Caucasus: The BTC -- Settling On A Route

(Courtesy Photo) PRAGUE, July 12, 2006 (RFE/RL) -- World leaders will congregate on the Turkish Mediterranean port of Ceyhan on July 13 to celebrate the launch of the Baku-Tbilisi-Ceyhan (BTC) export pipeline for Caspian oil. The completion of that project, years later than initially envisaged, represents a triumph of U.S. geopolitical priorities over entrepreneurial caution -- despite persistent squabbling among the various parties involved over financing and the share each will finally receive from any profits.

When a consortium of 12, mostly Western oil companies -- including British Petroleum, Norway's Statoil, Exxon, MacDermott, and Pennzoil -- signed in September 1994 the contract with the Azerbaijani government that became known as "the Deal of the Century," no one knew precisely how the bulk of the oil from the three fields in question (Azeri, Gyuneshli, Chirag) would be transported to world markets. True, a pipeline running westward from Baku to the Georgian Black Sea port of Supsa already existed, but it required modernization and the construction of a modern terminal at Supsa, and its initial annual throughput capacity was only 5 million tons -- enough for the initial or "early" oil but not for the additional volumes initially expected to come on stream by 2007.

Searching For Routes

In light of its difficult relations with Tehran, the United States from the very beginning ruled out the shortest and easiest route for the so-called Main Export Pipeline (MEP), running southward via Iran to the Persian Gulf.

An alternative route to Turkey via Armenia was anathema to Baku due to the unresolved conflict with Armenia over Nagorno-Karabakh.

And the third main possibility, northward from Baku to Novorossiisk on Russia's Black Sea coast and thence by tanker was problematic for three reasons. First, the United States hoped to bypass Russia rather than give Moscow the chance to control Azerbaijan's oil exports. Second, the security threat posed by the war in Chechnya. And third, because Turkey since early 1994 had repeatedly expressed its opposition to increasing the volume of oil-tanker traffic through the Bosphorus.

Other options were either economically shaky (refining the crude in Baku and selling it at world prices to the Azerbaijani government) or logistically complicated (transporting the crude from Baku north along the Caspian coast, then via the Volga-Don canal to the Black Sea, and then by tanker across the Black Sea and through the Bosphorus.)

'Deal Of The Century'

But within months of the signing of the "deal of the century," the presidents of two of the countries that had the largest stakes in seeing the oil bypass Russia along a route that the United States would support came up with an alternative to the Azerbaijan-Armenia-Turkey route: Turkey's Suleiman Demirel and Georgia's Eduard Shevardnadze proposed in December 1994 routing the main export via Georgia rather than via Armenia. That proposal found favor with Washington insofar as it would serve to anchor Azerbaijan, Georgia, and Turkey to the West and thereby undercut Russia's influence in the South Caucasus.

The Western oil companies represented in the Azerbaijan International Operating Company (AIOC) were, however, initially leery of the Baku-Ceyhan option on the grounds of the high projected cost (between $2.4 billion and $4.5 billion), given the slump in world oil prices in 1997-98 and the fact that the estimated reserves from the three AIOC fields were not sufficient to render BTC economically viable without additional oil from Kazakhstan and/or Turkmenistan.

In October 1995, the AIOC opted for two routes for the export of the "early oil:" north from Baku via Tikhoretsk to Novorossiisk, and westward to Supsa. Meanwhile the United States, Turkey, and Azerbaijani President Heydar Aliyev, continued to affirm their support for the Baku-Ceyhan route for the MEP.

But the AIOC failed to meet a deadline of late October 1998 for making a firm commitment to Baku-Ceyhan, despite the so-called "Ankara declaration" by the presidents of Azerbaijan, Georgia, Turkey, and Kazakhstan pledging their support for that route. Undeterred, Washington continued to lobby energetically for the BTC, and in October 1999, the pipedream came a little closer to becoming reality when BP/Amoco, the single largest AIOC member, expressed its support for the "strategic" Baku-Ceyhan route.