Caspian pipeline skirts trouble spots

By Bill Anderson, UPI, Tuesday 27 Novembe 2001 19:14 (ET)

Dignitaries from around the world gathered at a Russian tanker port on the Black Sea Tuesday to mark the grand opening of a 900-mile pipeline that has thrown open the door to the vast oilfields of the volatile Caspian Sea region.

The pipeline was built in a little more than a year by the Caspian Pipeline Consortium and has been operational at a rate of about 600,000 barrels per day for more than a month. It links the huge Tenzig field of western Kazakhstan to the seaport of Novorossiysk.

While probably not the most direct route to the open sea, the CPC route runs well north of Afghanistan and skirts the troubled Russian republic of Chechnya.

This pipeline will strengthen international energy security by adding more than a million barrels of oil a day to global supply, and by creating new jobs and billions of dollars in revenue, said U.S. Secretary of Energy Spencer Abraham, one of a number of high-ranking officials from the United States, Russia and Kazakhstan who attended Tuesday's ceremony in Novorossiysk.

Novorossiysk has been a major tanker terminal for Russian crude exports for many years, however it was not the only choice for the terminus of a crude pipeline from the Caspian.

It turned out to be the safest and most expedient investment for the consortium, which spent about $2.65 billion on the project.

During the 1990s, the United States was anxious to see increased amounts of Caspian oil reaching the world market in order to further dilute the clout of OPEC and other major producers. The Caspian has as much as 34 billion barrels of proven reserves and much larger potential reserves, about a quarter of what the Middle East holds and larger than the reserves in the United States and North Sea, according to the U.S. Energy Information Administration.

The trick, however, was finding a politically secure route for the oil to take from the landlocked sea to open waters where it could be hauled to virtually anywhere in the world.

The most obvious route for a pipeline would be through the short route through Iran to the Persian Gulf, or through Afghanistan to the Pakistani coast -- both of which presented the chance that unfriendly governments could shut down the pipeline in order to press a political agenda with the west.

U.S. sanctions against Iran and its refusal to recognize the Taliban in Afghanistan essentially made Novorossiysk the only choice for the oil companies that would invest huge amounts of money in the Caspian.

The CPC is made up of companies from the Russia, Kazakhstan and Europe as well as the U.S. companies Mobil Caspian Pipeline and Chevron Caspian Pipeline Consortium Co. The Russian Federation holds 24-percent of the CPC while Kazakhstan and Oman also own stakes.

Executives Tuesday portrayed the CPC project as just the first of many international projects in the region that was thrown open by the collapse of the Soviet Union.

This achievement comes at a time of increased partnership between the U.S., Russia, and Kazakhstan,

said ChevronTexaco Chairman Dave O'Reilly. CPC is a bellwether project for successful international cooperation and demonstrates the confidence the international business community has to invest in Russia and Kazakhstan.

U.S. Commerce Secretary Don Evans said earlier this autumn that the CPC pipeline tells the world that the United States, Russia, and Central Asian states are cooperating to build prosperity and stability in this part of the world.

Caspian crude will have to transit the narrow Bosporus to the Mediterranean Sea, making Europe its closest market. A pipeline through Iran or Afghanistan might make Caspian more economical for North American and Asian markets, however any new oil on the market helps keep world prices at reasonable levels.

Greater energy security through a more diverse supply of oil for global markets -- these are key elements of President Bush's National Energy Policy, Abraham said in a plug for his boss. The CPC pipeline is a clear example of that policy in action, in an international setting.

Some analysts and critics of the U.S. campaign in Afghanistan have theorized that the war against the Taliban is actually aimed at installing a regime in Kabul that will open the door for construction of another Caspian pipeline, however Tuesday's ceremony in Novorossiysk may be a signal that there is no rush.

There is no longer a shortage of oil export capacity in Kazakhstan, Cambridge Energy Research Associates said in a recent assessment of the feasibility of an Afghan pipeline. The need for a major new oil pipeline via Afghanistan or any other route will not reemerge until around 2010.

The construction of the CPC pipeline to Novorossiysk turned out to be the right choice for the United States while Afghanistan's failure to land a lucrative pipeline project will be chalked up as another misstep by the Taliban.