Oil & Gas Journal, TX
May 25 2005

First leg of BTC pipeline inaugurated in Azerbaijan

Eric Watkins
Senior Correspondent

LOS ANGELES, May 25 — The first leg of the Baku-Tbilisi-Ceyhan (BTC)
oil export pipeline was inaugurated May 25 in an official ceremony at
the head pump station in the Sangachal Terminal near Baku.

BTC Co. shareholders are BP PLC, 30.1%; AzBTC, 25%; Unocal, 8.9%;
Statoil, 8.71%; TPAO, 6.53%; Eni and Total, 5% each; Itochu, 3.4%;
INPEX and ConocoPhillips, 2.5% each; and Amerada Hess, 2.36%.

The inauguration ceremony follows the commissioning of the BTC head
pump station at the Sangachal terminal and officially marks the
commencement of the first line-fill phase (OGJ, May 16, 2005, p. 32).

A total of 10 million bbl of crude oil is required to fill the
1,760-km, 34-46-in. pipeline, running from the Sangachal terminal via
Georgia to the Ceyhan terminal on the Mediterranean coast of Turkey.

The oil will come largely from the Azeri-Chirag-Gunashli (ACG)
complex of fields off Azerbaijan in the Caspian Sea. The staged
filling of the pipeline along its entire route could take more than 6
months. Loading of the first tanker at Ceyhan is expected in the
fourth quarter of 2005.

The project’s biggest economic benefits will go to Azerbaijan because
the pipeline will serve mainly as a conduit for oil from the ACG
fields. With oil at $25/bbl, the government could earn $50 billion
over 20 years. Georgia and Turkey are expected to earn about $600
million and $2.5 billion respectively, mainly from transit fees.

Kazakhstan also expects to profit from the new pipeline. Officials on
May 24 signed a long-discussed agreement on transporting Kazakh oil
through the new pipeline.

Political questions
While officials of companies involved in the pipeline and officials
of countries it crosses hailed the benefits to global oil supply,
political questions about the BTC line remain.

The pipeline received strong support from the US as a way to link
Caspian oil to international markets without transiting Russia or
Iran.

Vafa Guluzade, a former foreign affairs adviser to the Azerbaijan
government, said the 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.”

The pipeline, he told the Associated Press, “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.”

But Mikhail Margelov, chairman of the Russian Federation Council’s
International Affairs Committee, dismissed that view, saying, “In the
modern world, Moscow approves the development of healthy competition
and economic partnership among its [Commonwealth of Independent
States] neighbors and colleagues.”

But he stressed that political uncertainties arise from the fact that
the pipeline represents a potential security risk.

“This pipeline is virtually golden, and someone certainly must
protect it,” Margelov told Russia’s Interfax news agency. “Russia’s
attitude to proposals made by some politicians that this task should
actually be delegated to the United States is firmly negative. Russia
will always be negative about the appearance of any foreign military
contingents within the boundaries of the CIS.”

Margelov wondered why Russia is not being asked to help protect the
pipeline.

“Russia has huge experience of [military] presence in the region. We
all are partners in the antiterrorist coalition, and it makes
attempts to use the new pipeline as a pretext for enhancing a foreign
military presence in the region doubly outrageous,” he said.

Terrorist threat
The pipeline does represent a potential terrorist target, as noted by
Azeri authorities who last year reported on possible sabotage
attempts by militants linked to al-Qaeda. Other potential threats
could come from Turkey’s Kurdish militants and Armenians angry at
their country’s unresolved conflict with Azerbaijan over the disputed
territory of Nagorno-Karabakh.

But steps have been taken to ensure the security of the line. BTC
says the installations are monitored by electronic surveillance and
company guards, while the armed forces of Azerbaijan, Georgia, and
Turkey have agreed to joint exercises to coordinate pipeline
protection.

The Georgian Defense Ministry reported on May 24 that Azerbaijani,
Turkish, and Georgian troops will conduct joint exercises in August
to ensure the security of the pipeline.

It said the military will be trained to prevent terror attacks, acts
of sabotage, and environmental catastrophes along the pipeline route.
In case of sabotage or an environmental catastrophe on the territory
of one of the transit countries, the military of the other two
countries would provide assistance.