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Central Asia: U.S. Supports Multiple Pipelines From Caspian Sea

Prague, 13 November 1998 (RFE/RL) -- The following is an RFE/RL interview with U.S. Ambassador Richard Morningstar, special advisor to the president and secretary of state for Caspian energy basin policy.

Our correspondent asked Ambassador Morningstar to detail U.S. policy on Caspian energy and pipeline issues in the wake of the signing of the Ankara Declaration on October 29. The joint declaration by the presidents of Turkey, Azerbaijan, Georgia, Kazakhstan, and Uzbekistan expressed their support for the proposed Baku-Ceyhan pipeline as the main route for moving Caspian basin oil to world markets.

Q: Mr. Ambassador, we have heard a great deal about government-level talks over the Baku-Ceyhan route, culminating in the Ankara Declaration at the end of last month. But would you reiterate why this pipeline route is needed, why it is better than other routes through Russia or Iran, and how it will directly benefit the Caspian basin countries involved?

A: Well, first of all I have to set a context to be able to answer your question. We support more than the Baku-Ceyhan route. We support multiple pipelines within which would be the east-west transportation corridor. Right now we are supporting very strongly three different pipelines, one (of which is) the Caspian Pipeline Consortium Project (CPC) which would in fact be through Russia. It will go through the eastern Caspian -- from Kazakhstan on the eastern Caspian, around the Caspian Sea, through Novorossiisk in Russia and into the Black Sea. We support Baku-Ceyhan and we also support a trans-Caspian gas pipeline which would go through Turkmenistan across the Caspian Sea to Azerbaijan, through Georgia, and into Turkey and, hopefully, mirror the Baku-Ceyhan line. The Ankara Declaration supported all of the pipelines as well as the early oil pipelines to Novorossiisk and Supsa. And, of course, Turkey is very much concerned about Baku-Ceyhan, they feel that it is a critical pipeline because they don't want to overload the Bosporus and (they) want to see the (pipe) line go down into the southern Mediterranean. So, those are the principal pipelines, the reasons why we are supporting them. In general, all of the whole pipeline system, we believe, will help ensure and strengthen the sovereignty and the independence of the new countries in the region.

Q: The AIOC (Azerbaijan International Operating Company) has so far postponed making a decision on which route to recommend to the Azerbaijani government. Could you give us your best estimate when a decision will be made?

A: Again, first of all, there is a question of semantics. What the AIOC is required to do under their agreements with Azerbaijan is to present a recommendation as to a route for a main export pipeline from the western Caspian to bring oil out of that region. And it is only a recommendation that then would have to be approved by the Azerbaijani government. The original date for this recommendation was October 29, it's been postponed (first) to November 12 and (then) into early December. The reason for the postponement is the negotiations taking place with respect to Baku-Ceyhan. I think the companies would say that a route that would go through Baku-Supsa then out through the Bosporus would be the cheapest route. The issue is that this, at this point, would appear to be an unattainable route because of the strong position that Turkey has taken with respect to the Bosporus and the support that Turkey has from the governments within the region. So, the question now is how to deal with the commercial issues that the companies have raised, they do have some legitimate commercial issues, although we certainly believe that Baku-Ceyhan is a viable option and support it. So now is the time for the companies to get down to business with Turkey and Azerbaijan to try and work out some of these commercial issues.

Q: Well, now that the Azerbaijani government has signed the Ankara Declaration, how much weight or even relevancy will a recommendation by the consortium to the Azerbaijani government regarding a route have?

A: Well, of course, that's up to the Azerbaijani government. All I can say is that Azerbaijan has strongly supported Turkey with respect to the Baku-Ceyhan route, they obviously have a very important relationship with Turkey. I think that Azerbaijan also recognizes that there are some commercial issues and they are encouraging the companies and Turkey to talk about what kind of incentives Turkey can give to make the Baku-Ceyhan route more attractive. Again, I think that at the end of the day the issue is not Baku-Ceyhan vs. Baku-Supsa, the issue is to deal with the commercial issues surrounding Baku-Ceyhan to make it as attractive as possible.

Q: In light of the argument that Iran is the cheaper and shorter route for piping out Caspian oil, why does the U.S. administration specifically continue to oppose that route?

A: Well, first of all, it is not all that clear that Iran is the cheaper route. My understanding is that if you compare routes an Iranian route is not significantly less expensive. But the issue goes beyond that, and it goes beyond the political difficulties that Iran and the United States have had, because we clearly hope that those relations will improve. We believe that these initial pipelines should go in an east-west direction, that it does not make sense that these pipelines go at this point through Iran. (Iran) is a competitive country, it has plenty of its own oil and should not put any more stress on the Straits of Hormuz. So, we think that from a commercial standpoint, even apart from the political question, these pipelines should go in an east-west direction and that is why we support Baku-Ceyhan, as well as the other pipelines I mentioned earlier.

Q: Are you concerned that a pipeline under the Caspian Sea might carry risks of ecological damage? This is an earthquake-prone region and the Caspian already has pollution problems caused by the petroleum industry.

A: Before ... yeah, there are environmental questions ... before any pipeline is actually built these issues will be sorted through as are environmental issues on virtually all major projects today. In order to get international financing from international finance institutions or the United States government, environmental impacts are going to have to be assessed and dealt with. The information that I have is that, although there are questions, they are resolvable issues and that ultimately the environmental issues should not preclude the pipelines that we have been talking about.

Q: Would the (trans-Caspian) pipeline require the agreement of the littoral states around the Caspian Sea?

A: You know, we hope very much that the sectoral issues with respect to the Caspian will be resolved by the littoral states. I don't think that the pipeline which would be the most relevant -- the trans-Caspian gas pipeline -- it seems to me that can be built as long as Turkmenistan and Azerbaijan agree that the pipeline can be built because it (would) cross a very short area between Turkmenbashi on the Turkmenistan coast to Baku. As long as Turkmenistan and Azerbaijan agree it should be able to go forward. But we obviously hope very much that the littoral states will be able to work out the overall boundary issues.

Q: Turkmenistan has not signed the Ankara Declaration, of course. And many people there wonder why Turkmenistan should support the route when less expensive and more direct routes from Turkmenistan to the world market might exist via Iran. Why is it specifically in Turkmenistan's interest to support east-west routes?

A: Well, first of all, it is important to remember that Turkmenistan did not sign the Ankara Declaration but they did sign a gas purchase agreement with Turkey which envisioned a trans-Caspian gas pipeline, so by signing that agreement Turkmenistan certainly implicitly supports east-west routes and clearly supports the trans-Caspian gas pipeline. And in my view, that gas pipeline is essential to Turkmenistan's future. Turkmenistan has a lot of gas, but that gas isn't going to do any good if you can't get it out of the country. And I believe strongly that a route across the Caspian is the most expeditious way to get large amounts of gas out of the country. Turkmenistan has had difficulties in coming to an agreement with Russia as far as getting gas out in that direction. Iran is a competitive country, they may be able to get some out through Iran, but from the standpoint of large volumes of gas, the gas pipeline is by far the most effective way to get significant amounts out and that is absolutely critical to Turkmenistan's economic future.

Q: I think you have mentioned in talks in various places that it is important to the Central Asian states to tie them into the West commercially and politically for their own democratic development. Is that true in Turkmenistan's case?

A: Well, I think that's right. I think if the countries in the region, the new countries in the region, Turkmenistan, Kazakhstan, Uzbekistan, Georgia, Armenia, Azerbaijan can all cooperate with respect to these routes and create a framework for regional cooperation that will help ensure their sovereignty and independence. Working with Turkey is also going to be very important for them, so I think that these are critical decisions for these countries, the more they can work together within the region the greater the likelihood that they will prosper as sovereign and independent states.

Q: Is there any possibility for Armenia to participate in one of the Caspian projects? And is peace in Nagorno-Karabakh tied to that?

A: We hope very much that Armenia can participate. We obviously also would like to see peace in Nagorno-Karabakh. With peace in Nagorno-Karabakh the greater the likelihood of participation. We also have to remember, too, that the east-west transportation corridor is more than oil and gas. It would include rail, it would include all other types of communications, including telecommunications, shipment of all sorts of products going in an east-west direction. Armenia should be able to participate in a pipeline project by having spurs coming off the pipeline to supply it and should also be able to participate in other projects that will have great regional significance. That participation will become more likely and greater if in fact resolution of the conflict can take place. It is in Armenia's interest, it is Azerbaijan's interest to resolve the conflict because that will create significantly greater economic opportunities for both countries and will be a major factor in attracting investment.

Q: I'd like to ask one last question. If you would please describe the most likely scenario over the coming years for the transport of Caspian oil. Will it be that -- until oil prices rise -- early oil will move through the Supsa and Novorossiisk routes? Then, as volume and price warrant, the Baku-Ceyhan pipeline will be constructed? And, if so, can you put time frames to these phases?

A: It's difficult to put time frames on them. Clearly there is going to be early oil going out from Supsa and Novorossiisk, there is already the early oil pipeline to Novorossiisk and the early oil pipeline to Supsa will be hopefully completed by this spring. The CPC pipeline is also very close to the beginning of construction; we are waiting for some federal permits to be issued by the Russian government and so that should begin hopefully in the next few years bringing oil around the Caspian and out to Novorossiisk. An actual start date and completion date for Baku-Ceyhan is difficult to project at this point. What we want to establish as soon as possible, hopefully in the next weeks or months, is an overall agreement with the (oil) companies that Baku-Ceyhan is the route to go and (to have) intense negotiations to work out the commercial incentives and commercial questions so that the pipeline can move forward. I think that will happen. I think there is a certain inevitability to Baku-Ceyhan resulting from the issues surrounding the Bosporus and it is a question of getting down to business and working out the framework by which that can move forward. But to predict beginning dates for construction or completion, I don't think would make sense at this point.