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Startup of the Baku-Tbilisi-Ceyhan Pipeline: Turkey's Energy Role

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  • Startup of the Baku-Tbilisi-Ceyhan Pipeline: Turkey's Energy Role

    Startup of the Baku-Tbilisi-Ceyhan Pipeline: Turkey's Energy Role
    By Soner Cagaptay and Nazli Gencsoy

    Washington Institute for Near East Policy
    May 27, 2005

    On May 25, the presidents of Azerbaijan, Kazakhstan, Georgia, and Turkey
    inaugurated the Baku-Tbilisi-Ceyhan pipeline (BTC), a major artery linking
    oil fields in the Caspian Sea region to the Mediterranean Sea and Western
    markets beyond. It will take several months for oil pumped from Baku,
    Azerbaijan, to pass through Tbilisi, Georgia, and reach the Turkish coast at
    Ceyhan. Eventually, BTC will carry up to 1 million barrels per day (bbl/d)
    of crude oil to the Mediterranean. With growing concern over Western
    dependence on Middle Eastern oil and rising global oil prices, Turkey is
    emerging as a key country in providing Caspian oil to the Western world.

    Background: A Pipeline Born of U.S.-Turkish Cooperation

    According to British Petroleum's Statistical Review of World Energy, proven
    oil reserves in the Caspian Basin total 16.5 billion barrels, comparable to
    the reserves of Canada, Mexico, or the OPEC member state Qatar.

    President Bill Clinton and Turkish President Suleyman Demirel settled heated
    debate in the mid-1990s over how best to bring Caspian oil to world markets
    by throwing their weight behind the BTC. Washington and Ankara saw the BTC
    as a key east-west corridor that would ensure the independence and economic
    viability of the newly independent states in the Caspian Basin. The BTC also
    made strategic sense to the United States and Turkey because it would bypass
    politically unstable places like Iran, the northern Caucasus (including
    Chechnya), and Armenian-occupied parts of Azerbaijan.

    Further, the BTC was seen as useful to easing the burdens on the Turkish
    Straits of the Bosporus and the Dardanelles. Today, more than 5,000 tankers
    cross the Turkish Straits each year, carrying Caspian oil from the Black Sea
    to the Mediterranean. The sea traffic through the narrow, zigzagging straits
    carries grave risks, especially since any accident could cause an
    environmental catastrophe in downtown Istanbul, which sits along the
    Bosporus.

    When others questioned the project's feasibility, Clinton appointed a
    special envoy for Caspian energy affairs and Demirel visited Georgia and
    Azerbaijan to push for the project. The unprecedented level of U.S.-Turkish
    cooperation, as well as successful coordination by both countries'
    diplomats, made the seemingly impossible pipeline possible.

    Building the BTC

    In 1997, Western oil companies started to explore the commercial viability
    of the BTC project. An international consortium of eleven partners --
    Britain's BP; Azerbaijan's SOCAR; Norway's Statoil; U.S. based Unocal,
    Amerada Hess, and ConocoPhillips; Turkey's TPAO; Italy's Eni; Japan's INPEX
    and Itochu; and France's TotalFinaElf -- began construction of the pipeline
    in May 2003. With a 30 percent share in the project, BP is the largest
    stakeholder, and served as acting leader for the project's design and
    construction phases.

    The BTC, which cost an estimated $3.7 billion for construction, financing,
    and line-fill, has received limited public funding. The European Bank of
    Reconstruction and Development and the International Finance Corporation,
    the World Bank's private-sector arm, pledged $250 million in loans. Although
    a small amount compared to the project's total funding, World Bank
    participation acted as a catalyst to bring foreign direct investors to the
    project.

    Because it traverses 176 widely varied and sensitive terrains while crossing
    the politically unstable Caucasus region, the BTC was bedeviled by worries
    about its security and environmental risks. Accordingly, the U.S. military's
    Special Forces trained 1,500-2,000 Georgian soldiers in anti-terrorism
    techniques under a $64 million program aimed at protecting the pipeline
    against saboteurs. In addition, a BP-led consortium granted an additional
    $25 million to local non-governmental organizations to manage environmental
    programs.

    The entire length of the 1,094-mile BTC, the longest oil-export pipeline in
    the world, is buried. Once the pipeline becomes fully operational,
    Azerbaijan will be the main beneficiary of the sale of its oil in
    international markets, collecting (at current prices) about $29 billion per
    year in oil revenues, while Georgia and Turkey will respectively collect
    transit fees of $600 million and $1.5 billion per year.

    Ceyhan Becomes a Nexus of Global Energy Lines

    With BTC, Ceyhan will emerge as a major energy supplier to the world.

    Ceyhan's port, Yumurtalik, is already the terminus of Kirkuk-Ceyhan
    pipeline, which has the capacity to bring about 1.5 million bbl/d oil to the
    Mediterranean from northern Iraq (though it is presently closed due to
    continuing attacks by Iraqi insurgents). Another pipeline is now under
    consideration to bring Caspian gas from Baku, via Tbilisi, to Erzurum in
    eastern Turkey from where it would be transported to Ceyhan. There are other
    new projects designed to make Ceyhan into an even bigger hub of energy
    supply: Samsun-Ceyhan gas/ oil lines and terminal. Turkey intends to enlarge its
    natural-gas transmission by extending the Blue Stream pipeline, which
    connects Russia with Ankara through the Black Sea, through an
    Ankara-to-Ceyhan extension. After a liquid-natural-gas export terminal is
    built in Ceyhan, this plan would enable Turkey to re-export Russian gas.

    Turkey also wants to build a cross-Anatolian oil line, from Samsun on the
    Black Sea to Ceyhan on the Mediterranean, to further decrease traffic
    through the Turkish Straits.

    Kazakhstan Extension. In March 2005, Kazakhstan and Azerbaijan agreed to
    build the Aktau-Baku pipeline, connecting the Kashagan offshore oil fields
    near Aktau in Kazakhstan to the BTC in Baku via a sub-Caspian in 2008. The
    Kashagan field is expected to produce 1.2 million bbl/d by 2016, when
    600,000 bbl/d of its production is to be shipped across the Caspian Sea to
    be fed into the BTC line.

    Ceyhan-Haifa Pipeline. This project, first discussed during Turkish Prime
    Minister Recep Tayyip Erdogan's May 2005 visit to Israel, aims to bring BTC
    oil to Israel via a sub-Mediterranean pipeline through Cyprus. There are
    also plans for parallel pipelines to carry water, gas, and electricity, and
    perhaps fiber-optic lines, to Israel, as well as to Northern Cyprus, Jordan,
    and the Palestinian territories, bringing the latter closer to Turkey and
    Israel economically and politically.

    Implications of Turkey's Emergence as an Energy Entrepot

    Turkey's new position as a way-station for energy distribution could be a
    useful asset in its relations with both the European Union and the United
    States. Turkish membership would give the EU a direct route to Caspian
    energy resources that does not cross Russia; as a major energy producer;
    Russia has not been very helpful getting Caspian energy to outside markets.

    In the post-Iraq War period, the energy issue should also strengthen
    U.S.-Turkish relations. Turkey's strategic value sometimes comes under
    doubt. But Turkey is an important route for the export of oil from northern
    Iraq. By binding the Caucasus region with the West through the BTC, Turkey
    is now a key country in accessing the energy sources of the landlocked
    Caspian Basin. And the BTC has significantly limited the share of Caspian
    oil that must be transported through Iran. Tehran currently transports a
    mere 35,000 bbl/d Caspian oil, which it buys from Turkmenistan and
    Kazakhstan through a swapping agreement. The BTC and other projects
    involving Turkey should remind Americans and Turks alike that as members of
    the Western world, they have shared interests that can be promoted through
    cooperation.

    Soner Cagaptay is a senior fellow and director of the Turkish Research
    Program at The Washington Institute. Nazli Gencsoy, a Dr. Marcia
    Robbins-Wilf young scholar, is a research assistant at the Institute.
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