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Baku & Astana play it safe in Caspian Oil battle

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  • Baku & Astana play it safe in Caspian Oil battle

    BAKU AND ASTANA PLAY IT SAFE IN CASPIAN OIL BATTLE
    By Marat Yermukanov

    Jamestown Foundation
    Eurasia Daily Monitor, DC
    May 31 2005

    Tuesday, May 31, 2005

    Until Kazakhstan's President Nursultan Nazarbayev made a landmark
    trip to Baku on May 25, marking Kazakhstan's decisive move towards
    joining the Baku-Tbilisi-Ceyhan pipeline project, bilateral relations
    between Azerbaijan and Kazakhstan had shown few signs of progress.

    Azerbaijan's President Ilham Aliev visited Kazakhstan in March 2004,
    a meeting that produced a joint statement on friendly relations
    and strategic partnership directed at safeguarding stability in the
    Caspian region and rooting out terrorist organizations that could
    undermine the sovereignty, independence, and territorial integrity of
    Kazakhstan and Azerbaijan. At that time, Nazarbayev went out of his
    way to pledge Astana's readiness to mediate Azerbaijani-Armenian talks
    on Karabakh. Armenian President Robert Kocharian reacted angrily to
    this indiscreet remark, stating, "Nagorno-Karabakh cannot be a part
    of Azerbaijan" (Kontinent, March 30, 2004).

    Although Nazarbayev's arrival for the BTC launch was generally welcomed
    by project participants as a positive sign, Kazakhstan has not signed
    the requisite intergovernmental agreement with Azerbaijan specifying
    conditions for transporting Kazakh oil through the BTC pipeline. In
    his talks with Aliev, Nazarbayev stressed the priority of economic
    interests in bilateral relations and sidestepped the thorny issues of
    terrorism and separatism. Nazarbayev had good reason to be sure that
    the talks would be productive. Oil experts estimate that Azerbaijan
    alone cannot provide enough oil to operate the BTC pipeline at its
    full capacity of 50 million tons of oil. In the future, the total
    annual oil output of Azerbaijan and Kazakhstan could reach 220 tons,
    but not before Kazakhstan starts commercial development of the Kashagan
    oil deposits in 2008 (Delovaya nedelya, May 26).

    One of the reasons Kazakhstan was reluctant to climb on the BTC
    bandwagon until the last moment was believed to be the high costs of
    pumping oil through the Baku-Tbilisi-Ceyhan pipeline. On his recent
    visit to Astana and subsequent trip to Baku, Georgian President Mikheil
    Saakashvili removed that hurdle by convincing BTC shareholders to lower
    transportation tariffs for Kazakhstan to $3.30 per barrel. But even
    this moderately low tariff is less attractive than the transportation
    costs charged by the Caspian Pipeline Consortium (CPC), which
    Astana currently uses to ship the bulk of the oil produced by the
    Tengiz-Chevroil joint venture. The fact that the BTC pipeline passes
    through volatile regions in the North Caucasus and eastern Turkey
    makes the prospect of using that route even grimmer for Kazakhstan.

    Astana's hesitancy about joining the BTC project for so long seems
    to be primarily the political uncertainty of the route. Even after
    the hearty handshaking with BTC shareholders at the Azeri Sangachal
    oil terminal, Nazarbayev has left his options open for backtracking
    regarding the current route, as well as the maritime route to Iran,
    Azerbaijan, and Russia as an alternative to highly politicized BTC
    route. Nor has Kazakhstan ruled out, despite all political risks it
    may entail, the construction of a pipeline to Iran via Turkmenistan.
    The Iranian option would be incomparably cheaper than the BTC
    pipeline, which demands up to $3 billion to build oil transportation
    infrastructure in western Kazakhstan. Astana will have to pour millions
    of dollars into the projected 700-kilometer pipeline that is to
    link oil producing Atyrau (western Kazakhstan) with Atyrau seaport,
    from where the oil will be delivered to Sangachal oil terminal in
    Azerbaijan. Kazakhstan depends on Russia for oil tankers, as creating
    its own shipbuilding industry is not economically feasible for this
    landlocked country. Astana needs only five high-capacity tankers to
    service the Atyrau-Sangachal oil transport route. All these economic
    and political factors may force Kazakhstan to make a hard choice
    between competing powers (Novoye Pokolenie, May 27).

    In recent months Russia, in its drive to raise the annual capacity of
    the CPC to 67 million tons, has incessantly pressured Kazakhstan to
    increase the amount of oil pumped through the CPC pipeline. To achieve
    that target Russia is planning to build ten additional oil refineries.

    Notably, just a few weeks before Nazarbayev's departure for Azerbaijan,
    Kazakhstan Prime Minister Daniyal Akhmetov, a man known for his close
    personal links to Russian energy oligarchs, unexpectedly announced
    at a cabinet meeting that recent talks with Moscow on increasing the
    amount of Kazakh oil through the CPC pipeline had led nowhere, and
    therefore Kazakhstan would have to look for other routes. Although
    he did not specify the BTC, it was clear that Tbilisi and Baku had
    some role in that change of heart.

    However, Azerbaijan also finds it difficult to cut the cord with
    Russia, as it currently lets 5 million tons of its oil flow through
    the Baku-Novorossiysk pipeline via Russia. In his remarks at the
    opening ceremony for the BTC project, President Aliev said that the
    doors to the BTC pipeline were open for everyone, including Russia
    (Panorama, May 27).

    Not surprisingly, these words resonated with the often-emphasized
    multi-vector oil policy of President Nazarbayev, who was the only
    one in Baku to stress the importance of diversified export routes
    for the Caspian region's hydrocarbons.

    It is still too early to determine how oil cooperation between
    Azerbaijan and Kazakhstan will be shaped in the future. But they share
    at least one common interest: the search for a safe course ahead of
    the impending battle for oil.
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