Caspian Connection : Oil Companies Agree to Export Oil Through Georgia

Azerbaijan and a Western-led group of oil companies agreed Monday to export some of their Caspian Sea oil through Georgia, breaking Russia’s near-monopoly on the flow of energy from one of the world’s most-promising reserves.

The decision was a milestone in the Clinton Administration’s campaign to diminish Moscow’s influence over the former Soviet states in the Caspian Basin, which energy specialists expect to become the leading oil and gas producer after the Persian Gulf.

Monday’s announcement in this seaside capital followed months of intense struggle by the United States, Russia, Turkey and Iran over competitive pipeline routes for the initial flow of oil to the West from a $7.4- billion investment by 12 oil companies, including Los Angeles-based Unocal Corp.

President Clinton intervened last week by urging the president of Azerbaijan, in a 25-minute telephone call, to choose two pipelines to the West--one through Russia to the Black Sea and one through Georgia that would eventually branch off across Turkey to the Mediterranean.

In accepting that formula, Azerbaijan’s government and the 12-company consortium agreed that two pipelines, while more costly at first, would ensure competitive transit fees and prevent Moscow from holding oil hostage to maintain control over part of its former empire.

“We do not want to spoil our relations with Moscow, but one pipeline through Russia does not correspond with the interests of an independent Azerbaijan,” Vefa Gulizade, a senior adviser to President Heydar A. Aliyev, said in an interview. “If we have one pipeline and Russia shuts it off, what would we do?”

The two-pipeline decision, a compromise between rival plans by Russia and Turkey to carry the oil exclusively, applies only to “early oil”--the start-up daily flow of 70,000 barrels expected to begin in late 1996.

Unocal put its investment in the initial, $450-million “early oil” phase of the project at $42.75 million.

The consortium’s three offshore fields hold 4 billion barrels in proven reserves.

By June, 1997, the Azeris and the consortium are to decide on a larger pipeline or pipelines to handle a peak daily volume of 700,000 barrels of “main oil,” and sparring over proposed routes is expected to intensify.

But Terry Adams, a British Petroleum executive who is the consortium’s president, dealt a surprise setback to Russia’s long-term ambitions Monday by announcing the companies’ “preference” for a single “main oil” pipeline from Baku to the Turkish Mediterranean--a route likely to avoid Russia. Such a line is needed, he said, to ease West-bound oil tanker traffic from the Black Sea through Turkey’s dangerously crowded Bosporous Strait.

*

The quest for non-Russian routes from the Caspian is driven by the West’s need for secure new energy sources, Turkey’s ambition to restore its historic influence in Central Asia and Russia’s arbitrary restrictions on the flow of oil and gas from Caspian countries through pipelines across its territory.

Moscow has closed its pipelines to extract political concessions from other former Soviet republics and equity in energy projects they negotiate with outsiders. Russia has joined Iran in demanding equal shares among the five Caspian nations of all the sea’s resources.

Russian restrictions have paralyzed two projects in Kazakhstan--a $10-billion investment by Chevron Corp. to develop the Tengiz Field and a British-Italian deal to tap natural gas at Karachagansk.

Monday’s decision, which obliges the consortium to a $200-million upgrading of a gap-filled pipeline across Azerbaijan and Georgia, will help other energy-rich Caspian nations bypass Russia with their oil. Kazakhstan’s foreign minister said last week his country wants to ship part of its oil over that route.

Officials in Moscow, noting that the Russian route will cost only $50 million to upgrade, said they were dismayed by the decision to use two pipelines.

“It was the most expensive option,” said Sergei Ter-Sarkisyants, vice president of the Russian pipeline company Transneft. “There must be some clause that explains the lack of logic, the economic absurdity of it.”

Russia has dominated the Caspian, the world’s largest inland sea, for more than two centuries. Of the four other nations bordering the sea, only Iran controls its own energy exports.

Western oil companies flocking here since the Soviet Union’s 1991 collapse estimate that the other Caspian nations--Azerbaijan, Kazakhstan and Turkmenistan--could be producing almost 2 million barrels of oil and 13 billion cubic feet of natural gas per day 20 years from now, when Alaska and Europe’s North Sea reserves are nearly gone.

The United States earlier this year persuaded Muslim-led Azerbaijan to exclude Iran from the consortium but has not tried to lock out Russia. But in seeking to limit Moscow’s interference, Washington has created new post-Cold War tensions.

“The oil consortium serves the interests of the United States,” Vladimir F. Shumeiko, chairman of Russia’s upper house of Parliament, told reporters here recently. “Caspian oil resources must serve the needs of this region. We don’t need anyone else taking part in the business.”

Moscow’s imperial legacy hangs over this balmy Caspian port as it strives to relive its late 19th Century heyday as the world’s oil capital. Glitzy hotels, restaurants and bars are springing up to serve international oil executives, and young Azeris aspiring to work for them are studying English.

Aliyev accuses Moscow of inspiring two Azeri police uprisings against him since the consortium agreement was signed 13 months ago. Russia has choked off most road and rail traffic across its border with Azerbaijan to press for a share of all Caspian oil.

The blockade remains in force despite the sale last year of a 10% share in the consortium to LUKoil, a Russian company.

Moscow has also offered carrots, sending a deputy prime minister last Friday to open a gleaming red-and-white LUKoil filling station, complete with an automated car wash and rooftop cafe--the most modern ever built in Baku. But Aliyev, one of the few post-Soviet leaders to reject the presence of Russian troops on his soil, remains wary of Moscow’s intentions.

“The oil contract has created an opportunity to settle many of our problems, but it has also created new difficulties,” the 72-year-old president, a former Soviet Politburo member, said Saturday. “Many have applauded this contract, but others have tried to impede it.”

Clinton has failed to persuade Russian President Boris N. Yeltsin at their summits to stop fighting his neighbors over oil. With a strong push for multiple routes, Clinton told Aliyev and the consortium to let economic factors decide where the pipeline should run.

In announcing the consortium’s decision, BP’s Adams said both the Russian and Georgian routes are “technically feasible and commercially viable.” Although the Georgian pipeline is more expensive, he said, lower transit fees will make up the difference over time.

*

Russian officials noted Monday that the first “early oil” will pass through their pipeline, which will require less time to refurbish.

Both routes pose security risks. The Russian line traverses Chechnya, where separatist rebels are vowing to blow it up. Post-Soviet Georgia is also wracked by political violence. Five days after agreeing in August to use his pipeline for Azeri oil, Georgian leader Eduard A. Shevardnadze survived a car-bomb assassination attempt. He strongly hinted that it was connected to the struggle for oil.

Times staff writer Doyle McManus in Washington contributed to this report.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Oil and Politics

An international oil consortium agreed on two pipeline routes for shipping oil to the West from offshore Azerbaijan fields in the Saspian Sea. One of them will bypass Russia, breaking its historic control over the flow of oil from the region. In a victory for the Clinton Administration, one route will run south of Russia’s border to the Georgian coast on the Black Sea. (A line already runs to the Russian port of Novorosiysk.) The consortium favors a third, bigger line to Turkish port after 1997, another setback to Russia.

CONSORTIUM MEMBERS

*--*

Members Percent share British Petroleum 17.1% Amoco (United States) 17.0 Lukoli (Russia) 10.0 Socar (Azerbaijan) 10.0 Pennzoil (United States) 9.8 Unocal (United States) 9.5 Statoil (Norway) 8.5 Turkish State Petroleum 6.8 Exxon (United States) 5.0 McDermott (United States) 2.5 Ramco (Britain) 2.0 Delta Nimir (Saudi Arabia) 1.7

*--*