PIPELINES

CONSTRUCTION OF OIL PIPELINES NETWORK IN THE CASPIAN SEA BECOMES IRREVERSIBLE

The first Caspian oil pipeline has been commissioned

In June-July this year the first tanker filled with oil will leave Novorossiysk, whereas oil pipeline of Caspian Pipeline Consortium (CTC) will be commissioned at the end of this year.

Caspian Pipeline Consortium has already spent over $ 2 billion of $ 2,6 billion budget for the 1 stage of construction and commissioning of Tengiz-Novorossiysk pipeline.

At the ceremony of commissioning of Caspian Pipeline on 26 March it was stated that the process of filling pipeline with length of 1580 km will last about 90 days, and approximately 1 million ton of oil will be required to fill it. About 10 thousand ton/day will be pumped in at the first stage. Early oil will be delivered from Tengiz field where JV "Tengizchevroil" (TCO) operates. In June this year Tengiz oil will be delivered to Novorossiysk.

Pipeline capacity at the first stage will be 28,2 million ton of oil a year. Gradually capacity will increase to 67 million ton/year.

Consortium expects to load the first tanker in Novorossiysk in June this year. 7-8 million ton of oil will be pumped through the Caspian Pipeline till the end of this year as production testing

According to estimations, during the period of pipeline operation federal and regional budgets of Russia will receive about $ 23,3 billion as tax revenues. Kazakhstan will receive about $ 8,2 billion, and 50 % of tax revenues will be transferred to budgets of regions lying along the pipeline route.

Reference Caspian Pipeline Consortium shareholders are: Government of Russia (24 %), Kazakhstan (19 %), sultanate Oman (7 %), Chevron (15 %), LUCARKO (JV between LUCoil and ARKO, 12,5 %), "Rosneft - Shell" (7,5 %), Mobil (7,5 %), Agip (2 %), BG Overseas (2 %), Kazakhstan Pipeline Ventures (1,75 %), Oryx and Kerr-McGee Group (1,75 %).

Kazakhstan is search of alternative

The route Tengiz (Kazakhstan) - Kropotkino - Novorossiysk (Russia) became the first strategic oil pipeline connecting fields in Central Asia with Turkish and European markets. It is well known that Kazakhstan repeatedly stated that the policy of the country is to develop a network of alternative oil and gas pipelines, to get reliable access to world markets. In this context, President of Kazakhstan Nursultan Nazarbayev already declared that his country is ready to export 10 million ton of oil using the route Aktau-Baku-Jeyhan. Referring to Kazakhstan leader, mass media reported many times that early oil from new field Kashagan (10 billion barrels of expected recoverable OIP) will be transported through Trans-Caspian oil pipeline. In accordance with Memorandum signed on 1 March, 2001 oil can be transported through the Caspian Sea to Baku and then to the pipeline Baku-Tbilisi-Jeyhan.

However, statement of Vice-president of National Pipeline Company KazTransOil Kaitgeldy Kabyldin that his company is investigating possibilities of oil transit through Iran was a sign that Kazakhstan government may take position that will disagree with Washington - key supporter of the project Aktau-Jeyhan. "This route will be the shortest and the cheapest way to Asia markets" - he said in London during press-conference.

Georgia being one of potential transit states also wishes to have revenues at the expense of Baku-Tbilisi-Jeyhan pipeline, and also as a result of development of its Black Sea ports.

According to "Financial Times", Georgi Chanturia, president of Georgian National Oil Company mentioned one more reason why USA support Baku-Tbilisi-Jeyhan project. He told that this would allow Israel to get oil from Jeyhan. Turkey is the only Middle East state Israel is on goods terms with.

Not everything goes smoothly with Caspian Pipeline Consortium

Commissioning of Caspian Pipeline Consortium allowed new USA administration that kept silence before to support again Baku-Jeyhan project.

The project of Baku-Tbilisi-Jeyhan oil pipeline is one of key factors in relations between USA and Turkey. This message contained in the letter of USA President George Bush addressed to participants of American-Turkish conference held in Washington.

The head of White House stressed that Turkey is "an important ally and good friend of United States". Among other priorities USA President named trade, educational and cultural relations with Turkey, projects in power sector and investing and also regional co-operation on regional issues regarding Balkan states, Caucasus, Central Asia and Middle East.

Following this, Turkey immediately made a statement that Ankara is preparing to take urgent measures to improve ecological safety in its straits. Commissioning of oil pipeline for export of Kazakhstan oil from Tengiz field through the Black Sea port Novorossiysk and further - using tankers through Bosporus and Dardanelles may endanger prompt and safe passage of vessels through these straits. State Minister of Turkey Ramazan Mirzaoglu said this. According to Mr. Mirzaoglu, as a result of construction of this oil pipeline volumes of oil transported through the straits will increase 4 times and such number of tankers could block navigation. Respectively Turkey reserves the right to itself to establish restrictions on navigation through the straits (AFP).

The source in Turkish Embassy in Azerbaijan informed Media-Press, that Ankara is going to establish restrictions on passage of vessels through the straits, however these restrictions concern oil tankers rather than all vessels. This is directly related to commissioning of oil pipeline Tengiz-Novorossiysk. Limitations will be put on size and "age" of tankers to pass the straits. Also, to improve navigation safety already in June this year new electronic system of speed-trap (radar) and vessel piloting will be introduced. Diplomat stressed that they already began discussing this problem with Russian engineers and representatives of Ministry of Foreign Affairs.

Thus, Turkey is blocking the future export of Tengiz oil through Bosporus to far markets - USA and North-Western Europe using supertankers (deadweight up to 250 thousand ton).

Representatives of Russian oil companies express their concern with increasing export of crude oil from the Caspian region. E.g., Davor Stern, head of division of marketing, sales and processing of Tyumen Oil company (TNK) indicated three key negative factors influencing volumes of Russian oil deliveries to Europe. First, competition of Iraq oil that will increase after UN sanctions are removed; second, standards of sulphur content in fuel become more strict in Europe; and third, refineries in Europe are periodically stopped and serviced.

In addition, there is a problem of Caspian oil. Oil flow of CPC - 28 million ton will supplement existing routes Baku-Supsa, Baku-Novorossiysk and Baku-Batumi (through railroad). Ukrainian pipeline Odessa-Brody (commissioning is expected at the end of this year) will deliver Caspian oil to Eastern European countries, and later - to Baltic ports Gdansk and Rostok.

Russian exporters understand this problem. "Deliveries of large volumes of Caspian oil to Mediterranean market will undoubtedly affect Russian exporters", agrees Alexander Korsik from Sibneft. "Surplus volumes of Russian oil most likely will reorient to markets of North-Western Europe and USA. However, it is nor clear yet whether Caspian oil will take up major share of Mediterranean market, as refineries of this region are designed to process relatively heavy and high-sulphur oil produced in Russia and Iraq, rather than light and low-sulphur oil produced on Caspian.

Russia needs diversification of its petroleum flows

Answering Turkish protest Moscow immediately stated that in the nearest future Kazakhstan will get access to one more export route. This is Baltic pipeline network (BTS). The first stage with throughput capacity 12 million ton will be completed at the end of this year. This route might be included into long-term agreement on transit of Kazakhstan oil which is being prepared between Astana and Moscow. Meanwhile, BTS is of a strategic importance for Russia itself. Whereas now all Russian oil exported in the north-westward direction passes through Baltic states, with commissioning of Baltic pipeline network Russia will have its own oil port on Baltic Sea.

It is also expected that in the nearest future governmental officials of Croatia, Russia, Bielorussia, Ukraine, Slovakia and Hungary will hold negotiations on implementation of the project "Druzhba-Adria", to export Russian oil to world markets. This was told to Prime-Tass staff by Croatia Ambassador in Russia Khidayet Bishchevich. It is planned to use in the project "Druzhba-Adria" free capacities of the pipelines "Druzhba" and "Adria". Earlier it was expected that this project should be completed in September this year.

Kh. Bishchevich told Croatian side intends to offer Russian oil companies - participants of the project - to increase annual oil export from Russia and CIS countries through Croatian port Omishal from earlier planned 5-15 million ton to 25-30 million ton, facilities being adequate. In particular, it is planned to refurbish oil pipeline section, in order to increase its throughput capacity on the route from Adriatic Sea to Siska town. The project may need investments up to $ 20-22 million.

Major coordinators of the project "Druzhba-Adria" from Russian side are: "Transneft" "YUKOS", Tyumen Oil Company, "LUCoil", "Sibneft" and some others. Implementation of this project will allow them to diversify oil export routes and reach new markets using potential on Croatian tanker port. According to Kh. Bishchevich, at negotiations participants of the project should settle an issue of leveling tariffs on oil transportation. Currently tariffs on oil transportation are different in participant countries.

Dmitry Perevalov of "Slavneft" is also in favour of the project initiated by "YUKOS", he regards this by-pass route as most promising. "It is expected that from Omishal oil will be taken by supertankers to Mediterranean countries and countries of American continent. To my mind, this project will be commercial, however this will happen in 2005 the earliest, i.e. at the same time with commissioning of Azerbaijan MEP.

Livening up of Aktau-Jeyhan project

More and more companies active in Kazakhstan wish to become sponsors of the Project. In February American Chevron - one of key shareholders of CPC and French-Belgian TotalFinaElf - participant of Consortium on development of Kashagan field on Kazakhstan shelf expressed their intentions.

Media-Press received an information from SOCAR source that TotalFinaElf is planning to carry out negotiations on this matter after oil reserves in this company' projects in Azerbaijan are specified. According to this source, interest of TotalFinaElf is due to the fact that terms of oil pumping through the pipeline will be much more favourable than for other who could wish to pump their oil through MEP.

Let us remind that currently TotalFinaElf is drilling its first prospecting well on "Talysh-deniz" structure from semisub "Gurultush". The company also carries out negotiations with SOCAR on rehabilitation of shallow-water Guneshli (SWG). Group of companies also holds 10 % in the project "Shah-deniz" and 20% - in the project "Absheron".

British Petroleum Amoco informed that they will announce the winner of tender on detailed engineering of Main Export Pipeline Aktau-Baku-Tbilisi-Jeyhan on 20 June this year.

In Georgian International Oil Corporation (GMNK) they told reporter from "Interfax" that 5 companies take part in this tender - 2 companies from USA, and also British, German and French.

According to source from GMNK, some of these companies, in particular, American Bechtel, already made proposals on cooperation with Georgian enterprises in case they are awarded the contract.

Vice-president of Bechtel Rich Alger, in the course of his visit to Georgia, on 22 March discussed the possibilities of cooperation under the tender with GMNK, management of Georgian-Turkish construction company Geotek under GMNK, local engineering and construction companies, namely: Joint-Stock design-construction company "Geo-engineering".

Vice-president of Bechtel told that negotiations in Tbilisi "open real perspectives for joint work on the Georgian part of MEP". He thinks that this would allow to use efficiently local potential in engineering-construction. One must not exclude possibility of establishment of JV with Geotek.

Length of future oil pipeline Baku-Jeyhan will be 1730 km (468 km on the territory of Azerbaijan, 225 km - Georgia and 1037 km - Turkey), throughput capacity - 50 million ton of oil/year. Expected transportation rate is $ 2,58/barrel, commissioning - in 2004. It is planned to use MEP for export of oil from Azerbaijan and Kazakhstan to the world markets.

Hence, although potential participants of Sponsor Group of Aktau-Jeyhan project are still waiting until reserves in their projects on the Caspian to be confirmed, the fact that Kazakhstan understands how important it is to connect its export infrastructure to Baku-Jeyhan route, BP-Amoco and SOCAR do their best to expedite commissioning of Aktau-Jeyhan oil pipeline tell us that a network of alternative pipelines should be built on Caspian, with the intention of reaching various European markets.

As for Baku-Jeyhan pipeline, even Russian analysts have no doubt in its reality.

TOTALFINAELF IS PLANNING TO JOIN SPONSOR GROUP OF MEP BAKU-TBILISI-JEYHAN

French-Belgian oil company TotalFinaElf may join sponsor group formed for financing of construction of Main Export Pipeline Baku-Tbilisi-Jeyhan. Media-Press received an information from SOCAR source that TotalFinaElf is planning to carry out negotiations on this matter after oil reserves in this company' projects in Azerbaijan are specified. According to this source, interest of TotalFinaElf is due to the fact that terms of oil pumping through the pipeline will be much more favourable than for other who could wish to pump their oil through MEP. Let us remind that currently TotalFinaElf is drilling its first prospecting well on "Talysh-deniz" structure from semisub "Gurultush". The company also carries out negotiations with SOCAR on rehabilitation of shallow-water Guneshli (SWG). Group of companies also holds 10 % in the project "Shah-deniz" and 20% - in the project "Absheron".

The first stage of formation of sponsor group for financing of MEP project (Baku-Tbilisi-Jeyhan) will be completed to the middle of detailed engineering phase

Marketing, or privileged stage in formation of sponsor group (SG) for financing of MEP project (Baku-Tbilisi-Jeyhan) will be completed to the middle of detailed engineering phase. Privileged stage envisages that foreign companies which join SG among the first ones will have more privileged terms for transportation of their oil through the MEP, than those which join it later, SOCAR source told to reporter from Media-Press.

Since September last year Fluor Daniel company carries out baseline engineering study on Azerbaijan-Georgian section of MEP, at the order of Sponsor Group. Similar work is being implemented on the Turkish part of MEP since 23 August 2000 by BOTAS and Pipeline Engineering. Total expenditures on basic engineering are estimated as $ 25 million.

Baseline design assumes acquisition of technical information for preparation of cost estimate ( +/- 30 % of total sum of project - $ 2,4 billion), preparation of plan and schedule of the project. This information will play a great role in securing guarantees required for MEP partners when making decisions for allocation of investments to begin the next stage - detailed design.

It is expected that baseline design will be completed in April, after that detailed engineering will begin (budget - $ 100 million.

At present sponsor group consists of eight companies: SOCAR - 50 %; BP - 25,41 %; Unocal - 7,48 %; Statoil - 6,37 %; TPAO - 5,02 %; ITOCHU - 2,92 %; Ramco - 1,55 %; Delta Hess - 1,25 %. American Chevron, French-Belgian TotalFinaElf and Canadian Alberta Energy are also planning to join Sponsor Group. It is true that representatives of these companies speak about their intentions unwillingly. They told in Chevron that negotiations with SOCAR are underway, and Chevron would not like to indicate percent of their participation in SG. In TotalFinaElf they told that the company will re-commence negotiations after oil reserves in this company' projects in Azerbaijan are specified.

Georgia refused to reduce its transit fee

Georgia refused exporters of Kazakhstan oil to reduce its transit fee for transportation of oil from Tengiz field. It is known that companies-partners in JV "Tengizchevroil" transport part of its production through the territory of Georgia. Since the beginning of this year 620 thousand ton of Tengiz oil has been transported by Georgian railroad to Batumi port. According to Georgian side, any reduction of transit fee will jhave negative impact on efficiency of shipping. On their side, exporters of Kazakhstan oil think that as "major clients they deserve more flexible tariff policy".

ENI is ready to invest 20 billion EURO in Kazakhstan

President of Kazakhstan Nursultan Nazarbayev met with the chairman of corporation Vittorio Minkato. Main topic of the meeting was - increase of transportation volumes of Kazakhstan oil and participation of the company in development project. In the nearest future the company is ready to invest 20 billion EURO in Kazakhstan oil development projects. Currently several export routes are being investigated for transportation of Kashagan oil. "We cannot exclude any option, and would like to make comments beforehand", said V.Minkato after the meeting with Kazakhstan president. According to him, Agip company - part of ENI Group made commitment to use most efficiently local human resources and facilities of available on the territory of Republic. V.Minkato stressed that "ENI is not going to import items that is already produced at Kazakhstan enterprises and at a high level". To-day ENI, through its constituent Agip possesses 32,5 % in the project of development of Karachaganak gas-condensate field; 2,5% in the project of construction of Caspian pipeline, and also 14,7 % in consortium OKIOC. Recently Agip was nominated a sole operator on Kashagan project.