BTC pipeline enters final detailed study phase

Work on the Baku-Tbilisi-Ceyhan (BTC) pipeline project entered an important phase as detailed engineering studies began earlier this year. The nearly $3 billion pipeline is slated to carry the major portion of Azerbaijan’s oil exports. It is expected to be ready in time to carry most of the increased production coming from phase I of full field development of Azerbaijan’s Azeri-Chirag-Deepwater Gunashli (ACG) oil field. The first step in that increase is expected in 2004.

The pipeline, also called the Azerbaijan Main Export Pipeline, was the subject of intense negotiations among many governments for at least two years. Because of economics, BP, the sole AIOC operator, was reported to have opposed the long and expensive route to the Mediterranean Sea, apparently believing that it would take six billion barrels of oil to pay for the pipeline. Instead, BP was thought to favor the shorter and much less expensive route to Georgian ports at Batumi or Supsa. The United States, one of the project’s financial backers, strongly favored the route through Turkey.

In the end, AIOC President David K. Woodward announced that about four billion barrels of oil should be enough to make the BTC pipeline cost effective. That quantity, perhaps not coincidentally, is close to the estimate of the ACG oil field reserves. That means that there is no need to wait for other Azerbaijani oil discoveries, or to induce Kazakhstan and Turkmenistan to ship some of their oil through the pipeline.

Those concerned with the inability of the narrow Bosporus Straits in Turkey to handle a glut of tanker traffic will welcome the decision as good news. Russia continues to strike deals sending more of the Caspian region’s oil to its Black Sea port of Novorossysk. However, if increased traffic were added from Azerbaijan to the Georgian Black Sea ports, many industry experts believe that the straits would not be able to handle the traffic.

A major oil spill resulting from a tanker collision in the Bosporus would be an environmental catastrophe, with huge political and economic repercussions for the companies responsible.

AIOC completed an eight-month basic engineering study this year, following ratification of the BTC Intergovernmental Agreement, host government agreements, and other project agreements by the parliaments of Azerbaijan, Georgia and Turkey.

The basic study was immediately followed by a detailed engineering study that will take 12 months to finish. The US multinational company, Bechtel, has the lead in accomplishing the detailed engineering study. The report should lead to determination of the final route, confirmation of project cost, and land and equipment purchase. Altogether, the study and construction of the pipeline are estimated to take 32 months. According to BP, pipeline testing is now slated for 2004, and the first load is projected for early 2005.

The BTC project sponsors are: SOCAR (50 percent); BP (25.4 percent); Unocal (7.5 percent); Statoil (6.4 percent); TPAO (5 percent); Itochu (3 percent); Ramco (1.5 percent); and Delta Hess (1.2 percent).

A number of oil companies are considering joining the sponsors group. However, since none of these firms has its own oil to transport, there is a question as to whether they will help finance the project. On the other hand, it is widely believed that SOCAR may sell some of its shares to ease its financing burden brought about by too much success at one time.

SOCAR, of course, has major stakes in ACG field development, BTC development, and development of the Shah Deniz natural gas field and its pipeline to Turkey. All of them seem to require billions of dollars in financing at once. Selling shares in one or more activities is seen as a means of easing the financing burden.

The project is supported by a number of international and national financial organizations. The EBRD is interested, as are US organizations such as the US Export-Import Bank, the Trade Development Agency, and the Overseas Private Investment Corporation.