Pipeline problems plague Turkey

Jon Gorvett
Middle East, Issue 300, Apr 2000, pp.31-33


Abstract:

For Turkey, faced with an energy deficit for its rapidly expanding population,
the Baku-Ceyhan oil pipeline is a vital concern. However problems have
plagued the project due to geopolitical problems between Turkey, Georgia
and Azerbaijan, the three countries through which the pipeline is set to
pass.

Copyright International Communications Apr 2000

Full Text:

Amidst much fanfare last November, at the Istanbul summit of the Organisation
for Security and Cooperation in Europe (OSCE), US President Bill Clinton
presided over what was billed as the signing of a milestone treaty in the
distribution of Central Asian oil. Finally, it seemed, the much discussed
pipeline from the Azeri capital of Baku to Turkey's Mediterranean port
of Ceyhan was about to get under way. However, three months down the road,
the pipeline's future is looking far Less rosy - and along with it the
whole Turkish and US strategy for Central Asia.

The signing ceremony in Istanbul saw heads of state from Turkey, Georgia
and Azerbaijan - the three countries through which the pipeline is set
to pass - sit down with a clutch of other regional leaders brought along
as witnesses to the agreement. But the event did not go at all as planned.
Originally, the treaty was to have been signed on a boat moored in the
Bosphorus - the narrow channel that runs through the heart of Istanbul,
which is itself a controversial topic in the Central Asian oil game.

Symbolic of the difficulties being faced, the ship board ceremony was cancelled
at the last moment due to rough weather and `security concerns'. The Turks
have for years protested that the Bosphorus cannot be used as a route for
oil tankers carrying Central Asian reserves to western markets.

`Security concerns' were also to prove a stumbling block to the pipeline
when Georgia later declared that it might have difficulty ensuring safety
for the stretch of pipeline that would cross its territory. It also turned
out that despite the pictures from the Istanbul signing ceremony, Georgia
had, in fact, failed to sign some crucial parts of the agreement.

The pipeline issue is something of a classic case of grand geo-strategic
designs versus dollars and cents. For Turkey, faced with an energy deficit
for its rapidly expanding population, the Baku-Ceyhan pipeline is a vital
concern. Ankara sees it as a central plank in its energy strategy and also
in its geo-political aims to establish itself as a regional power, linking
up with the Turkic republics of the former Soviet Union.

The US has a similar strategic concern, seeing the opportunity to pull
countries such as Azerbaijan, Georgia and Turkmenistan into a western sphere
of influence through the development of Central Asia's vast potential oil
and natural has wealth.

Meanwhile though, there are some other important players. Principal among
these are Russia and Iran. By itself, the Baku-Ceyhan pipeline will come
nowhere near fulfilling energy demand in Turkey, and as a result, Ankara
is also engaged in a number of other pipeline schemes. One of these, the
`Blue Stream' project, has the advantage over the others that work has
already begun on building it. In mid-January, the foundations were laid
for the terminal of a pipeline that is set to go from Russia under the
Black Sea to the northern Turkish port of Samsun. This will supply Russian
natural gas and gas from fields in Kazakhstan.

Elsewhere, another pipeline has been partially completed to convey Iranian
gas to Turkey. Teheran has finished its part of the route, but the Turkish
section remains incomplete. This is partly due to US pressure, leaving
Turkey short of vital compressor units. As a result, January saw the Iranians
helpfully putting a positive spin on things by announcing that the gas
burning off at the disconnected end of their stretch of the pipeline at
the Turkish border was a `flame of friendship' with the Turks. Soon after,
a Turkish delegation headed for Teheran to try and negotiate a satisfactory
settlement to the thorny question of how much Ankara should pay Iran for
this `flame of friendship' since the original deal had been on a take-or-pay
basis.

There is another projected pipeline to take cheaper Turkmen gas to Turkey
- the Trans Caspian Pipeline (TCP). This lengthy route hopes to take advantage
of the construction of the Baku-Ceyhan pipeline by using many of the same
facilities, the idea being that construction costs would be slashed if
two pipelines were laid in the same trench.

[IMAGE PHOTOGRAPH] Captioned as: Western companies are reluctant to invest
in development projects around the Black Sea because of corruption and
mafia involvement. Other options are aGo proving problematic

This project has also been in deep trouble since the discovery of major
gas reserves in Azerbaijan's Shah-Deniz field. The TCP would have to run
across the Caspian from Turkmenistan to Azerbaijan before passing on to
Turkey. With the Shah Deniz field on stream though, another pipeline going
straight from Azerbaijan to Turkey would remove the need for the TCP and
cut the Turkmens out of the loop. Baku has already been dragging its feet
on signing further TCP deals, and this has made Turkmenistan highly nervous,
with the Turkmens now saying they are thinking of selling their gas to
Russia instead.

Meanwhile, Ankara has been trying to address the Georgian `security concerns'
and its request for a higher transit fee for oil passing down the projected
Baku-Ceyhan pipeline. As of the beginning of March, talks on a Georgian
demand for a $0.20 per barrel transit fee had stalled after several rounds
of negotiations in Baku and Istanbul.

The oil companies which are exploiting the energy reserves of the area
are represented as far as the Baku-Ceyhan route is concerned by the BP-Amoco
led Azerbaijan International Operating Company (AIOC). It has been recently
muttering that the stalling over fees may leave it no choice but to look
at other options. The AIOC has never been red hot in its enthusiasm for
the route, in the past citing low world oil prices and the massive cost
of construction as strong reasons for not going ahead. Now it is reportedly
considering expanding existing pipelines rather than constructing new ones.


There are a number of already existing routes. One that was designed and
built in the Soviet era runs From Baku to the Russian Black Sea port of
Novorossiysk, but it goes via Chechnya, meaning that aside from a short
period in 1997, it has been inoperative since the Chechen breakaway. Another
alternative is to use a pipeline to the Georgian port of Supsa, where tankers
could take the oil to the Mediterranean through the Bosphorus or to another
terminal on the Black Sea coast. The Bosphorus has now been largely ruled
out as a route due to strong Turkish objections over safety, but other
plans exist for a terminal in Bulgaria and a Trans-Balkan pipeline across
to the Adriatic, or down to the Aegean. Elsewhere, the Ukranian Black Sea
ports may be an alternative, feeding oil and gas back into Russian and
east European networks.

[IMAGE PHOTOGRAPH] Captioned as: Construction costs are giving cause for
concern

Another network already in place is the old Soviet-era web of pipelines
that spread down into the Caucasus from Russia. Moscow has begun putting
these forward as alternative lines to distribute Caspian energy northwards
and Russian gas southwards to Turkey and Georgia, and as possible spoilers
for east-west routes.

One stumbling block here though is that foreign, which means mainly western,
companies are reluctant to invest in development projects around the Black
Sea because of a high degree of corruption and mafia involvement. Organised
crime is also powerful in the Caucasus, as is its reputation as an area
of high instability. The war in Chechnya has also sent a signal that Moscow
is certainly back, and the continued presence of five large Russian army
bases in Georgia, together with the failure of attempts to find a long-term
solution to the Abkhazia dispute, have left a question mark over Tiblisi's
already shaky capacity to resist Russian pressure.

For the cash strapped states of Central Asia, the grand designs of Turkish
and western policy makers may end up being less important than setting
the flow of petrodollars going. With the average income in Azerbaijan at
around $40 a month, whether that flow comes via the country's giant neighbour
to the north or its aspiring neighbour to the west may be less of an issue
for Azerbaijanis than that something starts coming in soon.

[IMAGE PHOTOGRAPH] Captioned as: Bill Chinton presided nner the signing
of the treaty
Captioned as: For years the Turks have protested that side Bosphorus cannot
be used on safety grounds

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