Caspian Sea Pipeline to Be Unveiled

Associated Press
Tuesday, May 24, 2005

By AIDA SULTANOVA, Associated Press Writer

Presidents and oil company executives will inaugurate a 1,100-mile
pipeline Wednesday that will carry millions of gallons of crude from
the landlocked Caspian to the Mediterranean – a much-needed
alternative to Mideast energy resources.

Analysts say the $3.2 billion, U.S.-backed Baku-Ceyhan pipeline could
also help bring stability to the troubled region. The Caspian is
thought to contain the world’s third-largest oil and gas reserves.

“This global project will completely change the economic situation in
Azerbaijan, and in the political sense it will influence the rest of
the Caucasus and Central Asia,” said Vafa Guluzade, a former foreign
affairs adviser to the Azerbaijani government.

Built by a consortium led by BP PLC, the pipeline runs from Azerbaijan
through Georgia to the Turkish port of Ceyhan.

Until now, Caspian states sent almost all their oil through Russian
pipelines to reach world markets. The new route will neutralize any
Russian attempts to use economic levers to bring former Soviet
republics back under its wing, Guluzade said.

The pipeline “will carry a huge volume of oil, and Russia is nervous
that it is being deprived of big money and also the possibility to
dictate its terms to these states,” he said.

Azerbaijan will earn taxes and royalties on the oil, while Georgia and
Turkey are to profit from transit fees.

The presidents of Azerbaijan, Kazakhstan, Georgia and Turkey are to be
on hand – along with U.S. Energy Secretary Samuel Bodman and oil
executives – to watch Azerbaijani President Ilham Aliev open the taps
Wednesday for the first symbolic drops of oil to enter the pipeline at
the Sangachal oil terminal, about 25 miles south of the Azerbaijani
capital, Baku.

Aliev and Kazakhstan President Nursultan Nazarbayev planned to sign an
agreement on transporting Kazakh oil through the new pipeline Tuesday.

“We view this as a significant step forward in the energy security of
that region,” Bodman said Tuesday in Moscow.

The president of the pipeline consortium, Natik Aliev, said it would
take up to a month and a half to fill the Azerbaijani section of the
pipeline. The Georgian part will be ready after that, and then the
Turkish stretch, which Turkish authorities have said should be filled
by Aug. 15. It will take approximately 420 million gallons of crude to
fill the entire pipeline.

Bodman said deliveries would begin in the fall.

“This is a contribution toward … an increase supply in oil in the
world,” he said. “It adds a new supplier of some consequence.”

But experts say the new oil will provide only short-term relief to a
world that is consuming more crude every year. Oil prices, while down
from their recent highs, are still hovering around $49 a barrel.

Four years ago, oil officials spoke of finds that could rival the
Middle East’s production. But experts now say the Caspian should pump
some 168 million to 210 million gallons per day, on a par with Iran.

Eshan Ul-Haq, chief analyst at PVM Oil Associates in Vienna, Austria,
said the pipeline will have an impact – but only for Europe, because
initial volumes will be low.

He also said the pipeline’s oil could bring prices down for sour-grade
crude such as those produced by Iraq and Saudi Arabia, and it could
mean lower prices for Russian Ural oil. The oil most in demand is
light, sweet crude, which most refiners prefer because it is low in
sulfur and easy to process.

Azerbaijan, meanwhile, hopes the pipeline will raise its profile and
swing international support behind Baku in its dispute with Armenia
over the Nagorno-Karabakh enclave, which ethnic Armenian separatists
took control of more than a decade ago. The conflict continues to
simmer, undermining the region’s security.

The pipeline “will bring a certain element of stability in terms of
cooperation,” with big states pressuring both “Armenia and Azerbaijan
to resolve the Karabakh conflict as quickly as possible,” said analyst
Rasim Musabekov.

Associated Press writer George Jahn in Vienna contributed to this
report.