National Public Radio (NPR)
SHOW: Talk of the Nation 3:00 AM EST NPR
May 25, 2005 Wednesday

Frank Verrastro discusses the opening of the new trans-Caspian
pipeline

ANCHORS: NEAL CONAN

NEAL CONAN, host:

This is TALK OF THE NATION. I’m Neal Conan in Washington.

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Right now if champagne is called for whenever you christen a ship,
what do you break over a new oil pipeline? Whatever beverage one
might pick, the opening of the new trans-Caspian pipeline today was
certainly a cause for celebration in the countries along its route,
and an interesting group of countries it is. Joining us now to talk
about the political and economic issues surrounding this new pipeline
is Frank Verrastro, the director of the Energy Program at The Center
for Strategic and International Studies here in Washington, DC.

Thanks very much for being with us.

Mr. FRANK VERRASTRO (Energy Program Director, The Center for
Strategic and International Studies): Sure. Thank you, Neal.

CONAN: The route of this pipeline is part of what makes it so
interesting. What can you tell us about it?

Mr. VERRASTRO: Well, the route actually covers a thousand miles. It
goes from Baku in Azerbaijan, across Georgia up to Tbilisi, and then
down through Turkey and exits at the port of Ceyhan on the
Mediterranean coast.

CONAN: So tankers would pick up crude oil from the end of the
pipeline in Turkey.

Mr. VERRASTRO: Exactly.

CONAN: Now prominently not on that list is Russia.

Mr. VERRASTRO: And that’s one of the, I think, big successes of the
Baku-Ceyhan pipeline. It brings a relatively new and maybe
substantial producing region and gives it access to Western markets,
but the pipeline isn’t through the Persian Gulf or through Russia.

CONAN: Now at one point, many people believe that this Caspian region
around Azerbaijan, Baku, was going to be a major source of new oil
for the world. How is that panning out so far?

Mr. VERRASTRO: It’s–there’s been about–oh, God–12 years of
experience in drilling. Part of the problem was lack of
infrastructure. But you’re right. You know, in the early days, I
think with the dissolution of the Soviet Union, the Western oil
companies in particular flocked to the Caspian, and the estimates
were up to 200 billion barrels of recoverable reserves. The
experience has been somewhat less, but it’s kind of a mixed bag. I
would say there’s been, you know, certainly some uncommercial finds,
but there’s been some successes, too. The ACG project, which is
what–the oil that’s coming going through the Baku-Ceyhan pipeline
now is coming out of ACG, Kashagan and Kazakhstan, the Shakh-Deniz
gas project. So there’s been a couple of big successes, but it’s been
a mixed result.

CONAN: And would those fields funnel their oil to Baku and then on
the pipeline?

Mr. VERRASTRO: Well, the ACG project clearly is going through
Baku-Ceyhan. And I believe since the pipeline’s undersubscribed,
there’s discussions with the Kazakhs to move some of the Kashagan oil
through Baku-Ceyhan, as well.

CONAN: But instead of something that might rival OPEC, you’re looking
at something that might rival, oh, a major member of OPEC, Iran, say.

Mr. VERRASTRO: Yeah, exactly. In terms of total production by 2012 or
2015, it’ll be about four million barrels a day. So it’s not
insignificant, exactly.

CONAN: And this is not OPEC oil.

Mr. VERRASTRO: No. No. Although I guess it always leaves the option
open for producer countries to join OPEC down the road.

CONAN: You mentioned how long these projects have been in
development–I guess basically since the fall of the Soviet Union.
And I guess in the interest of full disclosure, we should say that
you worked with Pennzoil very early in the development of this
pipeline. One of the major concerns, though, has to be stability,
both geologic stability and political stability.

Mr. VERRASTRO: No, that’s absolutely true. I mean, if you look at the
Caspian today, I would argue that it’s probably a more sensitive time
than it was even when we went in in the early 1990s. You’ve got a new
transition of leadership, you’ve got a number of different political
conflicts going on in the region, in Georgia and Chechnya, in Armenia
on the border of Azerbaijan. Then you’ve got the situation with Iraq
just to the south. So, yeah, it’s a tough neighborhood, to be sure.

CONAN: The countries involved all would collect transit fees for the
oil. I guess this would be very good news for Azerbaijan and Georgia
in particular.

Mr. VERRASTRO: Yes. Well, Georgia would prosper both as a transit
country and probably gain some energy supply as a result. Turkey’s in
the same boat. Azerbaijan has a dual role. They’re also a participant
in the project as well as a shipper. So…

CONAN: Mm-hmm. Now the United States has been heavily involved in the
development of this project, no?

Mr. VERRASTRO: Absolutely.

CONAN: And for the particular reason that this was–well, I guess, a
way to get out of that Russian nexus.

Mr. VERRASTRO: Yeah. If you look at the Caspian, it’s landlocked. So
when the oil and gas were discovered in the Caspian, the real issue
was: How do you get it to hard-currency markets? And of the
choices–if you went north, you were going through Russia; the China
market wasn’t developed yet if you could go back, you know, 10 or 15
years; couldn’t go south because of Iran’s sanctions or southeast
because of turmoil in Afghanistan and Pakistan. So really, you are
kind of left with either going through Russia on a changed route or
looking west to go through Georgia and Turkey.

CONAN: Hmm. Now Russia has not necessarily been very happy with US
involvement in certain situations in Ukraine and various other former
Soviet republics. How is Russia responding to this more economic
threat?

Mr. VERRASTRO: I think they are concerned about the US presence in
the region. I mean, I don’t think there’s any question about that.
And the same for Iran. You know, the Iranians–the Azeris, when this
project first got off the ground, wanted to introduce an Iranian
company into the consortium, and the US government objected to that,
said that no US companies could participate if Iran was a member. So
the Iranians were left out of ACG, and they got a piece of the next
project, the Shakh-Deniz project.

CONAN: So when it comes down to it, what do you think this project is
going to amount to?

Mr. VERRASTRO: In terms of global supply, I mean, it’s clear that it
would be helping on the margin. I mean, four million barrels a day of
new production from a non-Middle East source has to be good news for
global markets. But you’re right. I mean, it’s not another Saudi
Arabia, it’s not another Middle East. What we’ve learned about the
Caspian is that it’s hydrocarbon-rich, but there’s large gas-prone
areas. And that, at the end of the day, may be a bigger contributor
than the oil. Infrastructure is still a limiting factor, but the big
issue is managing the geopolitics.

CONAN: Frank Verrastro, thanks very much for being with us today.

Mr. VERRASTRO: Absolutely. Thank you, Neal.

CONAN: Frank Verrastro is director of the Energy Program at The
Center for Strategic and International Studies, and joined us from
his offices in Washington, DC.