The problem the AIOC has in the short term is the opposite of the one that everyone has been talking about in the long term. In the long term, the general opinion is that there will be a problem is finding enough oil to fill the Baku-Ceyhan line (BTC pipeline for “Baku-Tbilisi-Ceyhan”) if it is built. In the short term, the problem is finding enough pipelines to take its oil production exported from Baku.

The “northern route” (Baku-Grozny-Tikhoretsk-Novorossiisk) has been closed, off and on, for a total of two months since the beginning of the year, including most of the month of May. On June 8, it closed again, according to Itar-Tass, due to “technical malfunctioning in the section of the pipeline running across the territory of Chechnya.” It is becoming generally recognized that the route is unreliable. Even further tariff concessions by Russia cannot alter this conclusion.

The AIOC’s production capacity will reach 400,000 barrels per day by 2003, the most optimistic date for the opening of the BTC pipeline. Yet the Baku-Supsa pipeline has a maximum capacity of half that. (Recent shipments have been on the order of 100,000 barrels per day, or half of current capacity.) However, it is not the AIOC but Turkey–or rather the Turkish pipeline company Botas–that is pushing for the 2003 date.

AIOC representatives recently stated unofficially that they would be satisfied with 2008. That means, as predicted here on April 27, that the consortium is prepared to increase the volume of oil transported via Baku-Supsa. BP-Amoco has announced plans to build at least one more pumping station at the Supsa end of the pipeline, which alone would increase the loading capacity by 40%.

What could be making the AIOC think twice about BTC pipeline, now that Turkey has promised to assume any construction costs over $2.4 billion? It may be the embarrassment of riches of Botas itself, which is involved in discussions over the construction of the projected Turkmenistan-Azerbaijan-Georgia-Turkey pipeline for natural gas.

Infrastructure costs could be less if the lines are laid in parallel. However, funding of the gas pipeline construction is, for now, very preliminary. In particular, it is not clear whether Turkey’s promise to assure a construction funding cap for the Baku-Ceyhan oil pipeline would extend to cover a parallel pipeline for gas from Turkmenistan.

Even so, the Turkmenistan card complicates the playing of the hand. The country’s financial situation is precarious, and Ashgabat will soon be facing a short-term cash crunch. It is trying to get the necessary loans on the basis of future gas sales to Turkey, which of course require that the trans-Caspian gas pipeline be constructed. But the pipeline itself would cost about US$2.5 billion, and loans for its construction would also be based on gas sales to Turkey.

Then there is Kazakhstan. Only Tengiz oil can truly make the BTC pipeline commercially viable. (This is not to say that the pipeline will not be built as a result of merely political will.) Yet other outlets for Tengiz oil are beginning to disappear. The gigantic project proposed by China, to construct a pipeline all the way from northwest Kazakhstan to the Xinjiang Uighur region in western China, faces extreme financial difficulty. The premature announcement of new finds in the Russian sector of the Caspian, made before actual exploration for confirmatory data, only diminishes one’s confidence that Tengiz oil will ever flow west across Russia under the aegis of the Caspian Pipeline Consortium (CPC). Indeed, Russia recently tightened yet again the present low quota of Kazakhstani oil allowed into the existing Russian pipeline system.

Conceivably, Tengiz oil could go under-sea to Turkmenbashi, where it would join up with the projected trans-Caspian gas pipeline from Turkmenistan, again to conserve infrastructure costs. Yet Russia still has great leverage over Kazakhstan, and such a political decision by Almaty is not certain. All that is certain is that President Nursultan Nazarbaev would like to sell as much as possible, as soon as possible.

Nor is it out of the question that eventually in the next decade a pipeline will be built south from Tengiz across Turkmenistan to refineries in northern Iran. Such an idea was bruited before the Asian crisis, with the Chinese, Indian, and Indonesian state oil companies variously mentioned as possible partners. But capital hunger may turn into capital famine. And as Iranian engineers and managers can testify today, it does no good at all to have technically competent plans and qualified manpower ready to do a job if the necessary investment is nowhere to be found.

All of which brings us back to BTC pipeline. Could the 2008 date mean that the AIOC wants to wait and see whether the Kazakhstan-Iran pipeline happens? Could it mean that the AIOC wants to wait to see how the undersea gas pipeline from Turkmenistan goes? Of course, it means both these things, and more besides. It also means that if and when construction begins on the BTC pipeline, it will be due to a major shift in a variable whose immutability everyone now takes for granted.

That said, nothing can happen without groundwork and both economic and political feasibility. And so far as this complex of factors is concerned, Baku-Ceyhan is the furthest advanced, with the CPC and the Iranian route more or less tied behind it, and the Xinjiang project bringing up the rear. Of course, the race is proving to be a lot longer than was expected in the beginning.

[First published in FSU Oil & Gas Monitor, No. 36 (15 June 1999): 2.]