New Era In Caspian-Mediterranean Oil Begins With Inauguration of BTC Pipeline

Gary Lakes reports from Ceyhan.

Despite being more than a year behind its original schedule, the Baku-Tbilisi-Ceyhan (BTC) crude oil pipeline, inaugurated on 13 July, represents the start of a new era for oil exporting countries in the Caspian Sea region and oil markets in the Mediterranean. As Lord Browne, Group Chief Executive of BP, said during the inauguration ceremony at Ceyhan, the BTC changes the energy map of the world.

The 1,768km pipeline is the first to allow crude oil to be exported from the Caspian region and eventually Central Asia without relying on the Russian pipeline system, crude oil swaps with Iran or passage through the Bosphorus and Dardanelle Straits of Turkey. The BTC is the first stage of an internationally supported East-West Energy Corridor that will, by the end-2006, see the completion of the South Caucasus Pipeline (SCP) through Azerbaijan and Georgia. It is also the catalyst for Turkeys plans to transform Ceyhan, located in a remote corner of the Eastern Mediterranean, into an energy entrepot from where crude, products and LNG will be made available to world markets.

The BTC project, first conceived in the early 1990s, runs 249km through Azerbaijan, 443km through Georgia and 1,076km through Turkey (for a chronology of the BTC development, see page 29) . The pipeline begins at the Sangachal oil and gas terminal south of Baku where oil and gas produced at the offshore Azeri-Chirag-Guneshli (ACG) oilfields and soon the offshore Shah Deniz gasfield is processed. The final construction cost of the pipeline is now estimated at $3.9bn, on top of which is to be added financing costs plus the cost of filling the pipeline with 10mn barrels of Azeri Light crude oil, which first arrived by pipeline at Ceyhan on 28 May. The first cargo of 600,000 barrels was loaded aboard BPs British Hawthorne, which departed on 4 June. For the occasion of the inauguration on 13 July, the British Hawthorne was at the Ceyhan jetty being loaded again before sailing to Genoa. The crude oil  began to arrive at the terminal at an initial rate of 150,000 b/d and should reach 300,000 b/d by the end of summer and 500,000 b/d by the end of 2006 (MEES , 12 and 5 June).

Lavish Celebration

The lavish inauguration ceremonies were attended by President Ahmet Necdet Sezer of Turkey, President Mikheil Saakashvili of Georgia, President Ilham Aliyev of Azerbaijan, and the Prime Minister of Turkey Recep Tayyip Erdogan and most of his cabinet, along with the executives from BP who were responsible for seeing the project through. Also attending were US, UK and EU officials as well as Saudi Arabian Oil Minister Ali Naimi. Lord Browne called the BTC the first great engineering project of the 21^st century and spoke of the potential that the pipeline created with regard to developing more of the regions resources. David Woodward, head of BPs operations in Azerbaijan, described it as the most ambitious infrastructure project ever undertaken and said it would reduce by hundreds the number of tankers that pass through the Bosphorus every year. It is the first time that crude from the region has reached the Mediterranean without passing through the Bosphorus, he said.

Prime Minister Erdogan said the BTC contributed to energy security and stressed its strategic importance to the West. He emphasized Turkeys role in the East-West Energy Corridor and referred to future shipments of Kazakh crude oil through the BTC and Azerbaijani gas from Shah Deniz being shipped to Europe through the Turkey-Greece-Italy natural gas pipeline, the first stages of which are under way. He said Turkey was following a multi-dimensional energy strategy and that his government was committed to seeing the Samsun-Ceyhan crude oil pipeline through. That project, designed to serve as a Bosphorus by-pass for crude oil shipped from Black Sea ports, would carry 1-1.4mn b/d of crude oil and cost around $1.5bn.

President Aliyev of Azerbaijan said the BTC was a significant step in the development of his country. Georgias President Saakashvili said the pipeline put an end to developing political policy by confrontation and created a wider environment of friendship and partnership in the post-Soviet era. A different economic reality has been created, he said, adding: we will achieve more because of it. He thanked BP for the help it had extended to his country. Both he and President Aliyev thanked the US for the support they had received over the course of the project.

Ceyhan As A Mediterranean Oil Center

President Sezer called Ceyhan port the rising star in the Mediterranean. That may be the case if things go according to Ankaras plans. Several representatives of major European oil companies working in Turkey told MEES that Ankara was determined to construct the Samsun-Ceyhan pipeline, which is now challenging the proposed Burgas-Alexandroupolis crude oil pipeline (BAP) backed by Russia, Greece and Bulgaria. One pipeline expert attending the ceremony said the BAP project on the cards since the mid-1990s had suffered from a lack of leadership. As a result, the Turks stood a very good chance of completing the Samsun-Ceyhan project because, they do not have to negotiate with anyone. He said if Turkey completed Samsun-Ceyhan first, it would delay the need for another by-pass pipeline for some time.

While the BTC will significantly reduce the number of tankers using the Turkish straits, Turkey continues to be concerned about tanker traffic in the Bosphorus and the likelihood that the volume will increase. MEES understands that 143mn tons/year (2.86mn b/d) of crude oil and products sails through the Turkish straits, of which 95mn t/y (1.9mn b/d) is crude. While numerous tankers ply the waters of the straits the larger ones are doing most of the work as 25% of the tankers carry 75% of the crude.

But the role of the BTC in easing tanker traffic pressure in the strait is set to increase. Less than two weeks after the first crude oil shipment departed Ceyhan, Azerbaijan and Kazakhstan signed an intergovernmental agreement providing for Kazakhstan to ship up to 500,000 b/d through the BTC (MEES , 26 June). This is not expected to begin in earnest until later in the decade, but several foreign companies with substantial investments in Kazakhstan hold shares in BTC Company, namely Italys Eni (operator of Kazakhstans offshore Kashagan oilfield), Frances Total, Japans Inpex and ConocoPhillips of the US (members of the Kashagan consortium) as well as Chevron (operator of the onshore Tengiz oilfield) through its purchase of Unocal. Azerbaijani officials are already beginning to speak of the need to expand the BTCs 1mn b/d capacity to 1.8mn b/d. Furthermore, the design capacity of Iraqs northern export pipeline, which runs from Kirkuk to Ceyhan, is 1.6mn b/d. A refurbishment of the pipeline and an improvement in Iraqs security could lead to increased exports of Iraqi crude oil to the Mediterranean port, where there are 12 storage tanks designated for Iraqi oil capable of storing 10mn barrels.

Turkey As Gas Conduit

By the end of 2006 the South Caucasus Pipeline (SCP) gas pipeline will be complete and Turkey will begin to receive Azerbaijans Shah Deniz gas shortly thereafter probably early 2007. The SCP runs parallel with the BTC as far as Erzurum where it joins Turkey national gas system. Through the Turkey-Greece-Italy pipeline, Shah Deniz gas will flow to southern Europe.

Meanwhile, Ankara and Russias Gazprom are said to be negotiating the construction of a new gas pipeline running from where the sub-sea Blue Stream pipeline lands near Samsun to Ceyhan. Blue Stream gas is fed into Turkeys national gas grid, but the new gas pipeline project would go directly to Ceyhan where an LNG train would be located. This train would be for the exclusive use of Russian gas. Other sources of natural gas in the region entering Turkey Egyptian (from the Arab Gas Pipeline), Iranian and possibly Iraqi would be channeled into the proposed Nabucco pipeline and shipped through Turkey to Central Europe via Bulgaria, Romania and Hungary.

BP not only leads the ACG and BTC projects, but also heads the Shah Deniz and SCP pipeline projects. The BTC Company shareholders are: BP (30.1%); AzBTC (25.00%); Chevron (8.90%); Statoil (8.71%); TPAO (6.53%); Eni (5.00%); Total (5.00%), Itochu (3.40%); INPEX (2.50%), ConocoPhillips (2.50%) and Amerada Hess (2.36%).