As increasing exploration and development in the Caspian Region leads to more production, the countries in the region will have large new quantities of oil and natural gas available for export. Earning hard currency from these resources is essential to regional development plans, as well as to recouping the huge investments made by multi-national oil companies. However, for these purposes, the infrastructure left after the collapse of the Soviet Union is inadequate. Numerous new pipelines and pipeline expansions in each direction have been proposed, and some have been constructed.

Four main pipelines, the BTC, the Baku-Novorossiysk, the Baku-Supsa, and the Caspian Pipeline Consortium (CPC) line carry or will carry the majority of the region’s oil and gas resources to the West to major markets in Turkey, Europe, and the Mediterranean. The Baku-Supsa, Baku-Novorossiysk and Baku-Batumi rail routes also transport oil and gas, but these may be phased out as the larger pipelines are expanded even further. More information on these supplementary pipelines is available in the Caucasus Regional Brief and the Azerbaijan Country Brief . Some proposals are currently being negotiated and studied to transport possibly sizeable oil and gas resources from the eastern shores of the Caspian Sea.

The CPC project connects Kazakhstan's Caspian Sea area oil deposits with Russia's Black Sea port of Novorossiysk. Oil loaded at Novorossiysk is then taken by tanker to world markets. Although the CPC pipeline transverses Russia and was developed in conjunction with the Russian government, the pipeline was the first to give the Caspian Sea region and Kazakhstan a viable alternative to the Russian dominated northern export routes (namely Atyrau-Samara). See the Kazakhstan Country Analysis Brief or the CPC Consortium’s website .

One downside to additional Caspian oil exports through the CPC pipeline is higher export levels will increase congestion in Turkey's Bosporus Straits, which connect the Black Sea to the Mediterranean. Oil flows through the Bosporus range from 2.8 - 3.1 million bbl/d. The CPC expansion could add an incremental 750,000 bbl/d of oil through the Strait.

Turkey has raised concerns about the ability of the Bosporus Straits, already a major chokepoint for oil tankers, to handle the additional tanker traffic, since most of Russia's existing oil export pipelines also terminate at Novorossiysk. Turkey has stated its environmental concerns about a possible collision (and ensuing oil spill) in the Straits as a result of increased tanker traffic from the launch of the CPC's pipeline. As a result, there are a number of options under consideration for oil transiting the Black Sea to bypass the Bosporus Straits.

The Baku-T'bilisi-Ceyhan (BTC) pipeline, is exporting Azeri (and possibly up to 600,000 bbl/d of Kazakhstani) oil along a 1,040-mile route from Baku, Azerbaijan via Georgia to the Turkish Mediterranean port of Ceyhan. This will allow oil to bypass the Bosporus Straits (see map above). A BP-led consortium (see table below) will operate the pipeline. Construction of the 1-million-bbl/d BTC pipeline was completed in May 2005, with the first tanker deliveries began in June 2006. Oil exports via BTC averaged roughly 210,000 bbl/d from June-September 2006, and volumes are expected to climb to 500,000 bbl/d by early-2007. The capacity will be upgraded to 1 million bbl/d sometime between 2008 and 2009.

Tariffs for members of BTC to transport oil from the Sangachal terminal to Ceyhan, including loading in Ceyhan, will be as follows: $3.3 per barrel during the first phase (2005-10), $4.6 per barrel during the second phase (2010-16) and $5.5 per barrel during the third phase (2016-29).

Trans-Caspian Routes

Since volumes from the Azeri-Chirag-Gunesli (ACG) field will not be sufficient to completely fill BTC when it reaches maximum capacity and since Kazakhstan’s existing pipeline routes may not have sufficient capacity for expanding oil production, Kazakhstan will also send some oil through BTC. Oil volumes from the Kashagan project will be the primary source of oil for the pipeline . Overseas shipments on the Caspian to Baku are expected to grow from around 145,000 bbl/d to around 75 0,000 bbl/d when Kashagan comes online as early as 2009 . In the short term, oil will be transported from Buku in railcars to the Black Sea port of Batumi in Georgia. In November 2006, TengizChevroil, the operator of the Tengiz field, entered into a contract with Caspar, the Caspian Shipping Company of Azerbaijan, to transport up to 120,000 bbl/d of its oil in tankers to Azerbaijan in 2007.

In the medium term, Kazmunaigaz, Kazakhstan’s national oil company, plans to build a 590-mile long oil pipeline from Isgene (in Atyrau area) to the port of Kuryk with an oil loading terminal by 2010. Kazakhstan also announced it has begun building a new class of Caspian tankers to replace the existing vessels that currently carry much of the region's maritime oil trade. Up to 150,000 bbl/d of the crude oil may reach international markets through the Baku-Supsa pipeline and the Bosporus straits.

Questions remain regarding whether Europe is the optimal market for Caspian oil and natural gas. Oil demand over the next 15 years in OECD Europe is expected to grow by little more than 200,000 bbl/d. Oil exports eastward, on the other hand, could serve Asian markets, where demand for oil is expected to grow by roughly 8 million bbl/d over the same timeframe. In particular, Chinese oil consumption is projected to increase by over 4 million bbl/d by 2020 according to EIA’s Annual Energy Outlook . Construction on an $850 million, 613-mile-long pipeline from Atasu, in northwestern Kazakhstan, to Alataw Pass in China's northwestern Xinjiang region was completed in December 2005 and marks the first steps to meet this demand. The 200,000-bbl/d Kazakhstan-China pipeline, when all three stages are complete, will span almost 1,860 miles from its start in Atyrau to Alashankou in China. See the Kazakhstan Country Analysis Brief for more information on the Kazakhstan-China Pipeline.

Turkmenistan and Kazakhstan have initiated low-volume oil "swap" deals with Iran, delivering oil in tankers to refineries in Iran's northern regions in exchange for similar volumes of crude at Kharg Island in the Persian Gulf. The different types of Caspian crude are blended together at the Caspian port of Neka and then swapped, after payment of a fee that is in the range of $1.50 to $2.00 per barrel . All the swap contracts are handled by Naftiran Intertrade Co. (Nico), National Iranian Oil Company’s (NIOC) Lausanne-based subsidiary. The largest of Nico's contracts is with Kazakh state oil company Kazmunaigas, which is supplying up to 70,000 bbl/d of different types of crude to Neka. Dragon Oil, a UAE company which operates in Turkmenistan, is sending over half (or 9,000 bbl/d) of its crude oil output to the Neka port. Nico also receives shipments of gasoline and gasoil from Turkmenistan at its smaller terminals of Bandar Nowshar and Bandar Anzali.

During early 2004, Iran completed efforts to upgrade its domestic distribution network and to the Neka seaport to allow swap capacity to increase from roughly 50,000 bbl/d to 150,000 bbl/d. Mohammad Reza Nematzadeh, a deputy oil minister, was quoted in October 2006 as saying that the capacity of the pipeline will be expanded from around 150,000 b bl /d to 250,000 b bl /d by the end of the month and, with the installation of new pump stations, will reach a capacity of 500,000 b bl / d by the end of March 2007.

According to Nematzadeh Iran plans to construct a 250,000 bbl/d refinery close to Neka. Iran is also developing its Tabriz and Tehran refineries so that they can refine up to 500,000 bbl/d of Caspian crude oil. Since 2004, swap levels dwindled to 35,000 bbl/d during the winter of 2004-2005 and have now increased slightly to around 147,000 bbl/d.

For its part, Russia has proposed multiple pipeline routes that utilize its existing and proposed infrastructure. Shortly after independence, two new northwesterly pipelines were constructed, known as the "Northern" and "Western" Early Oil Pipelines. These extend from Baku to Novorossiysk (Russia), and Baku to Supsa (Georgia), respectively, and have a combined capacity of roughly 245,000 bbl/d (see map ). Also, an existing northbound pipeline from Atyrau in Kazakhstan to Samara in Russia has been upgraded, but is expected to become relatively less significant if throughput at CPC increases.