The Foreign Service Journal, April 2003

the strategic needs of the USSR, and all export pipelines still pass through Russia. For example, the 30-year-old Caspian Pipeline Consortium pipeline is a Russian- Kazakhstani project, ending at the Black Sea, from where the oil must then move via ship through the Bosporus. (It is also worth noting that the CPC is already carrying as much oil as it can, raising doubts about its future utility.) To get around this problem, the Department of State has backed a grandiose strategy to export Caspian oil and gas westward through Azerbaijan and Georgia — avoid- ing Russia and Iran altogether — through a series of pipelines that would terminate on Turkey’s Mediterranean coast. The construction of the best- known of these, the Baku-Tbilisi-Ceyhan (BTC) oil pipeline, will begin this summer near Baku at a cost of $3 billion. This tube will be 1,730 kilometers long and have a capacity to carry 50 million tons of oil per year when completed in 2005. Although this plan is “geopolitically correct,” many major oil companies doubt it is financially feasible. British Petroleum-Amoco and Statoil have already formed an alliance as chief operators of the rival Azeri- Chirag-Guneshli offshore concession (commonly known as the “Deal of the Century”) in Azerbaijan and are thus uninterested in moving their production through this pipeline. And after drilling dry wells, Lukoil and Exxon- Mobil have sold their own shares in the consortium and are in the process of pulling out of Azerbaijan altogether. Recent studies by two independent research groups in Washington, the Cato Institute and the Carnegie Endowment for International Peace, have also criticized the economic justification for the project, urging consid- eration of existing alternatives. They calculate that the BTC pipeline would need $200 million per year in subsi- dies to break even, which is nowhere in sight. While the U.S. government is the project’s chief promoter, the U.S. Export-Import Bank has declined to provide any non- commercial credits, and the World Bank recently blocked its own line of credits for the project. Furthermore, the BTC pipeline needs to carry at least 50 million tons of oil per year (one million barrels a day) to be economically viable. Yet Azerbaijan produced only 15 million tons in all of 2002, while Kazakhstan managed just 40 million tons last year. In addition, the existing Baku-Supsa (Georgian Black Sea coast) pipeline is cur- rently being filled to only one-quarter of its 18 million- ton capacity. Finally, the oil fields encompassed in the “Deal of the Century” concession are collectively pro- ducing about five million tons a year, which is only pro- jected to rise to 25 million tons per year (500,000 barrels a day) by 2010. Thus, at best, the total Azerbaijani out- put will reach 35-40 million tons (750,000-800,000 bar- rels per day) by 2010 — well short of the 50 million-ton mark. The announcement of a large oil discovery (Kashagan) off the coast of Kazakhstan has encouraged supporters of the BTC pipeline. However, it is premature to count on the Kazakh oil to make up the shortfall. And even if it does, a costly underwater pipeline will still have to be built across the Caspian Sea to Baku. As for the Georgian portion of the route, many local and international NGOs have expressed grave concern over the environmental impact of the pipeline on Georgia, and are pressuring international financial insti- tutions to hold up loans. These groups note that the pipeline is set to pass through the marvelous Borjomi spa gorge, noted for its invaluable mineral water springs and spa resorts. (My father used to regularly drink bottled “Borjomi” mineral water to treat his digestive disorders.) The activists fear that an oil spill will forever destroy the subsoil undercurrents that carry the mineral waters, among other environmental hazards. Competing Projects Meanwhile, Russia has already completed its new 1,580-kilometer overland North-Caspian pipeline linking Kazakhstan’s Tengiz oil field to its Black Sea port of Novorossiysk. With an estimated nine billion barrels of reserves, Tengiz is the world’s sixth-largest land oil field and is operated by Chevron-Texaco. When Kashagan does begin producing oil in earnest, its export through this northern pipeline will make far more commercial sense than a commitment to the BTC project. Armed with that knowledge, the Kazakh government reportedly used the specter of renationalization of oil assets to pressure Chevron-Texaco into negotiating a new agreement last year. But after Chevron called Almaty’s bluff by announcing that it would not expand its Tengiz stake — the largest foreign investment in the entire region — the two sides eventually came to an agreement. Then there is Turkey, which has signed agreements to purchase natural gas from Turkmenistan and Azerbaijan, as well as Russia, Iran and Iraq, in the past several years. These deals were accompanied by proposals to construct F O C U S A P R I L 2 0 0 3 / F O R E I G N S E R V I C E J O U R N A L 45