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Russia: Troubles Beset Caspian Oil Pipeline From Kazakhstan

Despite years of work to build a pipeline from Kazakhstan, Russia has been delaying the delivery of Caspian oil. The dispute has raised doubts about the process of negotiating agreements in a region dominated by power politics. Our correspondent Michael Lelyveld reports.

Boston, 4 June 2001 (RFE/RL) -- The first major pipeline from the Caspian region has been hit by a host of problems, only two months after oil from Kazakhstan started to flow.

Pumping has stopped and restarted and stopped again on the Caspian Pipeline Consortium's line from the Tengiz oil field to the Russian port of Novorossiysk on the Black Sea.

Officials opened the $2.5 billion line with fanfare on 26 March after years of effort and the laying of over 1,500 kilometers of pipe. Another ceremony was scheduled to follow at Novorossiysk on 30 June, when the first tanker was supposed to be loaded with oil.

But now, the date has been set back until August after a series of troubles that have been described as technicalities.

Two weeks ago, Richard Matzke, a Chevron oil company vice president, said, "I would not characterize them as significant problems." Yet, the problems persist.

The oil was stopped at the Kazakh border with Russia, first because water had to be removed from the line. Then the reason given was that the Russian State Customs Committee claimed there was no agreement on tariffs to enter Russian territory.

An official for the project known as CPC disputed the Russian claim, saying, "There is an agreement between the two countries on this," the Transcaspian Project news service reported on 11 May.

Kazakhstan Prime Minister Qasymzhomart Toqayev is now expected to visit Moscow this month in an attempt to straighten the differences out. But the entire CPC project was structured to avoid just such bureaucratic holdups.

While Chevron owns a 50 percent interest in the Tengiz oil field, Russia was given the biggest share in the CPC pipeline with a stake of 24 percent. The line was planned to use a Russian port, cross Russian territory, and pay Russian transit fees. Those terms might have been expected to ensure Russia's cooperation after the pipeline was built.

So far, it has not turned out that way. A report by the Energy Intelligence Group said last week that the CPC project was late in submitting customs documents for approval. But Russian customs has previously been used as a standard ploy.

Last October, the Russian customs body blocked gas deliveries to Azerbaijan for seven weeks until Baku agreed to export more of its oil through another Russian pipeline. Customs again stopped the gas for several days in early January, just before President Vladimir Putin visited Baku to forge closer ties.

In the case of the CPC delays, Russia appears to want several things.

First, Russia is negotiating over plans to set up a quality bank for CPC oil. The bank is an arrangement that allows oil from various sources to be mixed in the pipeline so that each exporter can be paid fairly for the quality that each provides. Russia could win valuable concessions from the other parties in payments for its crude.

Secondly, the Russian state pipeline monopoly Transneft is said to be objecting to the whole idea of setting up a quality bank, the Petroleum Argus newsletter reported last week. The concern is that oil companies could seek similar payments for all the crude shipped through the Russian network. CPC officials suspect that Transneft may be raising the issue to get a bigger role in managing the new line.

Thirdly, Russia's Caspian envoy Viktor Kalyuzhny said last week that his country is preparing to sign a long-term agreement with Kazakhstan to transport its oil. The deal could discourage Kazakhstan from using other routes, including the U.S.-backed Baku-Ceyhan pipeline. It would be no coincidence if the CPC problems and the issue with Kazakhstan were resolved at the same time.

Chevron may also be under pressure because of its possible investment in Baku-Ceyhan. The company plans to ship all of its Kazakh oil through CPC. But it is also developing an Azerbaijani field that could help fill the line from Baku, which Russia sees as competition for its routes.

The Russian delays are said to be troubling Chevron, which has been trying to export its CPC oil under time-sensitive term contracts.

Whatever Moscow's motives may be, the problems will make it hard to trust in agreements with Russia, even after pipelines are built.