St. Petersburg Times
15 May 2005
A pipeline to promise, or a pipeline to peril
The United States is betting the future of energy lies in the hard-to-reach
Caspian Sea. With the $3.6 billion pipeline about to open it remains to be
seen if the investment will show a return.
By CANDACE RONDEAUX, Times Staff Writer
Published May 15, 2005

American-backed plans to build a nearly 1,100-mile long oil pipeline from
the Caspian Sea to the Mediterranean are about to go from what skeptics once
called a “pipe dream” to a reality.
Trailing from Baku, Azerbaijan, through Georgia to the Turkish seaport of
Ceyhan, British energy giant BP will bring the Baku-Tbilisi-Ceyhan (BTC)
pipeline on line this month. One of the longest oil routes in the world,
it’s expected to pump 1-million barrels of oil a day by 2010.
With oil prices skyrocketing, the hope is the pipeline will bring consumers
in the West a steady flow of oil while avoiding the usual risks. No shaky
Middle East regimes to deal with. No tricky negotiations with unfriendly
OPEC nations. Instead, the theory goes, oil would flow smoothly through the
rugged deserts and steep mountainsides of cash-starved former Soviet
republics. Along the way, the $3.6-billion project would bring foreign
investment and much-needed economic development to the region.
President Bush sees the BTC pipeline as a critical piece of America’s energy
policy for the future.
“Greater energy security through a more diverse supply of oil for global
energy markets, these are the engines of global growth, and with this
pipeline those engines can now run at high speed,” Bush said on the eve of
the pipeline’s construction launch two years ago.
But the project represents a big gamble for the United States in an
energy-rich region traditionally dominated by Russia and Iran. The pipeline
could undercut Iranian oil production and compete with Russian-controlled
oil routes, which has provoked some grumbling from both countries.
To guard against threats, the United States has spent $64-million to train
Georgian troops in antiterrorism tactics. American military officials have
said the United States will spend an additional $100-million to train and
equip the Caspian Guard, a network of special operations and police units
that will protect oil facilities and key assets in the region, the Wall
Street Journal reported in April.
Much of the pipeline operations are orchestrated from BP’s offices in Baku,
the capital of Azerbaijan. A few miles from the phalanx of rusting
Soviet-era oil derricks that line the city’s coast, BP’s headquarters are
tucked away in the ultralux Park Hyatt Hotel, a modern pastel confection of
a building.
In the lobby, dark-haired Russian women in stiletto heels, thick lipstick
and Gucci sunglasses lounge on suede couches. German businessmen chomp on
overpriced sandwiches. Doormen eye visitors warily at the entrance. The
hotel is the nexus of the modern Wild West, where Western oil executives and
Soviet-era strong men are corralling a new energy corridor.
In his sleek office several floors up, BTC Company CEO Michael Townshend
plots a crucial part of the Caspian region’s economic future. The oil exec
has spent much of his career jetting from pipeline to platform, from Alaska
to Nigeria, Australia and Texas.
For the past decade, Townshend has been in Baku on a mission even the most
sanguine of oil men would call hellish. BP and 10 other stakeholders that
form the BTC Company have bet billions that the Caspian region will be the
next big thing in global energy production.
Winning the bet means coping with howling winter winds in eastern Turkey
that have thrown construction off schedule and off budget; clearing mine
fields along the pipeline’s route that are leftover from the conflict
between Armenia and Azerbaijan; and dealing with the threat of sabotage by
rebel groups in Georgia’s breakaway republics.
Townshend believes the hassle is worth it, even as he acknowledges that what
comes out of this oil field through his BTC pipeline will cover just a
fraction of world demand.
“But,” he says, “the oil that comes out of BTC is about a quarter of the new
growth of oil production. In that respect it’s very significant, especially
since it’s a non-OPEC, non-Russian source of oil.”
Some experts have doubts. Bulent Aliriza, a Caspian region political analyst
at the Center for Strategic and International Studies, said the BTC route
could be a boon for Turkey. He worries, however, that the pipeline could
spark conflict between the United States and Russia, or even Iran.
“You can build the best pipeline in the world but once the politics change
you can’t use it,” Aliriza said.
Plus, Aliriza said, there might not be enough oil in the BTC pipeline to
make it economical. When the Clinton administration first pitched its
ambitious plan to transport Caspian Sea oil to the West in 1994, the
landlocked body of water in Russia’s back yard was hailed as the “new
Persian Gulf.” Some estimated that the Caspian area could hold as much as
233-billion barrels of oil, a close runnerup to Saudi Arabia – eight times
the estimated 29-billion barrels of proven oil reserves in the United
States.
Much of the exuberance of those years has dissipated; now the U.S. Energy
Information Administration estimates the Caspian Sea could hold from
17-billion to 33-billion barrels of proven oil reserves. By 2010, analysts
expect the countries in the region to produce from 2.4-million to
5.9-million barrels per day, rivaling South America’s largest oil producer,
Venezuela. But several Western oil companies have recently pulled out of
exploration in parts of the Caspian as wells have come up dry.
That does not bode well for the BTC pipeline, which needs a steady and
abundant supply of oil to make BP’s investment pay off. Scarce oil in the
Azerbaijan section of the Caspian could force BP to hunt for fields
elsewhere, Aliriza said.
Townshend disagrees.
“The economics is based only on the oil we know we have,” he said. “If there
was no more oil that came into BTC, that’s fine. We don’t speculate as to
whether it will be economical if we get oil from say Kazakhstan. It is
purely based on what we know we’ve got.”
The pipeline’s success also depends on backing from international lenders.
The U.S. Export-Import Bank and the Overseas Private Investment Corporation,
have signed off on $250-million in loan guarantees. The European Bank for
Reconstruction and Development, World Bank and others are financing about 70
percent of the project.
“These international lenders are not pushovers,” said Steve Mann, the White
House’s Caspian Basin energy adviser. “They have tough environmental
policies, so if the BTC Co. can get these plans through them that’s a great
vote of approval.”
But the pipeline has received few votes of confidence from environmentalists
in Georgia. They worry that the oil route’s path across the rugged terrain
of the Caucasus Mountains could make it vulnerable to damage from landslides
and cause an ecological disaster.
Spanning a distance roughly the equivalent of a train ride from Miami to New
York, the pipeline makes 1,500 river crossings, including one near the
Borjomi Gorge in Georgia. Environmentalists worry an oil leak could pollute
the water there and devastate the country’s economy.
Troubled waters
The Kura River cuts a cool, foamy line down a narrow sluice of black
boulders in Borjomi. Wood shacks with corrugated iron roofs line the river’s
bank. Wood-burning stoves churn charred chimney air over the river’s swirl
of white water.
The water here is mythic and enduring. Every year, thousands of summer
revelers descend on Borjomi for a dip in the western Georgian mountain
town’s steaming hot mineral water springs. Though the handful of rustic
sanatoriums and refurbished 19th century hotels are not exactly four-star
establishments, Borjomi is one of Georgia’s biggest tourism engines. For
decades, this resort town of roughly 17,000 has drawn everyone from Russian
czars to soccer stars.
Once known as the Aspen of imperial Russia, Borjomi is home to one of
Eastern Europe’s most widely distributed brands of mineral water. The
Georgian Glass and Mineral Water Company sold 131-million bottles of Borjomi
mineral water in 2003, raking in roughly $90-million in revenue. Production
of the mineral water has been like an elixir for Georgia’s ailing economy,
generating 10 percent of the country’s total exports.
“It’s the Coca-Cola of the ex-Soviet Union,” said Georgian Glass and Mineral
Water Company CEO Jacques Fleury.
He and others worry that routing the pipeline through the Borjomi region
could jeopardize the mineral water source. Any hint of a problem with the
pipeline could spell disaster for the company.
“We have to cope with it, but it is a little difficult,” Fleury said. “We
are being told that the maximum has been done to protect the environment,
but we’re not yet convinced. If there’s a leakage I don’t know how we would
recover.”
Neither does the Georgian government. In July, Georgia’s minister of
environment, Tamar Lebanidze, ordered a two-week halt to construction of the
pipeline near Borjomi. Lebanidze worried BP had not taken enough steps to
guard against oil spills.
“We consider Borjomi an area of very high sensitivity, the most sensitive
along the whole pipeline,” Lebanidze said.
The Georgian government is especially concerned about the nearby
Borjomi-Kharagauli National Park. Home to some 1,600 unique plant species
and the endangered Caucasian leopard, the 195,000-acre nature preserve is an
oasis of conservation in a region decimated by years of Soviet neglect and
endemic poverty.
“If the pipeline breaks it would not only ruin the ecology of the national
park, it would bankrupt the whole country,” said Kakha Tolordava, a
spokesman for the Tbilisi office of the World Wide Fund for Nature, a group
that helps maintain the preserve.
There’s reason for concern. Last year, Britain’s Parliament opened an
inquiry into whistle-blower reports that BP did not follow proper design
safeguards and used a faulty adhesive to seal the pipeline joints.
BP acknowledged the company had to dig up large sections of the pipeline in
2003 to repair corrosion in about one-quarter of the pipe joints in
Georgia – 1,560 in all. But the company says the risk has been exaggerated
and the problems fixed. Late last year, BP also provided $6-million to
enhance pipeline security in the Borjomi region and an additional
$40-million for development programs.
But the security plan has done little to reassure some of the project’s
backers. Late last year, Banca Intesa, one of Italy’s largest banks, said it
plans to sell off part of its $60-million stake in the pipeline because of
fears over a potential leak.
An oil leak would be no small affair for Georgia, a nation roughly the size
of South Carolina. The impoverished country is expected to earn about
$50-million to $65-million in annual transit fees from the BTC pipeline –
big money for a country with an annual budget of $1-billion.
But environmentalists and human rights activists say no price can be placed
on the potential damage. In the past year, government forces have clashed
violently with antipipeline protesters on more than a dozen occasions.
BP officials acknowledge the route is far from ideal, but they say their
hands are tied.
“Every Georgian has a childhood memory of spending time in Borjomi so we
knew it would be difficult,” said Ed Johnson, BP’s former project manager
here.
“But for security, and other reasons it was the only way to go, so we
threaded the needle through Borjomi. It automatically creates a lack of
faith in what the company wants to do.”
Moving mountains
About an hour’s drive from Borjomi, the car bogs down in mud about halfway
up the road. The driver, a gray-haired man with a weather-worn face,
struggles with the gearshift on his rusty Soviet-era sedan. The engine
grinds as the car’s balding tires squeal their discontent.
The driver shakes his head. A landslide has made the road impassable. He
lights a cigarette and tells his passenger, Tamuna Kurtanidze, he’ll wait
but she’ll have to walk the rest of the way. Kurtanidze, a human rights
activist with the Georgian environmental group Green Alternative, gets out,
her white sneakers sinking into the ankle-deep mud.
The soil in Dgvari has been shifting for centuries. The tiny farming village
is smack in the middle of the Lesser Caucasus Mountains, in one of the most
geologically unstable regions in the world.
Landslides regularly send torrents of mud crashing through the village.
Heaps of the stuff roll up the sides of homes, staining stone walls, seeping
beneath doorjambs.
Like many settlements along the oil route, Dgvari barely rates a tick on
most maps. Life here has never been easy, and villagers say it’s gotten
worse since BP began building a section of the BTC pipeline on a nearby
ridge.
Kurtanidze travels to Dgvari and other villages, collecting grievances. She
is part of the small army of international human rights activists monitoring
the pipeline construction.
“One crack in the pipeline could level all of Dgvari,” she said. “What we
want to know is who is going to help the villagers in Dgvari and in other
towns when that happens.”
BP has offered $1-million to help resettle villagers, leaving it to the
Georgian government to distribute the money and help people move out of the
danger zone. The government, in turn, said late last year it would pay the
entire village about $440,000 for resettlement.
The pipeline lies near the path of five known active landslide faults in
Georgia, including one near Dgvari. Severe as the risk might sound,
geophysicist Tamaz Chelidze casts a cool, scientific eye on the potential
danger. The threat of a rupture is real, he said, but if the pipeline were
damaged, the environmental fallout is not necessarily insurmountable.
“When you have those kinds of faults, of course, it’s quite dangerous,”
Chelidze said. “But that doesn’t mean people can’t live there. People have
lived there for centuries.”
Villagers here are not convinced. Some are packing to leave, including Gocha
Gogoladze. The 52-year-old farmer spits at the long gash running down the
concrete wall of his house. Nearly every house in Dgvari has one like it.
It started as a hairline fracture last fall, in a storage room wall behind a
row of mason jars filled with pickled vegetables. Now, months after BP’s
heavy construction trucks arrived, the crack is a foot wide.
“It’s dangerous,” he said. “No one can live like this.”
Deep doubts in Atskuri
The pipeline isn’t playing out well with villagers near Georgia’s border
with Turkey either. Out here at the remote western end of Georgia’s
wind-swept countryside, huge black metal pipes snake along the steep
undulating curves of rusty, yellow mountain ridges. Half-buried in the
crumbling brown earth, the pipeline yawns across the barren landscape.
About a half-mile from the pipeline, near the village of Atskuri, men in
leather jackets and wool caps huddle by a roadside kiosk, drink beer and
watch BP’s trucks rumble down the road.
There is little else to do in Atskuri other than watch the days slide by,
says Gela Mumaladze. The village’s 39-year-old town headman hoped that would
change when BP began building the pipeline nearby.
“They promised they would give us work, but so far they’ve hired maybe five
people in the past two months.”
High expectations have led to deep disillusionment in Georgia. BP estimates
the pipeline will have created about 10,000 temporary jobs by the time it’s
operational. But only about 250 people will be permanently hired in Georgia.
Construction has been delayed several times because of violent protests over
labor disputes.
“People were told that there would be 70,000 Georgians that were going to be
employed because of this pipeline,” BP’s Johnson said. “The (Georgian)
government needed to sell the project to its own people so some of the
benefits were overblown.”
A few miles from Atskuri, in the tiny town of Tnisi, 45-year-old shopkeeper
Tsiala Gakhishvili walks alongside the land her family has farmed for 12
years. After pipeline construction crews built a dam nearby, water from the
Kura River flooded the plot, she said.
BP officials said the company has promised to pay some 35,000 landowners
about $130-million for land along the pipeline’s route. But Gakhishvili said
she is not one of them.
“We told BP they ruined our land. They said, “It’s not our fault,’ and
refused to do anything about the problem,” Gakhishvili said.
Johnson said Georgia’s muddled Communist-era property laws have made sorting
out landowners’ claims difficult. He said disappointments are par for the
course when large-scale projects bring a flood of money into impoverished
regions.
“Imagine being in a place where no one has ever sold or exchanged property,”
Johnson said. “That means you can have 4,000 different standards for
property sales. It really sets up an atmosphere of mistrust between people
and the company.”
Tensions aside, Bush administration officials say the BTC pipeline is
setting a high standard for future large-scale energy projects around the
world. Mann, the White House adviser, dismissed concerns about the
pipeline’s effect on the environment and local economies, saying BP and its
partners have brought an “unprecedented level of transparency” to the
project.
“It’s a tremendous success because not only have the companies managed to
build this but they have built it in a way that is setting a new benchmark
for pipeline projects,” Mann said. “Future pipeline projects around the
world are going to have to meet BTC standards.”