Central Asia: The official opening of the Caspian oil pipeline will end years of argument. Once fully on stream, the project will carry a million barrels a day, write Stefan Wagstyl and Vincent Boland.
The Baku-Tbilisi-Ceyhan pipeline, the controversial $3.6 billion scheme to bring more Caspian oil to world markets, is to be officially opened tomorrow, after 13 years of argument, eight years of detailed planning and almost three years of construction.
BP, the oil group, and its partners, earlier this month started putting crude into the 1,770-km pipeline, which winds its way from Baku, the capital of Azerbaijan, through the mountains of central Georgia and eastern Turkey, to the Turkish Mediterranean port of Ceyhan.
Once it comes fully on stream in 2009, the pipeline will carry about one million barrels of oil a day, or more than 1 per cent of global oil production.
It will become the most important export route for Caspian oil production, which is expected to rise rapidly over the next decade from about 1.5 million barrels per day to 3.5 million barrels per day, from oilfields in Azerbaijan and Kazakhstan. This will disappoint those who hoped in the mid-1990s that the Caspian could become another Persian Gulf, but it will be a significant contribution to an increasingly energy-hungry world - producing as much as Mexico does today.
The US government-backed project holds, for the west, the strategic advantage of avoiding Russian territory and instead passing through three countries with which Washington has carefully cultivated relations.
The BTC pipeline will supplement existing links, including the large Russian network connecting the Caspian with the Russian Black Sea port of Novorossiysk and a smaller non-Russian pipeline built with western capital in the 1990s to carry oil from Baku to the Georgian Black Sea port of Supsa. The pipeline will also avoid drawing more tankers through the Bosphorus, which is already choked with traffic.
Turkey has repeatedly warned of the risks of shipping more crude through a passage that bisects Istanbul, Europe's most populous city.
The project's biggest economic gains will go to Azerbaijan because the pipeline will serve mainly as a conduit for oil from the country's new offshore field, Azeri-Chirag-Guneshli. Bankers estimate that with the oil price at $25 a barrel, the government will earn $50 billion over 20 years.
Georgia and Turkey will earn much less - about $600 million and $2.5 billion respectively, mainly from transit fees. For Georgia this is still significant, amounting to about 1.5 per cent of gross domestic product.
However, the project has also stirred considerable opposition. In Azerbaijan, opposition leaders are concerned the extra income could strengthen the authoritarian government of president Ilham Aliev, who succeeded his late father Heydar Aliev in 2004. Last week, the authorities temporarily banned opposition parties from holding protest rallies demanding fair elections and free speech.
In Turkey and Georgia, where the pipeline often cuts through unspoilt valleys and isolated farming communities, the principal worries have focused on the environmental and social impact.
In Georgia, the government last July suspended pipeline construction work for nearly three weeks in the Borjomi National Park while the authorities and BTC officials discussed environmental protection issues.
Like any industrial structure, the pipeline is a potential terrorist target, even though it runs a mile below ground. The vulnerability of such installations has been highlighted in Iraq. Islamic terrorists operate in the Caucasus, notably in Chechnya. The Azeri authorities reported last year on possible sabotage attempts by militants linked to al-Qaeda. Other potential threats could come from Turkey's Kurdish militants and, conceivably, from Armenians angry at their country's unresolved conflict with Azerbaijan over the disputed territory of Nagorno-Karabakh.
BTC says the installations are monitored by electronic surveillance and company guards. The armed forces of Azerbaijan, Georgia and Turkey have held joint exercises to co-ordinate pipeline protection. While the project's bankers cannot rule out attacks, the industry has long experience of managing projects in politically unstable regions.
BP is the biggest shareholder in both the pipeline and the ACG oilfield, with 30 per cent and 34 per cent respectively.
The partners are mostly global oil companies investing in the Caspian, backed by funds from the World Bank and the European Bank for Reconstruction and Development. - (Financial Times Service)