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Azerbaijan: Plans For Baku-Ceyhan Pipeline Moving Ahead Despite Iranian Alternative

Speculation about an Iranian route for Caspian Sea oil has not delayed plans for the Baku-Ceyhan pipeline. But new questions about an Iran option have surfaced because of views voiced by Richard Cheney, a U.S. oil industry executive who was selected as the Republican Party's vice-presidential candidate. Our correspondent, Michael Lelyveld, reports.

Boston, 28 July 2000 (RFE/RL) -- Plans for the Baku-Ceyhan pipeline are moving ahead gradually amid growing speculation about an alternate oil route through Iran.

On 14 July, Turkey solicited bids for engineering and environmental work on its portion of the Caspian oil line from Azerbaijan, marking one of the few signs of progress since agreements were signed at the OSCE summit in Istanbul last November.

The quiet time for development of the pipeline has been marked by continuing concerns about the amount of oil that will be available to fill its capacity of 1 million barrels per day.

Earlier this month, a consortium reportedly failed to find commercial volumes of oil during drilling at the Kurdashi field off the coast of Azerbaijan. In the past week, another group said it may take two more years before it can estimate the size of the huge Kashagan oilfield in Kazakhstan's sector of the Caspian.

Those events have kept the focus on members of Azerbaijan's first offshore oil group, which signed the "contract of the century" in 1994. Despite many deals since then, the Azerbaijan International Operating Company is still the only consortium exporting Caspian oil.

As its production rises, plans are proceeding for a "main export pipeline company," known as MEPCO, which is expected to develop Baku-Ceyhan. The slow pace of progress has led to speculation that Western oil companies may have little enthusiasm for the project, which competes with possible routes through both Russia and Iran. But 27 firms are actively considering membership in MEPCO, the Baku Sun reported this week.

Some companies are said to favor an intermediate solution for oil exports that expands the existing line from Baku to the Georgian port of Supsa. Russia favors a similar upgrade for its route to Novorossiysk. Iran has promoted its project for an oil line from its Caspian port of Neka to northern refineries for oil exchanges, or swaps. Any one of the plans or a combination could handle exports until they grow substantially.

But some U.S. analysts like Laurent Ruseckas of Cambridge Energy Research Associates believe that Baku-Ceyhan is gaining inevitability. The project is a strategic goal for Azerbaijan, Georgia and Turkey, as well as the United States. The participation of major oil companies is likely to make financing available. So far, Norway's Statoil and Mitsui of Japan have signaled their intentions to join in MEPCO.

Ruseckas also does not believe that oil companies will delay their decisions to see whether a pipeline through Iran to the Persian Gulf becomes a possibility. Interest in the option has risen this week with the naming of U.S. oil executive Richard Cheney as the vice-presidential choice of George W. Bush, the Republican presidential candidate. Cheney has frequently called for an end to U.S. bans on investment in Iran.

But Ruseckas said, "I don't think they're waiting for Iran, and I don't think they're waiting for Dick Cheney," referring to the oil companies involved in Caspian projects.

Baku-Ceyhan is already being structured as a project that will return a profit to investors, said Ruseckas. A more critical question than the political choices is whether sufficient oil volumes will be found, he said.

It is also not certain that Cheney's views on Iran sanctions will prevail if Bush succeeds in becoming the next U.S. president. The consensus in the Bush camp is that the United States should make no more concessions until Iran agrees to an official dialogue between governments, one adviser said recently, speaking on condition of anonymity.

The first task of MEPCO will be to commission basic engineering services, which is estimated to take six months. Detailed engineering and construction contracts would come after that. The start of that process could represent the last chance for major changes in options or routes.

The commitment to engineering could also mean that countries with any lingering hopes for oil transit, like Armenia, will find it too late to seek a share of pipeline benefits. The option of routing the line through Armenia was held out as a possibility over two years ago. But with the failure to reach a Nagorno-Karabakh settlement and the progress of pacts between Turkey, Georgia and Azerbaijan, any chance for an Armenian role is already remote.

In the end, the future of the Baku-Ceyhan project may still be influenced by politics, but it is likely to come down to the more basic issue of whether it is needed or not.