Oil Execs Increasingly Confident on Baku-Ceyhan Construction
Oil executives are increasingly confident that the long-awaited Baku-Tbilisi-Ceyhan (BTC) pipeline can be built according to schedule and within current cost estimates. The project's general manager, Michael Townshend, said he expects new partners to join the BTC consortium soon, adding that there is growing awareness that Caspian Basin oil and gas reserves are sufficiently large to warrant the operation of multiple pipelines.
BP, the operator of both Azerbaijan's proven large-scale offshore fields, Azeri-Chirag-Gunashli and Shah Deniz, is the primary backer of the BTC project. In recent years, the project has been dogged by doubts about its construction and operational costs. In addition, some observers have questioned the pipeline's viability, given that it would run through what has proven a volatile region during the last decade. Azerbaijan has yet to reach a deal with neighboring Armenia that would settle the Nagorno-Karabakh conflict, and Georgia is currently consumed by economic and political turmoil. [For additional information see the Eurasia Insight archives].
Townshend, in his first interview since assuming the BTC position, insisted that the BTC route would be cost competitive. "We intend to have the pipeline ready before the beginning of 2005 and to achieve that we have to get financial approval of BTC in the middle of next year," he said. "I have every expectation that the pipeline cost will remain under $3 billion. BTC compares favorably with other pipelines around the world. We've compared it with pipelines in Colombia, Alaska and CPC [Caspian Pipeline Consortium] and it's a competitive price."
Discussions have been ongoing with many different companies interested in evaluating the project, Townshend said. "These have ranged from other Caspian producers to those that don't have any oil but hold exploration licenses. Two of these companies are ChevronTexaco and LUKoil," he said. Along with Italian energy group Eni, whose subsidiary Agip Azerbaijan bought a 5 percent stake in BTC from SOCAR in early November, other majors' involvement would indicate a significant commitment by north Caspian producers in the project.
"There is a growing recognition that BTC is not in competition with the CPC pipeline - they are complementary systems," Townshend said. A response from ChevronTexaco is expected after completion of its merger reorganization. As for LUKoil, Townshend points out that "ultimately this is a choice that LUKoil has to make. We can only provide information to demonstrate that BTC is economic."
For the BTC manager, now is clearly the right time for potential partners to commit as deals would be "more difficult" next year. "If investors come in next year, they can still invest but they would have less influence on agreements that are being worked on for the pipeline's operation and design," Townshend said, adding that companies would have to book a place for their oil. "It's a question who has the capacity priority for it - if the pipeline's full, who has first pick."
New sponsors are expected to buy into SOCAR's current 45 percent stake, and join Eni in the consortium that now comprises: BP (25.41 percent); Unocal (7.48 percent); Statoil (6.37 percent); TPAO (5.02 percent); Itochu (2.92 percent); Ramco (1.55 percent); and Saudi Delta Hess (1.25 percent).
The BTC project is currently in the midst of a 12-month, $150 million detailed engineering phase. Part of the detailed engineering phase, due for completion by the end of June 2002, involves BTC putting tenders out for the major equipment packages including the steel pipe, pump-stations, block-valves and metering stations. Tenders will also go out for work at the Ceyhan terminal, which is covered by BTC's agreement for the pipeline's Turkish section, whereby the Turkish government will underwrite any pipeline costs in excess of $1.4 billion for its section.
The tenders will be awarded "straight after the project has been financially approved by the owners," Townshend said. He explained that the construction work for the pipeline would entail the use of both large-scale, multinational contractors and smaller, local firms.
But the BTC manager stressed that those international contractors - however big - must fully utilize local contractors and labor to win tenders. "The tender documents make it very clear that the international contractors must make every possible use of local contractors, and not just contractors that are Baku-based," Townshend said. Townshend hoped that the World Bank would provide micro-finance loans to local contractors along the route, enabling them to acquire the skills required for the pipelay operation.
Townshend dismissed out of hand suggestions raised recently by pro-Armenian lobbyists in the United States that a change in the pipeline's route, involving re-routing through Armenia, could be considered. He explained that a key factor in determining the pipeline's route had been the "commercially attractive" terms offered by the governments of Azerbaijan, Georgia and Turkey. "It took several years to negotiate those terms and they are now enshrined in law in all three countries," he said.
On the exact route the 1,745-kilometer pipeline will follow, Townshend said that BTC had "just in the last few weeks" narrowed down the pipeline corridor to 100 meters. "To get down to this fairly narrow corridor has been a lot of work that nobody has seen," he said.
In narrowing down the route, BTC says it has taken account of several factors, such as pipeline security and protecting the environment. "Security to me is about how each country feels it is part of this pipeline. If we can do that, I think a lot of the concerns that you can read in the press would disappear, as has happened with the Baku-Supsa pipeline, which has been operated risk-free."
As part of the route choice, BTC had also held environmental and social impact surveys, Townshend said. "The surveys have covered flora and fauna, birds, water tables and environmentally protected zones. They have also included searches of former munitions dumps and have taken account of possible land subsidence and seismically active zones," he added.
Tim Wall is a freelance correspondent in Azerbaijan. A version of this article originally appeared in the Baku Sun.
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