Turks Guarantee Baku Ceyhan Oil Line Cost Overruns

ANKARA (Reuters)–Turkey has guaranteed to cover costs and overruns of a pipeline project to bring Caspian oil to its Mediterranean coast–but even that may not be enough to satisfy Western oil producers in the Caspian–officials said.

"We had set the cost at $2.4 billion according to our feasibility study," said Yurdakul Yigitguden–energy ministry undesecretary.

"If additions are desired–like pumping stations or loops–the cost will rise–but we still guarantee the new cost under a scope change clause at negotiations," he told Reuters.

Turkey has offered several incentives to the Azerbaijan International Operating Consortium (AIOC) that produces 115,000 barrels per day from three Caspian fields to get the oil pumped to its port of Ceyhan.

Analysts said potential financiers would seek throughput guarantees rather than guarantees on cost overruns.

The Baku-Ceyhan project–which envisages a 1,081-mile pipeline that would eventually carry up to 50 million tons a year (one million bpd)–is also backed by the US and Azeri governmen’s.

But the BP Amoco-led AIOC has expressed concerns on the commercial viability of the project which it says cannot be justified even when their $11-billion venture reaches peak output–expected at 800,000 bpd in 2007.

The AIOC also said last week it would seek another pipeline from Baku to Supsa on the Georgian Black Sea coast for its exports until 2002–when it would produce 300,000 bpd–because the Baku-Ceyhan line would not be ready by then. The third and least probable option for Caspian oil exports is a Russian line to the Black Sea port of Novorossiisk from Baku.

John Wolf–President Bill Clinton’s adviser on Caspian issues–said there were other oil ventures and eventual oil output from the Caspian would make Baku-Ceyhan viable.

"There are producers and potential producers in Azerbaijan beyond the consortium–beyond the Azeri field…There are certainly producers in Kazakhstan and potentially in Turkmen’stan," he told reporters in Ankara.

"We believe that they are interested in a Western main export pipeline–and they have measurable volumes to commit."

Wolf has been trying to promote the Baku-Ceyhan oil and trans-Caspian gas pipeline projects. The gas pipeline will run from Turkmen’stan to Turkey and carry 16 billion cubic meters a year–hopefully from 2003.

Wolf said he shared the frustration of Turkish–Azeri and Georgian presidents on the pace of the talks. Analysts say AIOC has shifted focus from Baku-Ceyhan to the Baku-Supsa option.

Turkish Prime Minister Bulent Ecevit is due to visit Washington on September 26-October 1 and the Baku-Ceyhan and trans-Caspian pipeline projects will be high on the agenda of talks with Clinton and other US officials–Wolf said.

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