Baku Ceyhan Crude Oil Line Too Costly Experts Say

HOUSTON (Dow Jones)–The Baku-Ceyhan crude oil pipeline favored by the US and Turkish governmen’s to bypass the Bosphorous Straits costs more than other routes–Caspian Sea region energy exports said Friday.

Crude oil production in the Caspian Sea region is predicted to show big increases over the next two decades–at the same time Turkey wants to limit oil tanker traffic through its Bosphorous Straits–said a panel at the Eurasia Group’s Caspian Basin Forum.

A World Bank study predicts that by next year Azerbaijan will be exporting 6 million tons a year of crude–Kazakhstan 10 million tons a year–and Turkmen’stan two million tons a year–said Peter Thomson–a European and Central Asian oil and gas expert with the World Bank.

By 2005–Azerbaijan will be exporting 11 million tons a year–Kazakhstan 28 million tons a year–and Turkmen’stan four million tons annually–Thomson said. By 2010–Azerbaijan will be exporting 26 million tons a year–Kazakhstan 56 million tons and Turkmen’stan eight million tons a year.

Turkey opposes increased oil shipmen’s through the Bosphorous straits because of safety concerns about added oil tanker traffic. It favors a new pipeline from Baku–Azerbaijan–to Ceyhan–Turkey–on the Mediterranean Sea.

The US government has also been promoting that route to bypass the Bosphorous.

But the cost of exporting via that route is higher than exports through two other possible pipeline routes that would bypass the Bosphorous–Thomson said.

The World Bank did a study of those three Bosphorous bypass routes. Assuming that the cost of steel pipe and other construction costs are equal–exports through a Baku-Ceyhan pipeline would cost $2.22 a barrel–Thomson said.

It would cost $1.93 per barrel through a pipeline from the western edge of the Black Sea through Bulgaria and Greece to the Mediterranean–he said. It would cost $1.89 per barrel via a route from a point on the Black Sea north of Istanbul running west across the Thrace region of Turkey to the Mediterranean.

The costs of exports via the Greece-Bulgaria route and the Thrace route include the cost of shipping oil across the Black Sea by tanker and offloading it on the western edge of the Black Sea–he said.

Rights of way across the remote areas of the Baku-Ceyhan route might cost less than rights of way for the other two Bosphorous bypass routes–he said. But the lack of roads and other infrastructure in the Baku-Ceyhan area would wipe out the savings from lower costs of rights of way–he added.

It is unlikely that any of those pipelines will be built as long as the oil industry can ship more oil through the Bosphorous–Thomson said. Because of a treaty called the Montreux Convention–Turkey can’t limit traffic through the Bosphorous.

John Daly–a Caspian energy expert with the Central Asian-Caucasus Institute–had another criticism of the Baku-Ceyhan pipeline route favored by the US and Turkish governmen’s. Because that route would go through the mountains of eastern Turkey–the area’s Kurdish rebel problem "could explode in their faces," he said.

Still another route bypassing the Bosphorous remains a possibility–said Thomson. The World Bank’s study showed that it would cost $1.20 to $2 per barrel to export crude from the Caspian Sea region through Iran to the Persian Gulf.

Because of that low cost and because new oil production in the Caspian region will be brought on incrementally over the next decade or two–producers have an incentive to play a "wait-and-see game" on export routes–he said.

Producers can hope that relations between the US and Iran improve and that economic sanctions against Iran will be dropped–he said.


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