Report#: DOE/EIA-0484(98)

Appendix C

A Status Report on Developing Transportation for
Caspian Basin Oil and Gas Production

Prior to the breakup of the Soviet Union, the petroleum transportation networks in Azerbaijan, Kazakhstan, and Turkmenistan were designed to provide petroleum to the internal Soviet economy and, in particular, to meet the Soviet military’s need for petroleum [1]. Investment in the Caspian Basin petroleum transportation system was, however, severely deficient. In order for the producers in the Caspian Sea area to become major petroleum exporters, existing petroleum transport lines, which generally head northward into Russia, will need upgrading. More importantly, new lines will need to be built to transport Caspian Sea oil to export markets, in some combination of westward to the Mediterranean, eastward to China, and southward to the Indian Ocean.

A major impediment to the construction of petroleum transportation lines is the fact that Azerbaijan, Kazakhstan, and Turkmenistan are landlocked countries in a region that lacks political stability. Virtually all the current pipeline routes are beset with problems. In order to reach export markets, Azeri, Kazakhstani, and Turkmeni petroleum will have to transverse one if not several neighboring countries. Outlets to Mediterranean export markets for Azerbaijan and Kazakhstan may depend on the cooperation of Armenia, Georgia, Russia, and Turkey. Access to oil ports and markets to the south might mean transport through Iran, Afghanistan, Pakistan, and India and, to the east, through Uzbekistan and China.

In recent years, the Caspian region countries have pursued several ad hoc measures for exporting crude oil, including oil swaps with Iran, rail shipments of oil across Russia, and shipments through the Volga/Don canal. These measures have allowed the Caspian nations some greater degree of access to export markets and—together with some reconstruction of existing pipelines—should allow for an increase in exports over the next several years. In order for the Caspian nations to reach their full oil production and export potential, however, some very large pipeline projects will have to be completed. This appendix details recent pipeline upgrades and new pipeline projects currently under consideration in the Caspian Basin.

Pipelines from Azerbaijan

• Baku to Navorossisk. The first major export pipeline project to be completed was an upgrade of anexisting pipeline running north from Baku, Azerbaijan, to the Russian port of Navorossisk (see map). The pipeline project, with a capacity of 100,000 barrels per day, was completed in November 1997 at a cost of $50 million. It was sponsored by the Azerbaijani International Oil Consortium (AIOC) (see below).
  

• Baku to Supsa. An alternative to the Baku/ Novorossisk route is another pipeline, also with a capacity of 100,000 barrels per day, that is being rebuilt by the AIOC. The line runs between Baku and Supsa, Georgia, on the Black Sea, bypassing Russia altogether. It is expected to be completed in late 1998. From Supsa, oil could be transported via tanker across the Black Sea to Samsun, Turkey, then via a new pipeline to Ankara, and from Ankara via an existing pipeline to the Mediterranean port of Ceyhan. Oil could also be transported across the Black Sea to Bulgaria and Romania and from there to Greek ports. Another possibility would be the construction of a new pipeline from Supsa directly to Midyat, Turkey, from which oil could travel through an existing pipeline to Ceyhan.
  

• Baku to Midyat. A third route, which currently has not moved beyond the proposal stage, would involve the construction of a 1 million barrel per day pipeline running along the Black Sea from Baku to Midyat, connecting with the existing pipeline to Ceyhan. This route is the most expensive of the transportation options, but it would bypass Russia and forestall any need for shipping oil across the Caspian Sea.

Pipelines from Kazakhstan

• Tengiz to Novorossisk. On May 16, 1997, Kazakhstan reached an agreement with Oman, Russia, and several foreign petroleum companiesto build a pipeline between Tengiz and Novorossisk on the Black Sea. The first leg of this $2.2 billion pipeline (1,340,000 barrels per day capacity) would run from Tengiz and Azerbaijan’s major petroleum city Baku. From Baku, Kazakhi crude oil could travel on the newly upgradedpipeline running to the Russian port of Novorossisk, and then by ship through the Black Sea.

Figure C1. Caspian Sea Region Oil Production and Export Potential, 1990-2020

Source: Energy Information Administration, Office of Integrated Analysis and Forecasting (1998).

• Tengiz to Baku. Another possible pipeline route being considered would also transport Kazakhi oil to Baku, then through the currently proposed Baku/Supsa pipeline. From Supsa, Georgia, Kazakhi oil would then flow to world markets via tanker or through other proposed and existing pipelines running through Turkey.
  

• Tengiz to China. In September 1997, China and Kazakhstan successfully negotiated an agreement to ship Kazakhi oil to China via Turkmenistan. The cost of this pipeline is expected to be $3.5 billion, and China has committed an additional $6billion to develop Kazakhi oil and gas reserves.

Pipelines from Turkmenistan

• Turkmenistan to Pakistan. In contrast to Azerbaijan and Kazakhstan, Turkmenistan’s petroleum wealth stems largely from natural gas rather than oil. Turkmenistan has the third largest natural gas reserves in the world and accounts for 2 percent of the world’s total natural gas reserves. In 1995, Turkmenistan negotiated a treaty with its neighbor to the south, Pakistan, to build a Unocal-sponsored natural gas pipeline that could transport as much as 1.6 billion cubic feet of natural gas per day to Pakistan through Afghanistan. Turkmenistan has also negotiated to build a crude oil pipeline through Afghanistan to Pakistan’s Indian Ocean port of Gwadar. The cost for the two projects is estimated at $4.5 billion.
  

• Turkmenistan to Turkey. Another natural gas pipeline option for Turkmenistan would be to Turkey through Iran. Iran has agreed to finance half the construction costs of a 1,600-mile, $6 billion pipeline.
  

• Turkmenistan to China. Turkmenistan has also announced an intention to build a 4,200-mile, $10 billion natural gas pipeline to China via Uzbekistan and Kazakhstan. The pipeline may eventually run all the way to Japan. This project is supported by Exxon, Mitsubishi, and the China National Petroleum Corporation (CNPC).

Pipeline Investors

• AIOC. The Azerbaijani International Oil Consortium consists of 12 companies: the U.S. companies Amoco (17 percent), Unocal (10 percent), Exxon (8percent), and Pennzoil (5 percent); British Petroleum (17 percent) and Ramco Energy (2 percent) ofthe United Kingdom; Lukoil of Russia (10 percent); Statoil of Norway (9 percent); the Turkish Petroleum Company, TPAO (7 percent); Itochu of Japan (4 percent); Delta-Nimar of Saudi Arabia (2 percent); and the State Oil Company of the Azerbaijan Republic (SOCAR). The United States successfully resisted an attempt by Iran to join the AIOC in 1995 [2].
  

• CPC. The Caspian Pipeline Consortium (CPC) includes the governments of Kazakhstan and Oman and 11 companies: Chevron of the United States (15 percent); Lukarco of Russia and the United States (12.5 percent); Rosneft-Shell of Russia, the Netherlands, and the United Kingdom (7.5 percent); Mobil of the United States (7.5percent); British Gas (2 percent); Agip of Italy (2 percent); Oryx of the United States (1.75 percent); and Kazak Munaigaz (1.75 percent).