Pipeline Flap May Clog Expansion in Caspian Sea
U.S. Still Insisting On Route to Skirt Iran and Russia
By James M. Dorsey
Special to the Wall Street Journal
August 11, 1999
BAKU, Azerbaijan -- The main international oil consortium operating
offshore in the Caspian Sea is threatening to delay the expansion of its
bellwether project in Azerbaijan, angered by an argument with the U.S.,
Turkey and Azerbaijan over proposed export pipeline routes for the oil
that would be produced.
The Azerbaijan International Operating Co., an 11-member oil consortium
led by BP Amoco Corp., wants to expand its small existing line to Georgia's
Black Sea terminal at Supsa. That has set the U.S. and others scrambling
to protect a bigger, longer and more expensive pipeline plan, which would
send the oil to Ceyhan on Turkey's Mediterranean coast.
This route is designed to prevent Russia or Iran from gaining control
of the flow of Caspian Sea oil to world markets. It also lessens the risk
of increased tanker traffic posing environmental threats to Istanbul, Turkey,
and the Turkish Straits.
AIOC President David Woodward said the dispute could result in the consortium
delaying a decision due in September on a $3.1 billion expansion of its
three Azerbaijani offshore oil fields in the Caspian Sea. The "Phase
One" investment, delayed for a year by low oil prices, would boost
production to 300,000 barrels from 100,000 barrels a day by 2003.
Mr. Woodward said the U.S.-favored pipeline won't be completed before
2003 at the earliest, and said an expanded BakuSupsa pipeline could serve
as a first phase of a future Baku-Ceyhan pipeline.
"Expansion of Baku-Supsa would allow us to move ahead with Phase
One development in the interest of Azerbaijan and our shareholders and
satisfy various parties that believe that there should ultimately be a
Baku-Ceyhan pipeline," he said.
John Wolf, the U.S. ambassador to the Caspian Basin, said expansion
of the BakuSupsa pipeline could be discussed if it were to be part of a
line from Baku to Ceyhan.
Transit country Georgia also backs this position, Mr. Woodward says.
But the U.S. fears that any expansion of Baku-Supsa will undermine chances
of building a new pipeline to Turkey, and crush hopes of making Turkey
the major conduit for the export of Caspian Sea oil.
A U.S. official said, "We don't think that AIOC has explored options
for producers on both sides of the Caspian . AIOC has been notably lackluster
with others [around the Caspian ] prepared to develop a main export pipeline."
Some U.S. members of the AIOC are upset about having to pay the commercial
cost of political priorities.
But the consortium doesn't present a united front. Azerbaijan and Turkey,
whose state oil companies are part of the consortium, both favor the U.S.
proposal for a pipeline to Ceyhan to pump AIOC and other Caspian oil.
The AIOC says the Ceyhan line would cost $3.7 billion, and that oil
production in the Caspian region is too low to justify the one-million-barrel-a-day
A Turkish proposal to guarantee completion of the pipeline for $2.4
billion to $2.7 billion is being negotiated.