BP Consortium in Azerbaijan Using Russian Pipeline- For Now

Bloomberg reported yesterday that British Petroleum and its partners involved in developing the Azeri-Chirag-Gunashli fields have "...started oil exports from Azerbaijan through a Russian oil pipeline to the Black Sea port of Novorossiisk after the group boosted production by installing a second offshore rig in the Caspian Sea."

However, AzerNews reported a month ago that "...the produced oil will initially be transported to the market via existing export routes (Baku-Supsa western and Baku-Novorossiysk northern pipelines) until the Baku-Tbilisi-Ceyhan (BTC) pipeline is commissioned." This is expected to be in the fall. The enormous BTC is not the most cost-effective solution to exporting oil west, but it is Washington's favorite as it undercuts the position of competitors Iran and Russia. It is a wonderful example of when the concerns of the state override the market logic of cost vs. profit.

Russia is concerned over the impact this will have on Azeri exports to Novorossiisk. While the BTC pipeline "...is expected to pump more than 50 million metric tons of oil a year after completion," reports RIA Novosti, "it will be hard to fill it to capacity during the initial stage:"

"Consequently, Baku has decided to find additional oil for the new pipeline, which means Novorossiisk will stop receiving Azerbaijani oil. Reverse oil flows are, at best, possible.

Sergei Markov, the director of the Institute of Political Studies, believes that Azerbaijan is not simply suspending sending oil through the Baku-Novorossiisk pipeline to the north, but now attaches priority to Mediterranean oil exports. The Baku-Tbilisi-Ceyhan pipeline heralds the diversification of the entire pipeline network. The Russian route will gradually be frozen out."

According to the September 1994 ACG Production Sharing Agreement, the Azeri-Chirag-Gunashli fields are to be developed over a 30-year period. According to AzerNews, "...it is estimated that 5.4 billion barrels of oil will be recovered during this period."

The ACG Caspian project is being undertaken at a cost of $15 billion, with BP leading the consortium with a share of 34.1%. According to AzerNews, the share percentages for other members of the consortium are as follows: Unocal (10.3%), SOCAR (10%), INPEX (10%), Statoil (8.6%), ExxonMobil (8%), TPAO (6.8%), Devon (5.6%), Itochu (3.9%) and Amerada Hess (2.7%).