Business

World Business

PIPELINE DONE, OIL FROM AZERBAIJAN BEGINS FLOWING TO TURKEY
By Erin V. Arvedlund

New York Times
May 26, 2005
Page C06

http://www.nytimes.com/2005/05/26/business/worldbusiness/26pipeline.html

[PHOTO CAPTION: Helping to open the pipeline on Wednesday were, from left, President Ahmet Necdet Sezer of Turkey, President Mikhail Saakashvili of Georgia, Energy Secretary Samuel W. Bodman of the United States, President Ilham Aliyev of Azerbaijan and Lord Browne, the chief executive of the oil giant BP.]

MOSCOW -- A long-awaited $3.6 billion pipeline linking the Caspian Sea to the Mediterranean took its first flow of crude oil from Azerbaijan on Wednesday, opening a conduit that may help reduce Western dependence on Middle Eastern oil.

Heads of state from the neighboring countries of Georgia, Kazakhstan, and Turkey were on hand for the inauguration ceremony not far from Baku, the Azerbaijan capital. The United States energy secretary, Samuel W. Bodman, and Lord Browne, chief executive of the British energy giant BP, which led the pipeline investment consortium were also there.

The presence of the officials underscored how politically important the Caspian region has become as an alternative energy source to the Middle East.

The pipeline, first planned in 1994, will carry crude oil from fields in the Caspian Sea off Baku to Tbilisi in Georgia, and on to the Mediterranean terminal at Ceyhan in Turkey. The fields are estimated to hold 4.6 billion barrels of oil and 3.5 trillion cubic feet of natural gas.

"Some did not believe in the realization of this project, some tried to disrupt it, but the support of the United States and the activity of BP helped realize the project," the president of Azerbaijan, Ilham Aliyev, said at a news conference, according to news agencies. The ceremony was broadcast on Russian television.

Azerbaijan, Georgia and Turkey, the countries the pipeline will traverse, as well as part owners in the fields, could collect more than $150 billion in revenue from oil, gas and transit fees from 2005 to 2024, according to estimates by BP.

Stephen O'Sullivan, an oil industry analyst at the brokerage firm UFG, said the opening was the end of a long effort. "After many years of talking and building, they finally put oil in the pipeline," he said.

The pipeline has a capacity of 10 million barrels, he said, and the fields are initially expected to produce more than 400,000 barrels of oil a day. By 2008, the project is expected to pump a million barrels a day. BP said the pipeline could take more than six months to fill, with the loading of the first tanker at Ceyhan expected in the fourth quarter.

For the United States and other Western oil-consuming nations, the pipeline is attractive because its route avoids Russia and the environmentally sensitive Bosporus, an 18-mile strait dividing Istanbul. Some analysts have said the pipeline could offer an insurance policy against Russia's possibly tightening its grip on oil supplies from the Caspian region.

At 1,100 miles, the pipeline, is one of the world's longest, according to the International Finance Corporation, an arm of the World Bank and an investor in the project. A gas pipeline following the same route is under construction and should be ready by 2006, according to Toby Odone, a BP spokesman in London.

The consortium of 11 partners on the pipeline are also the developers of the oil fields. The group is led by BP, the largest shareholder with 30.1 percent. The other partners are the State Oil Company of Azerbaijan, with 25 percent; Unocal, with 8.9 percent; Statoil of Norway, with 8.7 percent; the Turkish Petroleum Corporation, with 6.5 percent; Eni and Total, with 5 percent each; Itochu, with 3.4 percent; Inpex and ConocoPhillips, with 2.5 percent each; and Amerada Hess, with 2.3 percent.

While the oil would not necessarily be exported directly to the United States, it would supplement now-tight global supplies, perhaps helping to lower energy prices. The pipeline advances Washington's goal of developing multiple oil and gas export routes, Richard A. Boucher, a State Department spokesman, said on Wednesday.

"The Baku-Tbilisi-Ceyhan pipeline is a major success for the United States goal of enhancing and diversifying global energy supplies," Mr. Boucher said.

The United States had at one time relied on Russia as its top energy alternative to the Middle East. But Secretary Bodman made clear that the Bush administration was seeking backup sources elsewhere, particularly in the Caspian.

"Russian oil production is flat-lining," Mr. Bodman said earlier this week in Moscow. "That fact is clear to both the Russian government and outsiders. It's in the interest of the United States to have greater alternative sources of supply."

The pipeline may provide one of those alternative sources, Mr. Bodman added. "We view this as a step forward in the energy security of the region, which provides for investment in oil and maybe liquefied natural gas. This contributes to the increased supply of oil in the world. It adds new supplies of some consequence."

Also Wednesday, Human Rights Watch issued a letter to Mr. Aliyev, who succeeded his father in 2003, and denounced the detention of Azeri opposition figures last week.

Baku city authorities denied the opposition bloc permission to hold a rally last Saturday on the grounds that its timing was too soon before the opening of the pipeline. The rally occurred anyway, and police used force to disperse the marchers, beating participants with batons and detaining more than 100, Human Rights Watch said.

Those events, Human Rights Watch said, underscored that Azerbaijan "has yet to take significant steps to open up its political processes, to ensure that a plurality of groups can voice their opinions on political and social issues."