Journal of Turkish Weekly
May 27 2005
Startup of the Baku-Tbilisi-Ceyhan Pipeline: Turkey’s Energy Role
Soner Cagaptay and Nazli Gencsoy
May 27, 2005
On May 25, the presidents of Azerbaijan, Kazakhstan, Georgia, and
Turkey inaugurated the Baku-Tbilisi-Ceyhan pipeline (BTC), a major
artery linking oil fields in the Caspian Sea region to the
Mediterranean Sea and Western markets beyond. It will take several
months for oil pumped from Baku, Azerbaijan, to pass through Tbilisi,
Georgia, and reach the Turkish coast at Ceyhan. Eventually, BTC will
carry up to 1 million barrels per day (bbl/d) of crude oil to the
Mediterranean. With growing concern over Western dependence on Middle
Eastern oil and rising global oil prices, Turkey is emerging as a key
country in providing Caspian oil to the Western world.
Background: A Pipeline Born of U.S.-Turkish Cooperation
According to British Petroleum’s Statistical Review of World Energy,
proven oil reserves in the Caspian Basin total 16.5 billion barrels,
comparable to the reserves of Canada, Mexico, or the OPEC member
state Qatar.
President Bill Clinton and Turkish President Suleyman Demirel settled
heated debate in the mid-1990s over how best to bring Caspian oil to
world markets by throwing their weight behind the BTC. Washington and
Ankara saw the BTC as a key east-west corridor that would ensure the
independence and economic viability of the newly independent states
in the Caspian Basin. The BTC also made strategic sense to the United
States and Turkey because it would bypass politically unstable places
like Iran, the northern Caucasus (including Chechnya), and
Armenian-occupied parts of Azerbaijan.
Further, the BTC was seen as useful to easing the burdens on the
Turkish Straits of the Bosporus and the Dardanelles. Today, more than
5,000 tankers cross the Turkish Straits each year, carrying Caspian
oil from the Black Sea to the Mediterranean. The sea traffic through
the narrow, zigzagging straits carries grave risks, especially since
any accident could cause an environmental catastrophe in downtown
Istanbul, which sits along the Bosporus.
When others questioned the project’s feasibility, Clinton appointed a
special envoy for Caspian energy affairs and Demirel visited Georgia
and Azerbaijan to push for the project. The unprecedented level of
U.S.-Turkish cooperation, as well as successful coordination by both
countries’ diplomats, made the seemingly impossible pipeline
possible.
Building the BTC
In 1997, Western oil companies started to explore the commercial
viability of the BTC project. An international consortium of eleven
partners — Britain’s BP; Azerbaijan’s SOCAR; Norway’s Statoil; U.S.
based Unocal, Amerada Hess, and ConocoPhillips; Turkey’s TPAO;
Italy’s Eni; Japan’s INPEX and Itochu; and France’s TotalFinaElf —
began construction of the pipeline in May 2003. With a 30 percent
share in the project, BP is the largest stakeholder, and served as
acting leader for the project’s design and construction phases.
The BTC, which cost an estimated $3.7 billion for construction,
financing, and line-fill, has received limited public funding. The
European Bank of Reconstruction and Development and the International
Finance Corporation, the World Bank’s private-sector arm, pledged
$250 million in loans. Although a small amount compared to the
project’s total funding, World Bank participation acted as a catalyst
to bring foreign direct investors to the project.
Because it traverses 176 widely varied and sensitive terrains while
crossing the politically unstable Caucasus region, the BTC was
bedeviled by worries about its security and environmental risks.
Accordingly, the U.S. military’s Special Forces trained 1,500-2,000
Georgian soldiers in anti-terrorism techniques under a $64 million
program aimed at protecting the pipeline against saboteurs. In
addition, a BP-led consortium granted an additional $25 million to
local non-governmental organizations to manage environmental
programs.
The entire length of the 1,094-mile BTC, the longest oil-export
pipeline in the world, is buried. Once the pipeline becomes fully
operational, Azerbaijan will be the main beneficiary of the sale of
its oil in international markets, collecting (at current prices)
about $29 billion per year in oil revenues, while Georgia and Turkey
will respectively collect transit fees of $600 million and $1.5
billion per year.
Ceyhan Becomes a Nexus of Global Energy Lines
With BTC, Ceyhan will emerge as a major energy supplier to the world.
Ceyhan’s port, Yumurtalik, is already the terminus of Kirkuk-Ceyhan
pipeline, which has the capacity to bring about 1.5 million bbl/d oil
to the Mediterranean from northern Iraq (though it is presently
closed due to continuing attacks by Iraqi insurgents). Another
pipeline is now under consideration to bring Caspian gas from Baku,
via Tbilisi, to Erzurum in eastern Turkey from where it would be
transported to Ceyhan. There are other new projects designed to make
Ceyhan into an even bigger hub of energy supply:
-Samsun-Ceyhan gas/ oil lines and terminal. Turkey intends to enlarge
its natural-gas transmission by extending the Blue Stream pipeline,
which connects Russia with Ankara through the Black Sea, through an
Ankara-to-Ceyhan extension. After a liquid-natural-gas export
terminal is built in Ceyhan, this plan would enable Turkey to
re-export Russian gas. Turkey also wants to build a cross-Anatolian
oil line, from Samsun on the Black Sea to Ceyhan on the
Mediterranean, to further decrease traffic through the Turkish
Straits.
-Kazakhstan Extension. In March 2005, Kazakhstan and Azerbaijan
agreed to build the Aktau-Baku pipeline, connecting the Kashagan
offshore oil fields near Aktau in Kazakhstan to the BTC in Baku via a
sub-Caspian in 2008. The Kashagan field is expected to produce 1.2
million bbl/d by 2016, when 600,000 bbl/d of its production is to be
shipped across the Caspian Sea to be fed into the BTC line.
-Ceyhan-Haifa Pipeline. This project, first discussed during Turkish
Prime Minister Recep Tayyip Erdogan’s May 2005 visit to Israel, aims
to bring BTC oil to Israel via a sub-Mediterranean pipeline through
Cyprus. There are also plans for parallel pipelines to carry water,
gas, and electricity, and perhaps fiber-optic lines, to Israel, as
well as to Northern Cyprus, Jordan, and the Palestinian territories,
bringing the latter closer to Turkey and Israel economically and
politically.
Implications of Turkey’s Emergence as an Energy Entrepot
Turkey’s new position as a way-station for energy distribution could
be a useful asset in its relations with both the European Union and
the United States. Turkish membership would give the EU a direct
route to Caspian energy resources that does not cross Russia; as a
major energy producer; Russia has not been very helpful getting
Caspian energy to outside markets.
In the post-Iraq War period, the energy issue should also strengthen
U.S.-Turkish relations. Turkey’s strategic value sometimes comes
under doubt. But Turkey is an important route for the export of oil
from northern Iraq. By binding the Caucasus region with the West
through the BTC, Turkey is now a key country in accessing the energy
sources of the landlocked Caspian Basin. And the BTC has
significantly limited the share of Caspian oil that must be
transported through Iran. Tehran currently transports a mere 35,000
bbl/d Caspian oil, which it buys from Turkmenistan and Kazakhstan
through a swapping agreement. The BTC and other projects involving
Turkey should remind Americans and Turks alike that as members of the
Western world, they have shared interests that can be promoted
through cooperation.
Soner Cagaptay is a senior fellow and director of the Turkish
Research Program at The Washington Institute. Nazli Gencsoy, a Dr.
Marcia Robbins-Wilf young scholar, is a research assistant at the
Institute.
Copyright 2005 THE WASHINGTON INSTITUTE for Near East Policy
From: Baghdasarian