IN AUGUST THE AZERBAIJAN PIPELINE COMPANY WILL GET INTO REAL SHAPE

Issue on our inability to fill the pipeline will no longer arise as time goes by

An intergovernmental agreement on construction of the Baku-Tbilisi-Ceyhan pipeline was concluded on November 18, 1999 within the frameworks of the OSCE Summit in Istanbul between Turkey, Georgia, Azerbaijan and Kazakhstan with participation of the US President Bill Clinton. The package of agreements on MEP stipulates transportation of the Caspian region’s hydrocarbons to the world markets. Total length of the pipeline on the Baku to Ceyhan route will be 1,730km (Turkey – 1,037km, Georgia – 225km, Azerbaijan - 465km); the pipeline will be 1,022mm in diameter and its capacity will be 50m tones of oil a year. A Turkish company BOTAS is the general contractor in Turkey for the construction project.

The agreement on Oil Transportation Tariffs for the Baku-Tbilisi-Ceyhan MEP has been ratified during last negotiations held this April with participation of the Azerbaijani, Turkish and Georgian expert groups. The agreement eliminates one of the last obstacles on the way to submitting the project to the investors. It is planned that the parliaments of the three countries will ratify the whole package of the agreements up to the end-May. Then, an independent pipeline company will be established and the foreign companies who are the owners of oil will be the founders of the pipeline company. Probably in August the pipeline company will get into real shape; approximately 8-10 months will be spent for engineering studies and working out detailed project, and in 2001 a stage-by-stage construction of the MEP itself will be underway.

Presently BP Amoco pumps 5m tones of oil through the western pipeline on the Baku to Supsa route. In its turn, SOCAR presently exports own oil by means of the northern route. Taking into account annual increase in the oil production to 20m tones planned by 2005, and bringing it to 30-40m tones of oil and higher in the period 2008 to 2010, it is possible to assume that the MEP project development rate should not be behind the oil fields development rates. The MEP construction will start in 2001, but in 2004 one can expect the commissioning of the whole facility.

There have been numerous frictions with Iran and Russia on the issue due to the fact that these states have not been interested in laying the pipeline through Azerbaijan. There were statements that it was nearly the most expensive project. As a matter of fact it is not true. The project cost is estimated to be $2.4bn. The talks about what Azerbaijan would not be able to use the pipeline to full extent as a result of small oil production are groundless. Now the talks are ongoing on exploration of the deepwater portion of the south of Caspian Sea – "Djanub", "Savalan", "Alov", "Sharg" – the structures of high prospect and issue on our inability to fill the pipeline will no longer arise as time goes by

It is high time for us to think about laying own gas pipeline

Kazakhstan owns significant oil supplies onshore and offshore. According to geologists’ estimations it is planned to discover richest fields in the Kazakh shelf portion. One of them is "Eastern Kashagan" is being developed by Chevron. Its supplies are comparable to "Tengiz" oil reserve.

Kazakhstan is friendly power to us. I think that the issues on quotes will be solved without any problems. As to the Trans-Caspian gas pipeline I should note that question on its construction was raised in 1999. According to agreement signed between Turkey and Turkmenistan, Ankara has undertaken to annually buy 16bn cubic meters of gas and another 14bn cubic meters will be transported to Europe. In accordance with the project, the gas pipeline should be built for 28 months, its length is going to be 2,000km, including 732km in Turkmenistan, 428km in Azerbaijan, 220km in Georgia, 320km in Turkey and 300km on the Caspian seabed.

President Saparmurat Niyazov of Turkmenistan has changed a few times his decision on assigning a 50% quote to Azerbaijan. The president of Turkmenistan concludes agreement with Rem Vyaherev on transporting gas to Russia, and at the same time he agrees with Iran on gas delivery from the largest fields of Shatlig, Malayli through Iran. The negotiations on the issues are still ongoing, there are no results achieved, but nevertheless, it is high time for us to think about laying own gas pipeline. A discovery of very rich field of Shah Deniz with approximate reserves of more than 1 trillion cubic meters of gas will enable us not only be engaged in gas transit, but also export it.

On February 15, 2000 BP Amoco, the operator on the Shah Deniz field, declared plan for the gas transportation from the field towards the world market. According to the company’s plan, with provision of investments amounting to about $600m it will be possible to refurbish and upgrade existing pipeline in Azerbaijan (total length of about 490km) and build new pipelines in Georgia (280km) and Turkey (280km) - to Erzerum city. At the first stage it is planned to pump 5bn cubic meters of gas. Then, the intention is to double pipeline capacity. According to BP Amoco, by the early-2003 we will be able to start transportation of Azeri gas to the Turkish market. Before long the company plans to invite tender for reconstruction of the Azeri pipelines. The project is still at the stage of organizational review. Even if the Baku-Tbilisi-Erzerum gas pipeline is put into operation, which is meant for Shah Deniz’s gas export, anticipated discoveries of largest gas fields over next 2 years with estimated reserves of 4-5 trillion cubic meters of gas (Apsheron under Chevron’s operatorship, Alov, Araz and Sharg under BP Amoco’s operatorship) dictates the construction of the Main Export Pipeline with capacity of higher than 30bn cubic meters.

Azerbaijan may become a participant of gas cartel being established

An issue of establishment of a Gas OPEC is becoming critical for a number of states of the Eurasian continent due to increase in the gas production and transportation. And I think that Azerbaijan, as a go-between the West and East, having an entrance to Black Sea, and in future will have a way to Mediterranean Sea, may become a participant of the gas cartel which is being set up.

V.V.Putin’s coming to power raises hopes of prompt resolution of the Caspian status

Unfortunately, the issue on the Caspian status is still unsolved so far. In the Soviet Union when oil and gas exprloration, development and production were carried out under centralized direction of the All-Union Industrial Association "Casmorneftegasprom", excluding the Iranian sector, the Azeri specialists performed the work. After the collapse of the Soviet Union the following question became critical – what is the way to share Caspian Sea? Azerbaijan is in favor of delimitation into national sectors by means of a medial line with due regard to equidistance and configuration of the western, eastern and northern costal lines of the sea.

We have achieved full understanding with Kazakhstan on the issue. Russia offers to delimit the seabed but leave the surface under common control, and argues that by necessity of controlling the environmental situation. Turkmenistan, in turn, acknowledging the national sectors, pretends for ownership on Kyapaz, and Azeri-Chirag-Guneshli fields.

The coming of V.V.Putin, who declared that Russia should very seriously deal with the Caspian Sea, to the power gives a hope for the prompt resolution of the problem and more active participation of Russia in development of the Caspian energy recourses. Caspian Sea is at the turn of Europe and Asia, it is extended through meridian from the north to the south for more than 1,200km and this closed basin should be a sea of friendship but not a bone of contention.