Output insufficient for Caspian oil line venture

Ulhas Joglekar ulhasj at SPAMbom4.vsnl.net.in
Sat Nov 27 18:25:25 MST 1999



Saturday, November 20, 1999

Output insufficient for Caspian oil line venture
Ercan Ersoy

Istanbul, Nov 19: The signing of landmark accords for a pipeline to
carryCaspian oil to world markets has failed to change the view among
analyststhat there is insufficient oil in sight to make it financially
viable.
Turkey, Azerbaijan and Georgia on Thursday signed four agreements for
the1,730-km (1,081-mile), $2.4 billion pipeline from the Azeri capital Baku
toTurkey's Ceyhan Port that will by-pass the region's two energy
giants -Russia and Iran.
Oil analysts said the agreements would provide a legal framework for
thepipeline, designed to carry one million barrels per day (bpd), or 50
milliontonnes a year. "The signing of the four agreements, which will
provide thelegal basis for Baku-Ceyhan, is a necessary but not sufficient
condition,"Necdet Pamir, an oil analyst from the Ankara-based Eurasian
StrategicResearch Centre said.
"There is no throughput guarantee for the pipeline and it just does not
havea finance model that will persuade Western financiers to provide
therequired loans," said Pamir, a former negotiator for Turkey on the
pipelineproject.A Turkey-based official of BP Amoco Plc, which leads the
AzerbaijanInternational Operating Consortium (AIOC) producing oil in
Caspian, said ajoint company should be formed to first lure new shippers for
Baku-Ceyhanand then market the Caspian oil.
"This could be the next step now that the documents are signed," he said.The
accords were only "a start-up", according to a Baku-based oil source,
inIstanbul for the Organisation for Security and Cooperation in Europe
(OSCE)summit where the Caspian energy deals were signed.
Pamir said the AIOC, which produces 1,15,000 BPD at present, would
produce7,00,000-8,00,000 BPD at peak production in 2007. "But this will
still befar short of the line's commercial viability level of one million
bpd," hesaid. AIOC is the only venture producing oil among the 17 consortia
in theCaspian, almost all led by Western oil giants. The consortia's initial
oildrills have given disappointing finds.
Strategic importance
Turkey will get an average $100 million annually in transit fees
fromBaku-Ceyhan, but its strategic importance was more important than
financialgains, analysts said.
"The line will by-pass Russia. Central Asian republics will no longer
dependon Russia to export oil and gas," said Pamir.
BP Amoco, a long-time opponent of the Baku-Ceyhan project on cost
grounds,announced support last month in an apparent turnaround of policy.
"These pipelines will be an insurance policy for the entire world, helpingto
ensure that our energy resources pass through multiple routes, not asingle
choke point," said the US President Bill Clinton, who helped steerthe
agreements to completion and signed them as a witness. Kazakhstan
andTurkmenistan signed the accords as witnesses.
The project was shepherded by the United States, which wants to
breakRussia's dominance over transport routes from the region and allow
Caspiannations to market their own energy resources.
Russia, which had reportedly tried as recently as last weekend to scuttlethe
oil pipeline deal, dismissed the $2.4 billion oil pipeline project astoo
expensive.
Leaders at the ceremony acknowledged that the viability of the oil
projectremained to be proved and financing had yet to be arranged. But
theyexpressed optimism that both pipelines would be built.
"Today represents just the beginning of the intensive commercial phase
ofthis project," Clinton said. Clinton pledged the US help in financing
theBaku-Ceyhan oil and Trans-Caspian gas pipelines through the US
Governmentagencies. The Baku-Ceyhan plan calls for the pipeline's
construction tobegin in early 2001 for completion in 2004. Also regarded as
anenvironmentally friendly alternative to shipping oil through Turkey's
narrowstraits, the project is designed to pump out 25 million tonnes of
Azeri and20 million tonnes of Kazakh oil annually.
Turkey, Azerbaijan, Georgia and the AIOC will now form an
implementationcommittee to draw up detailed engineering documents and a
finance planthrough "open season" negotiations in early 2000, a White House
pressrelease said.
Turkey agreed to guarantee the $1.4 billion cost of the part of the
projectto be built in Turkey, the US Officials said.

Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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