U.S. Looks for Support in Kazakhstan for Oil Pipeline

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U.S. Looks for Support in Kazakhstan for Oil Pipeline (Update1)

Almaty, Kazakhstan, Oct. 5 (Bloomberg) -- The U.S., facing limited interest in a proposed $3.5 billion oil pipeline from the Caspian Sea across Turkey, urged Kazakhstan-based oil companies to support the plan in hopes of gaining enough support to start construction.

Kazakhstan oil output may rise to 80 million tons a year (1.6 million barrels a day) by 2010, more than double the 33.5 million tons this year. The nation holds some 20 billion barrels of crude reserves, the largest in the Caspian region and equal to 10 years of output in Russia, the third-largest oil producer.

Azerbaijan, Turkey and the U.S. want Kazakh producers to agree to ship oil to the Azeri capital of Baku, then use the planned pipeline across Georgia to the Turkish port of Ceyhan. The U.S. has backed the line as a way of reducing Russia's influence over Azerbaijan and Georgia and boosting their ties with Turkey. ``Kazakhstan has an important opportunity to help frame the terms of the main East-West oil export pipeline,'' said John Wolf, U.S. secretary of state for Caspian energy policy, at a conference in Almaty yesterday. ``It's time for Kazakhstan to demonstrate in a clear way its commitment to work with the governments and companies on the Western side of the Caspian Sea.''

The U.S. is examining a proposal to secure oil flows from Kazakhstan's offshore projects for shipment through the Baku- Ceyhan pipeline.

The Offshore Kazakhstan International Oil Co., which includes Exxon Mobil Corp., Royal Dutch/Shell Group and Eni SpA's Agip unit, recently struck oil at 4,000 meters below the Caspian seabed, a discovery Kazakh officials have said was the largest find in 20 to 30 years. The company also includes BG Group Plc, Total Fina Elf SA, Phillips Petroleum Co. and INPEX of Japan.


Azerbaijan International Operating Co., a BP Amoco Plc-led partnership that is exploring Caspian Sea deposits, formed a group to spend $120 million over the next 20 months to study the Baku- Ceyhan pipeline, which will run past the Georgian capital of Tbilisi. Exxon Mobil, the world's largest publicly traded oil company, did not enter the group, though it owns part of the AIOC project, said Wolf. ``The Baku-Tbilisi-Ceyhan pipeline is now in sight,'' he said. ``I'm more convinced than ever it is possible to realize this project by the end of 2004.''

The U.S. proposes building a pipeline from the Kazakhstan port of Aktau on the Caspian Sea to ship oil to Baku. If the Baku- Ceyhan pipeline must rely on Azeri oil reserves alone, it won't be economically viable, analysts said. ``I treat Aktau-Baku-Tbilisi-Ceyhan as a positive development as it has a relation to Kazakhstan and I will support it,'' said Nurlan Balgimbayev, president of the state-owned NNK Kazakhoil. ``What shall we do with the excessive oil . . . when we start to produce as mush as 200 million tons of oil after 2015.''

At the same time, the Caspian Pipeline Consortium, in which Chevron Corp.'s subsidiary holds a 15 percent stake, is proceeding with pipeline construction to a Black Sea port from a giant Tengiz field in Kazakhstan. The line will be able to ship 560,000 barrels of oil a day from mid-2001. ``The U.S. support is going to continue for the entire multi- pipeline strategy,'' Wolf said. ``We will support the CPC pipeline . . . and to building a main export pipeline to the Mediterranean, which may become Aktau-Baku-Tbilisi-Ceyhan pipeline.''


The U.S. is not the only government lobbying for the oil exports to the world market from the Caspian region. Russia and Iran also suggest using their infrastructure for the shipments.

Russia plans to increase Kazakhstan's transit volumes to 15 million tons a year (300,000 barrels a day) starting Nov. 1, from 12 million tons of oil a year now. AO Transneft, Russia's state- owned oil pipeline monopoly, has doubled Kazakh transit volumes over the last two years.

Oil producers operating in the Caspian region are also looking into shipping crude across Iran to the Persian Gulf. Iran has recently started oil pipeline construction and expansion from the Caspian Sea coast to its refineries in the north.

The Iranian government has proposed Caspian producers swap oil volumes supplied to the northern refineries for equivalent volumes at ports in the gulf. Nevertheless, U.S. sanctions on Iran and political opposition to businesses with the Islamic country may slow down the potential development.

``I do not see any early change in our policy towards Iran,'' Wolf said. ``Those who profess it are looking at it with a certain amount of myopia and self-interest and they underestimate the complexity of the issue.''


-- Martin Thompson (mthom1927@aol.com), October 05, 2000

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