BP, Industry Partners & Government Leaders Celebrate Completion of BTC Pipeline
By Andrew K. Burger
13 Jul 2006 at 10:44 AM EDT
- Construction has been completed, but the controversy, and potential conflict, surrounding the pipeline is likely to continue indefinitely. In addition to billions of dollars worth of investment capital lent through supranational agencies, the governments of Azerbaijan, Georgia, Turkey, the U.S. and the U.K. have committed military resources and capital to ensure the project's security.
- What if anything are, or should, the pipeline operators do to protect the flow of oil given the risks posed by unstable governments, political unrest and terrorism in the region? "...they don't realize that they are at war with non-state groups, where the control of flows in systems like these is seen as weapons of warfare," said John Robb, a former Air Force officer and counter-terrorism expert
- Environmental, labour and social justice and development organizations have also criticized the project. The construction of the pipeline has been monitored by the Baku-Ceyhan Campaign, a consortium of NGOs including the Kurdish Human Rights Project, The Corner House, Friends of the Earth and Environmental Defense. The campaign has uncovered 173 violations of World Bank environmental and social standards in the Turkish section of the project during the design stage alone, according to a report by Friends of the Earth International activist Hannah Ellis.
SAUDI ARABIA (ResourceInvestor.com) -- Senior government officials, state royalty and top energy industry executives from 32 countries were among those on hand at the official inauguration ceremony of the final section of the BP-led partnership's Baku-Tbilisi-Ceyhan (BTC) oil pipeline in the Anatolian port town of Ceyhan, Turkey July 13.
Nearly a decade and some $3.9 billion in the making, the pipeline is expected by 2008 to carry 1 million barrels, and likely more, of crude oil from Azerbaijani Caspian Sea oilfields and the Sangachal terminal complex in Garadakh 1,768 kilometres overland to the new Ceyhan Marine Terminal on Turkey's southeast Mediterranean coast, making it the second-longest pipeline in the world.
Heralded as the "silk road of the century" by proponents and the "deal of the century" by BP [NYSE:BP; LSE:BP], the pipeline has profound geopolitical, development, security and environmental implications, as well as establishing what BP is betting will be one of the company's main revenue and profit drivers for decades to come.
The first quantities of Azeri crude oil pumped through the BTC pipeline were loaded onto a British tanker in June. The BTC system will have an initial capacity of 50 million tonnes of oil per year with the possibility of expanding that figure to 75 million tonnes if required.
Government leaders in the E.U. and U.S. may likewise look at this mammoth-sized achievement with satisfaction and optimism as it is the realization of a long-standing desire to build a modern and secure corridor for the transport of oil and gas from rich but undeveloped Caspian Sea and Central Asian oilfields to the Mediterranean and world markets.
A Grand Design
BP owns 30.1% of the pipeline through the BTC Co. and its BP Caspian subsidiary. The former has managed the project's design and construction and will operate the pipeline in the name of the consortium's 11 partners. In addition to BP, the national oil companies of Azerbaijan, Georgia and Turkey are sharing the pipeline's costs, revenues and profits, as are Amerada Hess, Conoco-Phillips, Eni, Itochu, TPAO, Total-FINA-ELF and Unocal.
BTC Co. management on June 4 announced that "line-fill" was completed and that the first cargo of Azeri oil - 600,000 barrels worth, had been loaded onto the tanker British Hawthorn, at which point it sailed away from the new Ceyhan Marine Terminal.
While estimates of cost savings and revenues were not at hand, the BTC pipeline now provides BP and its partners a safer, lower cost alternative for transporting Central Asian oil and natural gas to western and world markets than transporting it by tanker through the Bosporus Straits, BP spokesman David Nicholas told Resource Investor.
"The new terminal at Ceyhan, in addition to being more modern, can accommodate much larger Very Large Crude Container (VLCC) traffic that would not be able to pass through the Bosporus," said Nicholas.
BP hatched and nurtured the BTC pipeline plan having taken on the lead role, and an approximately 31% share, in the discovery and development of Azerbaijan's Azeri, Chirag and Gunashi (ACG) Caspian Sea oil super-fields in the late 1990s.
"Having access to significant resources and reserves in the Caspian Sea, the key question became how best to get it to market," Nicholas recounted.
The ACG fields are coming on-line sequentially. The Chirag field has been pumping oil since the late '90s. Several platforms are nearing completion in the Azeri field while Gunashi, the deepest water field, will be the last to come on-line. Platforms in all three are expected to be completed in 2008, at which point 1 million of barrels of oil per day will be transported from the fields to the Sangachal terminal in Baku, the BTC pipeline's point of origin, Nicholas explained.
A Share of a Growing Pie
Turkey will earn an estimated $300 million in revenue annually from the pipeline. Georgia is to receive revenue of $60-70 million per year in transit fees, or $2 billion during the lifetime of the project, Grigol Mgaloblishvili, Georgia's ambassador to Turkey said in a July 12 press interview.
"Meanwhile, the construction work has also created side benefits such as employment and business opportunities. Much more importantly, the pipeline means a diversification of energy routes, improvement in energy security, the development of regional cooperation and a new place on the world map," he added.
Georgia Academy of Natural Sciences' economist Sandro Tvalchrelidze in an interview with Radio Free Europe/Radio Liberty said that the project brought substantial revenues to the country even before the first Azerbaijani oil was pumped in May.
"With regard to [BTC's] economic aspect, it must be noted that its construction alone has - directly, or indirectly - contributed to 2% of Georgia's gross domestic product," Tvalchrelidze said. "Therefore, one can say that already the project is economically very profitable for Georgia and the rest of the region."
Adding to the originally projected flow of oil through the BTC pipeline, KazMunaiGaz, Kazakhstan's national oil and gas company, last May agreed to contribute part of its oil output - estimated to be as much as 150 million tonnes by 2015, to the BTC pipeline. KazMunaiGaz's management expects output from the Kashagan field to total between 7-13 million tonnes in 2008 or early 2009.
The Agip KCO consortium developing the field expects to begin transporting oil to the BTC pipeline during that same period, when an underwater connection linking the port city of Akatu to Baku is due to be completed. The company has estimated Kashagan's recoverable oil reserves to be at least 7.9 billion barrels and overall geological oil reserves to be 38 billion barrels.
Even Russia, which has a 10% share in the alternative Baku-Tbilisi-Erzurum pipeline project, has taken a softer line of late. Moscow last year suggested it would be interested in the possibility of connecting its pipeline network to the BTC and later said that it now agrees that the project is economically viable.
Ongoing Debate
Now completed and with full scale distribution just around the corner, Turkey's government estimates that 8% of the world's oil will flow through the country, making it once again a crossroads of world trade, at least in oil and gas. The BTC pipeline is one of several such projects being developed with terminal distribution points in Turkey.
The enthusiasm of EU leaders for the project, in particular, has only grown as it offers their countries an alternative to a growing dependence on Russian oil and gas, a supplier whose good faith and reliability have been recently called into question.
The BTC project has created controversy since it was announced nearly ten years ago. Energy and political analysts have criticized it as being more politically than economically motivated, while environmental, human rights and social justice organizations have criticized its support of governments to varying degrees considered authoritarian, repressive and corrupt. Critics from both the right and left-wings have speculated that it will increase rather than reduce the spread of terrorism in Central Asia and Turkey.
Construction has been completed, but the controversy, and potential conflict, surrounding the pipeline is likely to continue indefinitely. In addition to billions of dollars worth of investment capital lent through supranational agencies, the governments of Azerbaijan, Georgia, Turkey, the U.S. and the U.K. have committed military resources and capital to ensure the project's security.
Advocates and critics of the pipeline have weighed in on opposing sides of a wide-ranging debate concerning the willingness of supranational development banks, the European Bank for Reconstruction and Development (EBRD), the International Finance Corp. (IFC) and export credit agencies from six countries prominent among them, to use taxpayer funds to finance 70% of the project's cost.
What if anything are, or should, the pipeline operators do to protect the flow of oil given the risks posed by unstable governments, political unrest and terrorism in the region?
"Most of the measures that can be taken (from over-flights by planes or RPVs, patrols, and sensors) are relatively useless against determined attackers. The extreme length of the pipeline means that almost anyone could dig it up and punch a hole in it well before a response is generated - as the hundreds of attacks on pipelines in Iraq and the recent disruption of Georgia's gas/electricity system last winter clearly demonstrate," said John Robb, a former Air Force officer and counter-terrorism expert who has since gone on to become a successful high-tech entrepreneur, security analyst and author.
One of the biggest problems is that BTC's operators and sponsoring governments either don't know or are ignoring what they are getting themselves into, according to Robb.
"They don't have a clue what the risks are. Systems disruption is a new category of warfare that goes well beyond the simple sabotage (or even strategic bombing campaigns by conventional militaries) we have seen historically. Economically, this is one of the best ways to extract Central Asian oil for global consumption, which would ease potential energy shortfalls in the future from the Middle East. However, they don't realize that they are at war with non-state groups, where the control of flows in systems like these is seen as weapons of warfare," he added.
Environmental, labour and social justice and development organizations have also criticized the project. The construction of the pipeline has been monitored by the Baku-Ceyhan Campaign, a consortium of NGOs including the Kurdish Human Rights Project, The Corner House, Friends of the Earth and Environmental Defense. The campaign has uncovered 173 violations of World Bank environmental and social standards in the Turkish section of the project during the design stage alone, according to a report by Friends of the Earth International activist Hannah Ellis.
This notwithstanding, BP and its BTC partners have seen the project through to fruition. For its part, the pipeline consortium has invested some $37 million to fund education, training, environmental and community development projects in the areas of Azerbaijan, Georgia and Turkey through which the pipeline passes.
From its conception and throughout its development, the BTC pipeline has been under possibly the most intense, varied and thorough levels of public scrutiny and oversight associated with this type of project, BP's Nicholas said.
"Since the agreement was announced, through the environmental and social impact studies we carried out and also through monitoring by governments, communities, lenders and other parties , this project has been brought to another level of third-party and external scrutiny. Our job has been to listen, provide the information required and get on and do a job that we can all be proud of and I think we've done that."