BP Faces Problems Over Caspian Pipeline

International Oil Daily
26 July 2004

By Michael Ritchie

LONDON — BP said on Monday that it hopes to resume work on a section
of its crucial 1 million barrel per day Baku-Tbilisi-Ceyhan crude oil
pipeline on Aug. 2, after the former Soviet republic of Georgia called
for a temporary halt to construction because of environmental
concerns.

But diplomatic sources say the new government that took power in
Tbilisi last year, after ousting veteran Georgian leader Eduard
Shevardnadze in a bloodless revolution, could create more problems for
the $3 billion project.

The 1,768 kilometer pipeline is being backed by the US as a way of
exporting oil from fields in the Caspian Sea at the same time as
achieving strategic goals. It will reduce Russia’s grip on exports
from the region’s former Soviet states, will avoid routing exports
south through Iran, and will direct flows through Nato ally Turkey,
which stands to earn handsome transit fees from the traffic.

Georgia, for its part, is in line to bank $1 billion in transportation
tariffs from the line over the next 20 years.

But with at least 50% of the construction work completed on the 248 km
of pipeline that crosses its territory, the Georgian environment
ministry on Jul. 19 requested BP to stop work for two weeks on a 17
km section that crosses the Borjomi region.

“The new government [in Tbilisi] wants to look into the measures being
taken on the pipeline to make sure it is secure,” a BP spokesperson
told International Oil Daily.

But the delay could grow because the new Georgian authorities want to
bring in their own consultants to look at the safety measures that BP
has taken and review new documentation they have requested from the UK
major.

The section of line in question skirts, but does not cross, the
territory of the Borjomi national park, BP says.

Environmentalists have attacked the pipeline for threatening the
ecology of the park, which is a designated area of outstanding natural
beauty and the source of a mineral water famous through the former
Soviet Union.

BP claims it has already implemented special conditions for the
Borjomi stretch of line, such as installing extra valves to ensure
rapid shutdown in the event of a leak, and extra sensors to detect any
earth movements.

It says that work is continuing on the rest of the pipeline in
Georgia, adding that it remains on schedule to start pumping crude
from Baku in Azerbaijan to the Turkish Mediterranean port of Ceyhan
for export to world markets in the second half of 2005.

Diplomatic sources in the region say the new government in Tbilisi may
try to wring more cash out of BP and its partners to bolster Georgia’s
efforts to bring the breakaway region of South Ossetia back into the
fold.

“This is about money. They need money,” one Georgian politician told
International Oil Daily.

BP maintains that Georgian President Mikhail Saakashvili has in the
past said that he doesn’t want the pipeline project to be delayed.

But the diplomatic sources said that Saakashvili and two of his
closest political allies, including Prime Minister Zurab Zvania, have
Armenian roots and would sympathize with Armenia’s position of not
wanting to see arch-enemy Azerbaijan rake in huge oil earnings.

The sources point out that work on the pipeline was halted just days
before the visit to Tbilisi of Armenian Prime Minister Andranik
Margaryan for cooperation talks with his Georgian counterpart.

“These guys will try to do anything to delay the project,” the
Georgian politician said.

US engineering giant Bechtel is the contractor for the sections of the
line that cross Azerbaijan and Georgia, while Turkish pipeline concern
Botas is handling the Turkish end.

The line is being built by an international consortium headed by BP,
which has a stake of 30.1%, and includes Azeri state oil company Socar
(25%), Unocal (8.9%), Statoil (8.71%), Turkey’s TPAO (6.53%), Total
and Eni (both with 5%), Itochu (3.4%), ConocoPhillips and Inpex (both
with 2.5%), and Saudi-US venture Delta Hess (2.36%).