By Michael Lelyveld and Sarah Martin
As the Caspian competition continues, a U.S. expert sees theoretical advantages for Iranian export routes but finds there are too many problems in the way. RFE/RL Correspondent Michael Lelyveld files this report:
Washington, 13 January 2000 (RFE/RL) -- Iran may represent the lowest-cost outlet for Caspian Sea oil, a U.S. consultant told Middle East experts this week. But he concluded that the routes may not be used because of a combination of problems, including sanctions policy and Iranian inefficiency.
Thomas Stauffer, a former professor of Middle East economics and energy at Harvard and Georgetown universities, told a group at the Middle East Institute in Washington that Caspian oil swaps through Iran could offer significant savings over alternative export plans, at least in theory.
"Now, the advantages of moving oil through Iran are rather compelling. The infrastructure actually exists. There are pipelines, which now carry oil from southern Iran to the north. These could be reversed with minor alterations. The export facilities already exist in southern Iran and indeed they are significantly underutilized. Iran has in various states of repair almost 8 million barrels per day of export capacity and is now exporting something less than 3 million," Stauffer said.
Stauffer believes that using the pipelines and port facilities for direct export across Iran would be inefficient. But he pointed to potential savings from oil swaps, particularly for smaller volumes of oil.
For volumes up to 400,000 barrels per day, Iran's cost for swaps would be only about 40 cents per barrel, Stauffer estimated. The cost would rise to about $1 per barrel for volumes up to 1 million barrels per day, he said.
Iran has actively promoted the option of swapping or exchanging oil with Caspian producing countries for several years. The swap mechanism works by importing oil for local use in Iran's northern refineries, while an equal amount of Iranian crude is exported in the south through Persian Gulf ports.
Swap volumes have so far remained small, however, mainly due to technical problems with handling Kazakhstan's oil, which has a high sulfur content. Companies operating in Turkmenistan have also been swapping oil, but their volumes also remain relatively small.
Iran has also been charging a high premium for conducting the swaps, a fee known as a netback charge. Tehran reduced its netback charge at the start of the year in order to compete with the pipeline fees of the planned Baku-Ceyhan project, which is backed by the United States. The line from the Caspian to Turkey's Mediterranean port of Ceyhan is designed to carry 1 million barrels per day at a charge of $2 and 58 cents per barrel.
Stauffer cautioned that while Iran's swap costs could be low, there is no telling what it will charge. U.S. sanctions policy also stands in the way of any advantage that American oil companies might gain from using the route, he said.
But Stauffer was equally critical of Iran's seeming inability to exploit the natural advantage of the swap option. So far, Iran has failed to put together a deal for building a 392-kilometer swap pipeline that would connect its Caspian port at Neka with its refinery near Tehran. Iran might have had a serious impact on the Baku-Ceyhan project if it had succeeded earlier in organizing and marketing swaps as an option, said Stauffer.
"But the Iranians have shown themselves to be as inept as our administration. They haven't put the project together. This project has been stalemated for about two years even though several companies have submitted viable bids on the project," he said.
Lengthy negotiations with the China National Petroleum Corporation on building the swap line fell apart last year over financing. So far, a second round of talks with Chinese companies does not appear to have borne fruit. In the meantime, any natural advantage of swaps may be slipping away as the United States, Azerbaijan and Turkey press forward with plans for the Baku-Ceyhan line.
"The Iranian connection for oil is economic, but it's the Iranians at this point who are the stumbling block," Stauffer said.