development, bearing in mind that several years ago people believed the project would never happen,» said Brunswick UBS Warburg senior oil analyst Paul Collison. It is the first major private pipeline from the Caspian to bypass Russia and has strengthened the USA’s role in one of the world’s fastest growing oil regions. When completed, it will run from the Azeri capital of Baku through Georgia to the Turkish Mediterranean port of Ceyhan. Among those in Azerbaijan to attend the launch of the project are Georgian President Eduard Shevardnadze, Turkish President Ahmet Necdet Sezer, host Azeri President Haydar Aliyev and US Energy Secretary Spencer Abraham. Together with a growing supply from Russia, the Caspian region is expected to lessen Western reliance on OPEC oil, which comes mostly from the volatile Middle East region. «The project is a big diplomatic success for the USA, which always wanted Caspian oil to flow to the Mediterranean, bypassing Russia and Iran,» said Collison. BP itself was initially very cautious about the plan but it said this year it had found enough oil from its three huge Azeri oilfields – the only successful offshore venture in the country – to fill the 1 million barrels per day. Analysts have long said the link would be short of oil after major companies started to pull out of Azerbaijan when they failed to make big offshore finds. Experts have also argued that a shorter link to Russia or Georgia would be more logical. «I think it is a mixture of good geology, which has allowed BP to develop the project more cheaply, combined with politics, which has really left BP with no other alternative (than a route to Turkey),» said Julian Lee, senior oil analyst at the Center for Global Energy Studies in London. The pipeline will allow Caspian oil to bypass the crowded Turkish Black Sea straits. Moscow was long opposed to the US-masterminded plan, which will break up its oil transportation monopoly in the region, but changed its position after a political rapprochement with Washington in the wake of the September 11 attacks. Moscow gave free rein to its private firms to decide whether they wanted to join the project. Russia, where oil output is booming for the fourth consecutive year, is already exporting at capacity and the country’s largest private oil firms have said they need new infrastructure to boost exports, including those to the USA. «Baku-Ceyhan is our direct competitor, but there is nothing to be afraid of,» said Russia’s chief Caspian negotiator Viktor Kalyuzhny. «I think it is even positive, because it can shake up (Russian state pipeline monopoly) Transneft’s officials, who have become too used to being monopolists,» he said. Experts said the Baku-Ceyhan route will become increasingly important with new oil discoveries in other Caspian Sea nations, including Russia and Kazakhstan.«The profitability of the project is still looking doubtful without oil from Kazakhstan,» said Kaluyzhny. Lee said he believed the project’s profitability was not dependent on new volumes, but it was likely to get them in the future. This could include oil from Russia’s actively explored Caspian sector as well as Kazakhstan’s Kashagan offshore field, the biggest oil find for 30 years. Experts also said building the Baku-Ceyhan pipeline would help cement US support for the young post-communist states of Azerbaijan and Georgia, and further isolate Iran, which still hopes to become an important oil player in the Caspian region.