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Turkmenistan/Azerbaijan: Trans-Caspian Oil Deal Raises Questions

Reports of a Caspian pipeline agreement have puzzled industry experts. The real implications of the deal have yet to emerge. RFE/RL Correspondent Michael Lelyveld takes a look at the issues involved.

Boston, 16 March 2000 (RFE/RL) -- Industry officials say a reported agreement between Turkmenistan and Azerbaijan on the trans-Caspian gas pipeline has raised more questions than it has answered.

The agreement reported last week by Turkmenistan President Saparmurat Niyazov follows months of uncertainty about the fate of the project to build a 2,000-kilometer gas line to Turkey through Azerbaijan.

According to Niyazov, an understanding on sharing the line with Azerbaijan was reached in a phone conversation with President Heidar Aliyev on March 9. Niyazov said that Aliyev agreed to accept Turkmenistan's offer to ship 5 billion cubic meters of Azerbaijani gas per year through the line, although Azerbaijan had previously sought three times as much.

Earlier this year, Aliyev demanded half the capacity of the line, which is eventually planned to carry 30 billion cubic meters of gas to Turkey. Last year, Azerbaijan discovered a giant gas deposit at its Caspian offshore field known as Shah Deniz. Since then, the country has developed plans to export up to 16 billion cubic meters of gas per year, making it a competitor to Turkmenistan.

But Niyazov insisted that Baku's demand would have made Turkmenistan's own export plans impossible. Ashgabat has already agreed to deliver 16 billion cubic meters a year to Turkey with an additional 14 billion cubic meters to be passed on to Europe. A half-share of the line would have left Turkmenistan with a high cost for construction and little return.

Industry officials say that the reasons behind Aliev's reported decision to ease his demands are still unclear. If the reports prove correct, Aliyev has settled for a smaller share, even though he held the stronger hand. Before the announcement, most analysts believed that Azerbaijan would win the contest because the pipeline must cross its territory to reach Turkey.

Michael Townshend, manager of international affairs at BP Amoco in Washington, said he has yet to receive confirmation of the Turkmen reports. The company is the operator of Azerbaijan's gas field at Shah Deniz.

Last month, BP Amoco announced plans to spend up to $1.3 billion with its partners on the first stage of developing the Azerbaijani field. The companies were also prepared to invest up to $700 million on rebuilding existing pipelines through Azerbaijan and adding new lines in Georgia to reach Turkey. Meanwhile, Aliev's government continued to press Azerbaijan's demand for a half-share in the trans-Caspian line.

The reported agreement has raised hopes for the trans-Caspian project but confused the situation for BP Amoco's planned pipeline route. Says Townshend: "It doesn't really make much sense if there's two."

Officials at Azerbaijan's embassy in Washington could not be reached for comment. According to a statement by Azerbaijan's presidential press service, which was quoted by AzadInform News, Aliyev and Niyazov agreed on Azerbaijan's share of the pipeline, although the details have yet to be "elaborated (in) relevant bilateral agreements."

Julia Nanay, director of the Petroleum Finance Company, a Washington-based consulting firm, said that the market may be cautious about the reported solution to the trans-Caspian problem if it has been negotiated solely by political leaders.

She says: "These pipelines ultimately have to be commercial projects, not political projects. If they don't serve commercial interests, there are just going to be more delays."

At least one report casts considerable doubt on Niyazov's account of the agreement. According to Platt's Oilgram, a U.S.-based industry news service, Niyazov agreed to give Azerbaijan a half-share of the pipeline in later years.

The Platt analysis says "it looks as if Aliyev may have gotten his way." It quotes an official at Turkmenistan's embassy in Baku as saying that Azerbaijan would be allowed to ship 16 billion cubic meters of gas through the pipeline once it reaches full capacity of 32 billion cubic meters per year.

Pressure for a compromise appears to have increased since Turkmenistan announced last month that it would try to sell 50 billion cubic meters of gas per year to Russia's Gazprom. U.S. officials are said to be concerned that the huge volume would leave little gas available for the trans-Caspian plan, although it is still unclear whether Gazprom will offer a competitive price for Turkmen gas.

AzadInform News says Aliyev and Niyazov agreed that they would sign documents related to their agreement next month, either at the summit of Turkic language nations in Baku or at a meeting of regional leaders in Istanbul.