AKTAU - BAKU - TBILISI - CEYHAN BRILLIANT EXAMPLE TO EURASIA ECONOMIC INTEGRATION

Russia Companies can also join

Intensification and effectiveness of the negotiations between Baku and Astana about foundation of new Aktau - Baku Company for transportation of Kazakh oil through Baku - Tbilisi - Ceyhan pipeline that began to gain legal and technical contours, effected to the general arrangement of pipelines in the Caspian region.

Kazakhtan that is going to produce 150 - 250 mln ton of oil for 2015 is seriously worried about perceptiveness and alternative of its export. Because Kazakhstan has only two routes (Tengiz - Novorossiysk pipeline - max capacity 67mln ton and Atirau - Samara after reconstruction 25 mln ton per year) through one country that appears a big independent oil producing and exporting country. The question is that the Russian government rejected the Kazakhstanian government to exceed the 17.5 mln ton quote in 2003, as transit of foreign oil would harden own export. According to Andrey Sharonov, Deputy Minister of Economy Development of the Russian Federation, deficit of pipeline capacity is 40 mln ton in Russia but after operation of the second Baltic Pipeline System (BPS) this deficit will decline to 10 mln ton. This nuance is very important to transit countries and Russian exporters - it's necessary to change the export policy completely. Kazakhstan suggests Russia to make considerable changes in its export policy. Askar Smankilov, General Manager of National Transportation Company Kaztransoil (KTO), declared that Kazakhstan is ready to be transit country for Russian oil, informs Reiter Agency.

KTO suggests to construct 50 mln ton capacity Atasu - Alashankou pipeline to China. Russia's quote in the pipeline will be 30 mln ton. Thus Kazakhstan suggests Russia to refuse from Angarsk - Datsin pipeline project with capacity over 30 mln ton a year and to join their efforts for market development in China. The suggestion is quite profitable for Russia as the Angarsk - Datsin costs $3 bln and the supposed route by Astana is no more than $1,2 bln.

Askar Smankulov in the International Pipeline Forum in Moscow, late May 2003, stated that Russian companies could transit about 20 mln ton of oil through Kazakhstan - China route, by connecting to existing pipelines: either Orsk - Kumkol (further Atasu - Alashankou), or Omsk - Pavlodar (further to Alashankou), informs Rusenergy.com.

The projects envisages, Russian oil will arrive to Kazakhstan through Omsk - Pavlodar - Shimkent (Chimkent) - Turkmenabad (Chardjou) pipeline crossing Central Asia from the North to the South. The pipeline with 25 mln ton capacity per year is used only in separate areas. Nevertheless beginning from 2001 it attracts KTO and Russian colleagues in Transneft trying together to arrange it for oil supply to Iran or to Seydin refinery in Turkmenistan with the aim to sell oil stuffs to Near East.

Increase in suggestions is caused by rising demand in Chinese market and Kazakhstan determined minimum profitable loading level in 20 mln ton a year. European and American Companies are the main hydrocarbon producers in this Caspian country, intended to export the oil according to their usual routes - by northern or western directions, correspondingly via Russia or Baku then to Ceyhan. Three Kazakh exporters - ENI, Total and ConocoFillips have already joined to Azerbaijan Pipeline Company BTC Co and according to Director of Kazmunaigaz, two more companies declared their desire to pump oil through BTC.

Suggesting to Russia joint project with China, Astana:

- creates more opportunities for perspective cooperation;

- unloads Russian pipeline system

- insures its Trans-Russian exporters from Russian officials that can obstacle to increase CPC capacity to the maximum (in order not to overload Bosporus), and decreases the chance to repeat Russian - Italian Blue Stream case in Turkey in monopolist Chinese market with one purchaser.

- European and American partners of Kazakhstan get opportunity, without a risk to prejudice relations, to export its oil to the North via Russia, to the northwest markets via BTC system and to the West and southwest Europe via Baku.

- Kazakhstan stimulates new stream of investments into the country after signing the contract with Baku Pipeline Company BTC CO and gaining Russia's "non-resistance".

It's necessary to mention, that joint Russia-Kazakhstan plan about the Chinese market doesn't exclude the possibility of Russian oil exportation through Aktau - Baku route (read bellow).

Chinese earth

It's planned to construct huge refinery in Sinzyan-Uygur autonomous region, China, to import large volumes of oil from Kazakhstan. The future plant will be located in Urumchi region.

China completes the construction of product pipeline from the refinery in Lanchjou (Central China) to the eastern regions of the country. The pipeline will be the first product pipeline to connect the western and eastern China. The next stage is Urumchi - Lanchjou product pipeline construction that is being projected at present.

Importation of Kazkh crude oil is very important element for Peking oil strategy as the Chinese government intends to deliver oil from Western China to Eastern China.

Kazakh oil was refined only in Xinjiang province refinery till recently, but Chinese are expanding its market. Chan Zhou Hubei refinery began refining Kazakh crude oil in April 2003. Chinese Company Cinopec that rules this refinery has already purchased 100 thousand-ton Kazakh oil and is going to grow this import.

From its part Kazakhstan set into operation Kenkiak - Atyrau oil pipeline in the west of Kazakhstan in March 2003.

450-km, $160 mln route connected Aktubin and Atyrau oil fields with export pipes of Atyrau-Samara and Caspian pipeline consortium. It's supposed that 6 mln ton of oil will flow through the new pipeline in 2003, and in 2006 pipeline capacity will be 12 mln ton. Kazakhstan considers the new oil pipeline as the part of future route from Western Kazakhstan to China. MunayTas, founded by KazMunaygaz (51%) and Chinese National Oil-gas Corporation, is in charge of projection, financing, construction and operation of the new oil pipeline.

Caspian transit

Russian Company UKOS, formed after amalgamation with Sibneft one of the leaders among oil producers in the world, develops export route for Western Siberia oil. UKOS's crude oil in Siberia will be delivered to Seydinsk refinery in the Eastern Turkmenistan.

Supposed yearly delivery is in the amount of 2 mln. Crude oil will be supplied through Omsk - Turkmenabad (former Charjou) pipeline with 25 mln ton per year capacity remaining inoperative since USSR collapse. The pipeline crosses Western Siberia, Kazakhstan, Uzbekistan and Turkmenistan.

Supplied Siberian oil will be refined by Turkmen refinery. UKOS plans to transport the refined oil products to the Northern Iran by railway and then on the replacement plan to get Iranian oil in the Persian Gulf and sell it at the place. Rosneft that wants to sell oil products also wants to use Omsk - Turkmenabad oil pipeline and Seydinsk refinery.

Caspian and foreign participants submit different export projects and schemes for supply of CIS oil to Asian markets via South direction. Such schemes are also submitted for Kashagan and Uzensk (Kazakhstan) deposits', Turkmen Caspian shelf and Uzbek onshore deposits' development project. Companies hurried up there because they saw the possibility to increase income due to agreements with new consumers. Even to realize the export plans in the South partially it's observed strong competition among suppliers. Since November 2002 Lukoil transports oil to Iran by tankers from Volgograd. Lukoil oil supply to Iran makes 1 mln ton of oil for 2003. The Russian Company's oil is delivered to the Neka Caspian port and then transported to Tehran refinery through pipeline.

Unlike Ukos Lukoil doesn't use oil product in this business but it is also based on replacement scheme: Russians get receive and sell the Iranian oil in Harga, on Persian Gulf coast. Lukoil's oil supply plan is lower than the planned volumes of UKOS but Vahid Alekberov's Company has already constructed the operating route while Mikhail Khodorkovsk still has to solve this problem. Technically it's quite practicable: Omsk - Turkmenabad operates in some areas and it requires some ten million dollars to be reconstructed. "There is an oil loading rack in Turkmenabad and the Turkmen railway has been connected to Iranian Meshed City where Iranians plan to construct new railway networks in different directions", said the Turkmen interlocutor.

Thus Lukoil is oriented for supplying CIS and UKOS for selling hydrocarbons to wholesale sellers. Existence of two different sale schemes shows that market in Iran has perspectives but its development requires ingenuity.

It's easier to have a pipeline opening to the world market. CPC, BTC in Russia and Baku - Tbilisi - Ceyhan projects don't have alternative projects to the South or West.

Meanwhile Azerbaijan-Russia oil pipeline is half filled and 2.5 mln ton of SOCAR oil is being exported through the pipeline that is twice less than the planned volume and thrice less than the capacity. Why Russia filling jealousy to its Caspian pipelines, Russian Companies, operating in Kazakhstan and Turkmenistan not to fill the pipeline with its Caspian oil.

Can Turkmenistan use BTC?

"At the same time potential Kazakhstan exporters have to hurry up as Eni, Total and ConocoFillips, members of BTC Co, bought 6.5 mln ton from provided 20 mln quote. Applications are being submitted and additional oil can be transported from anther Caspian country - Turkmenistan, says Kabildin, Director of Kazmunaygaz.

The member of the State Trade Corporation Turkmenneftegaz, exporting Turkmen hydrocarbons, admitted the fact to Russian Portal RusEnergy: "We are ready to use the pipeline as our oil production volumes rise and BTC at its completion will be the nearest export route for us. Its existence will reduce the small traders from the market and create opportunities for such big companies as ours".

Recently Azerbaijan and Turkmenistan improve the relations, at any case don't aggravate, as Ashgabad wants to reduce the political risks on the development projects of Turkmen Caspian shelf because of the territorial arguments with Baku. Cooperation in export can make the Caspian exporters much closer also in offshore hydrocarbons' development. SOCAR official said RusEnergy: "If Turkmen gas flows to Ceyhan, it will be easier for us to agree on arguable 250 mln ton Kapaz (in Turkmenistan: Serdar) field's development conditions. And the infrastructure of Turkmen offshore projects can be joined to ur export system".

In 1996 SOCAR, Rosneft, Lukoil signed agreement about main production sharing principles of Kpaz. However the agreement didn't became true of the Turkmenistan's protests. Agreement wasn't reached to divide the bottom between Azerbaijan and Turkmenistan till present.

But again everything can change, oil production increases in this country, at the same time, average annual growth rate makes Turkmenistan appropriate partner for Baku. Turkmenistan is far from Russia and its oil pipelines are not connected with this country's pipelines while Azerbaijan is near to Russia. Maybe BTC project development will attract Turkmenistan more and more.

Oil extraction and exportation in Turkmenistan (mln ton/year)

Oil production forecast in North Caspian project (mln ton/year)

*Source: Kazakhstan Government

- Eight tankers in Astrakhan are ready to begin their operation in 2003. Mekhanik Voronkov, Volgoneft - 141, Volgoneft - 149, Volgoneft - 153, Volgoneft - 160 and others tankers are among them. These tankers are under stream and wait for command to leave for Volga then to Volgograd, further along Volga - Don navigation channel to Black Sea ports where first 25 thousand-ton will be delivered.

Operator of Batumi Oil Terminal agreed last summer with Astrakhan Shipyard Krasniye Barrikadi about construction of three tankers to transport oil loads along the Caspian Sea. First tanker will be set into operation in 2004. Each tanker is capable to transport simultaneously 60 thousand-ton six different kinds of oil and oil products. Technical documentation preparation and fabrication of the first tanker will cost $100 mln.

According to specialists, foundation of the new fleet in Caspian will reduce the expenditures to raw materials' transportation via Baku - Batumi route and after full operation of Tengiz - Novorossiysk pipeline bult in 2001, the company - operator will be able to hold its position in the market of transit services. The Company appealed to the regional oil producers to form the consortium to operate the future tanker fleet.

New tankers, designed by Norwegian Liabek & Associates, allows transporting separately dark oil products and light oil products, as well as different kinds of oil in 12 holds. Three tankers will be able to transport 12 mln ton oil load for 200 trips while at present to transport such volume it takes 2000 trips. According to experts, there isn't tanker tonnage deficit in the Caspian Sea. However oil production growth in the Caspian Sea will increase the demand for transportation. Considering old Caspian fleet, construction of large tonnage tankers appears perspective project.

The new tankers won't be loaded and unloaded at mooring line. The tankers will cast anchor during trip and use crimped sub-water hose for transportation of liquid hydrocarbons. In the result of use 60 thousand tonnage tankers in Aktau - Baku and Turkmenbashi - Baku routes the cost for transported one ton from the Eastern coast to the Western coast will drop to $2,5 than the present $7,5.

Reference: Batumi oil terminal built in 1883 by Nobel brothers realizes tanker transportation of oil and oil products from Kazakhkstan (Aktau port), Turkmenistan (Turkmenbashi, Xazar and Okarem ports) to Baku. The Company uses in the route chartered ships of Caspian Marine of Steam Navigation (Kaspar), possessing 33 tankers of 4.6 - 12 thousand ton carrying capacity. Then eastern Caspian liquid hydrocarbons are transported by railway to Batumi terminal and further again by tankers along the Black Sea to consumption. The cost for transportation and trans-shipment of one ton eastern Caspian liquid hydrocarbon in Baku terminal is $7,5. Plus $5 is required to transport the same load by railway tanks to Batumi.