Turks Up Price Cap to $2.7 Billion On Baku Ceyhan Line

BAKU (Reuters)–A price cap on a proposed billion-dollar pipeline to carry Caspian oil to Turkey would be $300 million higher than originally proposed–the president of Azerbaijan’s state oil company SOCAR Natik Aliyev said on Wednesday.

Turkey’s offer of a new cost guarantee of $2.7 billion over the previous $2.4 billion offer could slow down negotiations on the 1,070-mile pipeline from Baku to the Mediterranean port of Ceyhan–Aliyev told journalists.

"The last time we met for talks Turkey raised the cost to $2.7 billion and we have not yet had the opportunity to work out why the price has gone up and what it is connected to," Aliyev said after a meeting with Richard Morningstar–US adviser on Caspian energy issues.

Morningstar has often said he expected talks on the line’s cost and construction date to be finalized in coming months.

In April–Turkey and an Azeri working group–which includes international oil firms–signed an accord to speed up talks on Baku-Ceyhan and clear up outstanding issues within three months.

But now it seems likely the agreemen’s will not be ready in time for the July deadline.

In addition to raising the price–the Turkish side had also set back the starting construction date to 2005 from 2003–Aliyev said.

Oil industry sources in Baku have frequently raised doubts about ability of the company to fill the one-million barrel per day (bpd) pipeline and have questioned the commercial viability of the line – the most expensive of the various export options–even with the cost guarantees.

To date only one of the existing 17 contracts in Azerbaijan–the BP Amoco-led Azerbaijan International Operating Company (AIOC)–is producing oil and only in relatively small amounts of 100,000 bpd.

The AIOC exports their output west through Georgia to the Black Sea and hopes to double the line’s capacity to carry their future production–which is expected to triple in 2002.

Preliminary results from another BP Amoco-led consortium exploring at the closely watched Shakh Deniz structure in Azerbaijan’s sector of the Caspian appear to have discovered large quantities of gas and not oil as was previously hoped.

Morningstar–the front man promoting US Caspian policy of securing multiple routes to minimize Russian and Iranian regional influence and reward close ally Turkey–dismissed the new obstacles to the line.

"I don’t think the difference is that great in the construction cost and I’m sure they’ll be able to work out the appropriate compromise and come to an agreement," he said.

Jan Kalicki–a US commerce department counselor–said on a recent visit to Baku the US government would not play a major role in financing the line–leaving the private sector to stump up the money.

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