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Azerbaijan: Baku-Ceyhan Pipeline Gets A Boost

Hopes for the Baku-Ceyhan pipeline were buoyed last week after the announcement that Chevron wants to join other sponsors for the project. The news appears to be a sign that oil companies want to keep the route as an option for their Caspian exports, regardless of political goals. Our correspondent Michael Lelyveld reports.

Boston, 13 February 2001 (RFE/RL) -- The Baku-Ceyhan pipeline appears to have moved one step closer to viability with the announcement that the U.S.-based Chevron oil company is seeking to take part in the project.

Turkish officials were quick to publicize the news Friday (9 February), declaring it a vote of confidence in the plan to carry Caspian oil to Turkey's port of Ceyhan on the Mediterranean Sea.

A statement from Prime Minister Bulent Ecevit's office said: "This development shows that those left outside the international consortium set up for the construction of the pipeline have accepted that this project is commercially and economically viable," "The New York Times" reported.

Despite lingering skepticism about whether the 1,730-kilometer pipeline through the Caucasus will be built, Turkey is encouraged that a major oil company outside the consortium for Azerbaijan's "contract of the century" wants to take part. Azerbaijan's big offshore project is the largest single source of oil for the pipeline, but it still needs more oil to justify its estimated $2.4 billion cost.

Chevron could be the source of the additional Caspian oil that is needed to fill the pipeline. But the announcement also created some confusion about what the news means and what it does not.

Chevron is best known in the region for its huge investment in Kazakhstan, where it has developed the giant Tengiz oilfield for the past seven years. The field, which is expected to produce 12 million tons of oil this year, could have more than enough exports to help fill the Baku-Ceyhan line.

But there are currently no plans for any of Chevron's Kazakh oil to flow through Baku-Ceyhan, according to company officials. The oil from Tengiz is already scheduled to be pumped through a separate pipeline which will open this year to Russia's port of Novorossiysk on the Black Sea.

Instead, Chevron is interested in Baku-Ceyhan as a potential outlet for the Apsheron oilfield, which it is exploring off the coast of Azerbaijan. The company recently started drilling a test well at the site. Chevron owns 30 percent of the project in partnership with Azerbaijan's SOCAR state oil company and France's TotalFinaElf.

Chevron's reason for joining in Baku-Ceyhan makes it less certain that the decision is the big break that the project needs, because oil has yet to flow from Apsheron. Kazakhstan government officials have made several statements in recent months about shipping some of that country's oil through the pipeline, but it is not clear that all the questions about oil volumes have been laid to rest.

Chevron's level of participation has also been the subject of conflicting reports. The Reuters news agency quoted a Chevron spokeswoman as saying only that the company wants to open talks with SOCAR on joining a group to sponsor engineering studies for the project.

The official said participation in the construction itself would depend on whether oil is found at Apsheron. But "The New York Times" quoted the company as saying it had already decided to join in both the engineering and the project. Other companies have until the end of the month to sign up for the sponsor group, and reports suggest that several more will join.

Whatever the reservations may be, the news is positive for the pipeline project, which has been a high priority for Turkey, Azerbaijan, Georgia, and the United States.

U.S. officials in the administration of former President Bill Clinton spent several years trying to persuade oil companies to back the pipeline, arguing at one point that there was a political need for the project that should make up for any commercial shortcomings. In later years, they focused more clearly on the oil industry's need to make Baku-Ceyhan commercially viable.

Since the inauguration of President George W. Bush, several U.S. envoys in the region have voiced assurances that American policy will not change toward Baku-Ceyhan. But it remains to be seen how much political influence the Bush administration will apply to the project, or whether it will be treated strictly as a business venture that U.S. policy supports.

The Chevron decision seems to be a sign that the oil industry sees the pipeline as an important option to keep open. That judgment seems bound to advance the project, no matter how much political support it may have.