Washington, 7 April 1997 (RFE/RL) - The effort to assure that several pipelines will be available to carry oil from the Caspian sea region will get another push this week when the World Bank's Board of Executive Directors is expected to approve a loan to pay for a feasibility study of a long-term route through Georgia.
The proposed $1.3 million loan, along with $100,000 being put up by the Georgian International Oil Corporation (GIOC), will finance a complete economic, environmental and commercial assessment of a pipeline running from Baku, Azerbaijan to Supsa, Georgia and related major terminal and storage facilities at Supsa on the Black Sea coast. In addition, the loan will provide formal training courses in Georgia and abroad as well as on-the-job training in international companies for Georgians who are still largely unfamiliar with the economies and operations of the world oil industry.
Georgia is already in the process of rehabilitating existing domestic pipelines and building some new stretches to begin pumping so-called "early oil" from Baku to Supsa. In late 1995, Georgia and Russia were designated as the two transit countries for early oil coming from the first phase of exploitation of crude petroleum under the Caspian Sea by a consortium of international oil companies led by the Azerbaijan International Operating Company (AIOC).
Russia says that early oil will begin flowing through its pipeline to the Black Sea port of Novorossiysk October 1st. The early oil going through Georgia is projected to begin in early 1998.
But what Georgia and others are exploring now are the very much larger, long-term pipelines to handle massive amounts of oil the consortium of 12 oil companies expects to be pumping from the Caspian for world markets within the next five to ten years.
Sources familiar with the entire multiple pipeline situation say that while there are as many as nine different proposals to get the oil from Baku, only four are considered major competitors:
An expanded version of the pipeline through Russia, including Chechnya, to Novorossiysk.
A pipeline through Georgia, Armenia and Turkey, ending at Ceyhan on Turkey's Mediterranean coast.
An expanded and slightly different route from the early oil line through Georgia to Supsa on the Black Sea.
A pipeline through Iran, connecting to existing middle eastern pipelines. The Iranian plan is considered infeasible because of strong U.S. opposition. Washington maintains a tight international embargo on almost all transactions with Iran and oil companies are loath to even ask for exceptions.
Sources say that despite Georgia's inexperience in global oil markets, the route through that country is looking "more and more attractive" to many of those involved in both the political and commercial spheres.
They argue that it is shorter than the Turkish route and involves one less country, a significant point when those making the final decisions on all of the routes will have to assess the risk of political or domestic unrest anywhere near the pipelines.
On the other hand, the Georgia-Armenia-Turkey route would put the end terminal on the Mediterranean, where oil tankers could get to world markets without passing through the Bosporus straits from the Black Sea. Turkey, which obtained a $5 million World Bank loan last year to conduct a feasibility study of that pipeline, has already warned that it may further restrict the passage of oil tankers through the Bosporus due to environmental concerns.
Both the Russian and Georgian pipelines would have terminals on the Black Sea and any oil sold to world markets would have to be carried on giant tankers through the Bosporus.
One source says a lot depends on how people read the Turkish environmental argument, whether it's something which is "negotiable," and if so how much it would cost.
Even as international organizations, governments and private oil companies assess the pluses and minuses of each of these routes, a new twist has emerged. Ukraine is suggesting an alternative.
Ukrainian officials are floating the idea that oil piped to Supsa on the Georgian Black Sea coast could be carried across the sea by ship to Odesa, then put into a new pipeline to be constructed from south to north across Ukraine to connect with the Ukrainian-Russian Druzhba (friendship) pipeline. That pipeline, which is a major source of Russian oil flowing to Ukraine, connects directly with northern Europe, one of the world's largest markets for petroleum.
Ukrainian President Leonid Kuchma and Azerbaijan President Heydar Aliyev discussed the idea at a summit in Kyiv two weeks ago, but acknowledged it needs more study.
Sources say that Georgian President Eduard Shevardnadze has quietly joined them in promoting the idea, even though there has not been enough study done to realistically estimate costs.
Ukrainian officials have been telling European Bank for Reconstruction and Development (EBRD) and World Bank officials informally that they think it would cost $900 million -- half to build the pipeline and half to construct an oil terminal at Odessa.
Experts say as huge as that cost is, a project of this magnitude would cost considerably more than $900 million. They point out, however, that in the end, the oil companies in the consortium will support pipelines almost irregardless of the cost.
One expert says the cost of laying the steel and concrete "doesn't matter enormously because compared to the revenues from oil, any pipeline option cost almost fades into insignificance."
Adds the expert: "Far more important is the question of political risk of one country as opposed to another. Only when there is equal political risk does the cost of the pipeline become decisive."
The Ukrainian option takes on greater significance in this realm, say people familiar with the situation, because it avoids the shipping problem with the Bosporus, sends the oil through a country with low political risk and -- most significantly for some -- gives Ukraine it's first direct oil source that does not go through Russia.
World Bank officials say that while there have been some informal discussions with Russian, Ukrainian and other officials, no other countries have yet approached the institution for loans for Caspian sea oil export pipelines.
They point out that the bank will have no hand in deciding which of the pipelines will actually be built. The decisions will most likely be made as a compromise between the oil companies' commercial assessment and the geo-political leaders' political decisions. The bank will simply be ready, officials say, to consider any financing involvement anyone involved would like to propose.