Magazine article Washington Report on Middle East Affairs

The Trans-Caspian Pipeline: Political Coup or Economic Boondoggle? Is It Doable?

Magazine article Washington Report on Middle East Affairs

The Trans-Caspian Pipeline: Political Coup or Economic Boondoggle? Is It Doable?

Article excerpt

The Trans-Caspian Pipeline: Political Coup or Economic Boondoggle? Is it Doable?

The diplomatic heavy lifting has largely been done -- though some remains. What's now to be determined, probably this year, is whether the Trans-Caspian Pipeline, the proposed oil and gas link between the Caspian Sea and the Mediterranean, is bankable. If it is, if the Americans and the Turks really bring it off, the project will be a strategic coup for both countries with enormous implications for the states around the Caspian Sea as well as for other world producers of petroleum.

Here's what the line -- actually two lines, one for oil and one for gas -- would do:

- Create an East-to-West energy corridor bringing large quantities of oil and natural gas out of the Caspian region to Western markets. It would elbow out both the Russians and the Iranians, who would be deprived of transit fees on the outflow and would have little influence short of war over the use of the line.

- Tie Turkey, Georgia and Azerbaijan more closely together and link them with Kazakhstan and Turkmenistan in a new economic and strategic interest zone.

- Open up for the first half of this century significant new supplies of oil and gas and put downward pressure on world hydrocarbon prices.

- Provide the United States with a beachhead for commercial and political influence in the backyards of both Russia and Iran.

Heady stuff. And obviously, from the American perspective, the deal would be a home run, bases loaded.

But will it happen? Despite the political logic and after strong pressure from governments on companies operating in the region, the project still seems commercially iffy.

Consider: The line, if built, will run some 1,080 miles, from Baku, Azerbaijan's scruffy capital on the Caspian Sea, through Georgia (skirting the eastern border of Armenia), continue down through eastern Turkey, and end at the Turkish port of Ceyhan in the eastern Mediterranian. The project would take years to complete and would require billions in financing ($2.4 billion is the going low-end estimate just for the oil line).

Much of the territory the line will run through is highly insecure, where it will be subject to guerrilla attack and brigandage. The Georgian segment is especially dangerous.

Further, the Caspian states are in conflict with each other over who owns what oil and gas. One such problem is a dispute between Azerbaijan and Turkmenistan over a gas field in mid-sea, which the Azeris call the Kyapaz field, the Turkmen call the Serdar field, and both claim as their own.

The fundamental barrier, though, is economic. The line will be expensive to build and maintain. Are there enough oil and gas reserves in the region to justify building it?

AIOC OPPOSITION

The main critic of the plan has been the Azerbaijan International Operating Company, a consortium of international oil firms headed by BP Amoco.

In 1994 AIOC signed a 30-year contract with Azerbaijan to develop three offshore Azeri oil fields with estimated reserves of 3 to 5 billion barrels of oil. Revenues were projected at $80 billion over the life of the contract. To get the oil out, AIOC upgraded an older, Soviet-era pipeline that ran from Baku to the Georgian Black Sea port at Supsa. Here the oil is loaded onto tankers and shipped out to Western markets through the Bosphorus. …

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