US Oil Companies Government Put Off Baku Ceyhan Deal

WASHINGTON (Reuters) – US oil company executives–and top US government officials agreed at a special meeting on Thursday that a key pipeline from Baku in Azerbaijan through Turkey to the Mediterranean port of Ceyhan is not currently commercially viable–though they stressed that it would be built if Caspian oil exports grow sufficiently.

Thursday’s meeting was the highest-level effort by the Clinton administration to secure a commitment to build the 1,080-mile Baku-Ceyhan pipeline–seen as a key regional policy goal aimed at ensuring an oil export route from the Caspian that avoids Iran and is not dependent on northern routes through Russia and Georgia.

"Baku-Ceyhan makes sense–we all agreed. What we need to do is find ways to make it commercially viable in the shortest possible time," said an administration official familiar with the meeting.

The meeting was attended by James Steinberg–deputy director of the National Security Council; Richard Morningstar–secretary of state for Caspian Basin energy diplomacy–and representatives from all the major US oil companies doing business in the Caspian–including Mobil Corp.–Amoco Corp.–Chevron Corp.–Exxon Corp.–Unocal Corp.–Phillips Petroleum Co. and Pennzoil Co.

The gathering comes as the Azerbaijan International Oil Co.–a consortium of 12 private and state companies led by BP-Amoco–is due to deliver to the Azerbaijan government its recommendation on which should be the main initial export route from Baku.

Persistently low oil prices over the past year–as well as a series of disappointing exploration wells this year–have led to a downgrade of near-term estimates of export volumes from the Caspian.

Oil industry officials said the administration recognizes that the initial focus of investment will be on the route taking oil from Baku to the Georgian Black Sea port of Supsa–the first phase of which is already near completion. They also said there is likely to be investment in the existing northern route to Russia’s Black Sea oil port–Novorossiisk.

But the US is still keen to ensure that the Baku-Ceyhan line remains the logical next route if the Caspian’s oil promise is fulfilled.

"It’s going to take a while–frankly–to find enough oil to fill all those pipelines. We don’t know how long that is going to be," the administration official said.

The oil company executives took a similar line.

"There was a great degree of agreement as to the logical pattern of pipeline development…and that this (Baku-Ceyhan) should be the next logical development. The question was on timing and on financing," said Richard Matzke–head of Chevron Overseas Petroleum Inc.–who attended the meeting.

The US officials were intent on getting across their support for that position and said they would make every effort to make sure the Baku-Ceyhan pipeline is built when commercially viable.

Administration officials repeated that American taxpayer money wouldn’t be used to pay for the pipeline–but financing could be supported by the US Export-Import Bank–the Overseas Private Investment Corp. and the US Trade and Development Agency–which on Thursday announced an $823,000 grant to Turkey to help study the pipeline.

The US will also encourage Turkey to make every effort to support the building of the 1,080-mile line–most of which would run across its territory and produce extra oil revenue.

Turkey on Friday sprang to the defense of its plan for a pipeline bringing Caspian oil to the Mediterranean and warned against rival proposals to bring it instead by tanker through the crowded Bosphorus straits.

Top Turkish energy officials traveled to Azerbaijan late on Thursday in an effort to convince wary oil company executives of the viability of the pipeline plan from the Azeri capital Baku to the Turkish port of Ceyhan–ministry sources said.

"Baku-Ceyhan makes sense–we all agreed. What we need to do is to find ways of making it commercially viable in the shortest possible time," said a government official close to the talks.

The US Embassy in Ankara denied any notion of "shelving" the plan. Washington still backed Baku-Ceyhan–it said in a statement.

A senior Turkish energy official said that if the international consortium of oil companies developing oil fields in the Azeri sector of the Caspian failed to recommend the Baku-Ceyhan route–other financiers could be found.

"If the Azerbaijan International Operating Consortium (AIOC) makes a negative decision–there are other companies who say they will build it," the official–who asked not to be named–told Reuters.

Turkey’s maritime minister–Burhan Kara–said other routes were unacceptable due to the extra tanker traffic they would cause through the already congested Bosphorus straits which winds its way through Istanbul.

"We will not sacrifice the 10 million people living around the Bosphorus for an oil tanker…Caspian oil can definitely not be transported through the straits," he told Reuters in an interview on Friday.

"Our worry over the straits is for protecting life–property–the environment and 3,000 years of history," Kara said. "If they are looking for a route to market oil from Central Asia–they shouldn’t hope to bring it through the Bosphorus."

The Bosphorus and Dardanelles straits which connect the Black Sea to the Aegean are governed by the 1936 Montreux Convention which guarantees free passage to all vessels.

But Turkish authorities are allowed to close the straits temporarily for safety reasons. More than 50,000 vessels passed through the Bosphorus last year with 63 million tons of oil being transported by an average of 12 tankers a day.

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