Financing For Caspian Pipeline

[alpha]

This is what an apathetic diplomacy leads to: Exclusion from regional projects.

 

Today Wall Street Journal had an interesting article about financing Baku-Jeyhan pipeline. This has deep implications on regional developments. The leadership of Republic of Armenia has effectively excluded itself from regional developments. Every government should have a vision for the future of its country. To this day I don't understand what's the vision of current leadership. If somebody knows can they explain it.

 

Financing for Caspian Pipeline

Solidifies U.S. Policy in Region

 

Wide Range of Lenders

Back $3.6 Billion Project

To Be Completed in 2005

By HUGH POPE

Staff Reporter of THE WALL STREET JOURNAL

 

 

ISTANBUL, Turkey -- A crucial plank of U.S. policy in the oil-rich Caspian region settled into place Tuesday as a wide range of commercial banks and international financial institutions signed up to finance the first major non-Russian oil-export pipeline from an area of the former Soviet Union.

 

After a steady drumbeat of loan approvals valued at $600 million from U.S., European and Japanese multilateral lenders and state export-credit institutions, 15 commercial banks on Friday signed their agreement to raise an additional $1 billion toward the project's $3.6 billion total cost.

 

The major investors in the pipeline are its 11 owners, led by BP PLC and Norway's Statoil and including Unocal Corp., ConocoPhillips and Amerada Hess Corp. They financed a start to construction nine months ago, but consortium spokesman Tamam Bayatli said Tuesday's autograph session by supporters means all details have been finalized for the long-contested Baku-Tbilisi-Ceyhan pipeline.

 

 

"It's a strategic victory," said Patrick O'Mara, director of a midsize oil field in Kazakhstan who one day hopes to send most of his production across the Caspian Sea and ultimately to Turkey's Mediterranean coast via the new pipeline's route through Azerbaijan and Georgia. "What they've done has increased the value of oil properties all across the Caspian."

 

The consortium says the pipeline route was decided on purely economic grounds. Still, the 1,100-mile course is the anchor of a U.S. policy called the East-West Energy Corridor that Washington hopes will enhance the independence of the region's ex-Soviet states from Russia and Iran, reduce pressure on Istanbul's crowded Bosporus waterway and expand world access to oil that isn't controlled by the Organization of Petroleum Exporting Countries.

 

 

Born during talks between newly independent Azerbaijan and its linguistic kinsmen in Turkey in 1992, the BTC route received strong U.S. backing in 1994 after a BP-led group of Western companies signed a contract to develop Azerbaijan's most-promising Caspian offshore oil fields. Since Russia opposed losing its monopoly on energy exports from former Soviet states -- and the resulting high transit tariffs -- the contract left open the exact path of any main export pipeline. When a route was needed to send the first oil from Azerbaijan in 1996-98, a compromise was reached: one line was laid north to Russia and another west to Georgia.

 

BP and other companies operating in the Caspian were themselves late converts to the BTC line, worrying about its cost, length and nearby military conflicts along its route through three countries. Warfare between Azerbaijan and Armenia was a particular concern, even though a cease-fire has been in effect since 1994. The route was even lengthened to avoid a region of Georgia where there is a Russian military base.

 

The BTC line was nearly sunk at the last minute by objections from an array of environmental and human-rights groups. Opponents worry that in pursuit of its strategic goals, the U.S. has turned a blind eye to autocratic regimes and human-rights violations. "The political momentum behind the project was so great, slowing it up was incredibly difficult," said Greg Muttitt, representing one of four British organizations that criticized the project. But he said their campaign had forced better land compensation in Turkey and pressured banks and international institutions to review their lending policies.

 

The BP-led consortium finally committed to the BTC route in 2001, judging it to be both economical and a vital alternative to the tanker-clogged Bosporus -- a chokepoint that has caused weeks of delays in Black Sea oil shipments to Europe this winter. Since work started in April, construction is more than half complete, said Ms. Bayatli, the consortium spokeswoman. The million-barrel-a-day line is expected to be finished in 2005.

 

As an indication of the project's complexity, the 208 finance documents signed Tuesday already bear 17,000 signatures from 78 parties. But all the work has cleared political and geographic hurdles for a separate BP-led consortium to plan a natural-gas line from the offshore Azeri field of Shahdeniz to Turkey and from there to Greece and Europe. That line is known as the South Caucasus Pipeline and will be laid alongside the BTC. The consortium will fund the entire $900 million cost of laying it through Azerbaijan and Georgia, Ms. Bayatli said, and all agreements are in place for it to start pumping gas in 2006.

 

Write to Hugh Pope at hugh.pope@wsj.com5

[Sasun]

This is what an apathetic diplomacy leads to: Exclusion from regional projects.

 

Today Wall Street Journal had an interesting article about financing Baku-Jeyhan pipeline. This has deep implications on regional developments. The leadership of Republic of Armenia has effectively excluded itself from regional developments. Every government should have a vision for the future of its country. To this day I don't understand what's the vision of current leadership. If somebody knows can they explain it.

I don't think there is any romantic vision held by the Armenian government, it is rather mundane (creating jobs, developing the economy, maintaining the status quo in Artsax, etc.). It seems that Armenia has made attempts to be included in the gas and oil pipelines. However, the cost of such inclusion would be much higher than benefits. There is no way that Azerbaijan and Turkey would agree to lay any pipelines through Armenia without giving Azerbaijan control over Artsax, essentially consession of lands. While Artsax is not showing any visible monetary benefits (it is rather a financial liability) compared to potential fat fees from the pipelines, its fundamental long term values are enormously much higher than revenue from piplelines that will eventually be worthless. Naturally oil and gas reserves will one day finish but land will never stop being valuable.

 

So yes it would be nice to be included in these projects but it was impossible I think. I don't think there could be any better diplomacy in this regard given the obvious constraints.

[gamavor]

Armenian Academy of Science should invest into hydrogen based engines. This is the future.

[THOTH]

Armenian Academy of Science should invest into hydrogen based engines. This is the future.

Not a bad idea...but just how much do they really have to invest etc...and what can be doen indigeonosly?

 

And as for the Caspian project and any potential for Armenain involvement...well just a pipe dream...literally...

[Armen]

US is gradually mobilizing its influence to push Russia out of Caucasus.

The recent announcement of cuts in US assistance to Armenia (which this year is going to be less compared US aid to Azerbaijan and Georgia), the activisation of Karabagh talks, signals from US to Armenia and Turkey to establish dialogue are all logical continuation of Georgia's rose revolution. All these steps are the US responce to Russia's political activity in the Caucasus region during the presidential election in Armenia and Azerbaijan in 2003, when Russia "placed" its men in both capitals. US responded by effectively cutting Armenia from Russia by means of completely kicking Russia out of Georgia.

Now, as the elections in Russia are approaching (in March) US is mounting its political power to make a final push because surely Putin is going to be in weak internal position somewhere in May after a big election showdown (though there is no doubt that he's going to be elected).

 

I would also pay attention to the following processes:

Iraq=> Syria=>Turkey=>Kurdistan

Iran=>Azerbaijan=>South Azerbaijan

 

From what I see US is currently implementing the Woodrow Wilson plan in the Middle East and Asia Minor. And this process is moving parrallel to the changes in Caucasus.

In fact Caucasus, when Russia moves out, is going to become a part of eighter South East Europe or Asia Minor-Middle East. To become a part of South East Europe together with Georgia, Armenia needs to be cleaned of security problems, because they don't like problems in Europe.

From my point of view, in contrast to Georgian and Armenia, Azerbaijan is going to become a part of Asia Minor-Middle East region. But for this purpose Armenia needs to surrender Meghri. In this case Armenia will get Karabagh with Lachin and possibly Kelbajar and will eventually join the EU. Azerbaijan will have a link to Turkey but will not join the EU.

[gamavor]

Thoth, My friend...they have it on paper...., the problem is that there is no way to protect it!

[Twilight Bark]

A "freebie" financial source, such as mineral wealth, almost invariably hinders societal development; so it is a curse rather than a blessing. Thank your stars that Armenia is not sitting on oil.

 

The pipeline will be carrying pretty expensive oil. The price at which it becomes significantly profitable is basically that at which the Canadian tar sands (a lot closer to the US) become competitive. My amateur opinion is that the Azeri oil fields are unlikely to become a major oil source anytime soon. The pipeline is more a "political" project than a directly "economic" one.

 

What we should lament is not our being locked out of the pipeline deal, but the uninspiring, uncreative, and incompetent government in Armenia. Anyone with half a brain should have been able to see that the development of telecommunications and information technologies was of paramount importance for a landlocked, resource-poor, and (then) well-educated country. Instead, what little charity the uninspired diaspora sends is being poured into roads that are being underutilized by a nearly nonexistent economy. Might as well, since our genius sovieticuses saw it fit to entrust the most crucial piece of the country's development (telecoms) to a monopoly with no incentive other than milking the market for all its worth. At this point it would not be a bad idea to energetically subsidize the development of the IT infrastructure despite the fact that it is ArmenTel's job to do so (rather than wait until the monopoly expires, or lose international credibility by revoking it). Let them use it and profit from it, but somehow keep the new assets under government ownership.

 

But I digress ...

Edited February 3, 2004 by Twilight Bark

[Boghos]

Hello TB,

 

Not directly related to your points but: Canadian tar sands cost of extraction have been coming down thanks to technological developments. One of the smartest value managers I know has been accumulating companies related to that, naturally he is also bullish on oil.

 

True also that most countries endowed with natural riches have not been that succesful in using them. Major exception is Norway.

 

I agree that Azerbaijani oil is unlikely to be relevant in the near future but a key question in this story from a broader perspective is China. Could you ever imagine that a top Chinese government official would ever pay a visit to Gabon ?

 

As to the Armenian government I have nothing to add, suggest or even hope for. Not that Armenia is a hopeless case, far from that, but we need time.

[Armen]

Armenia, Iran to sign gas pipeline agreement in Feb-March

 

05.02.2004 10:13:00 GMT

 

Yerevan. (Interfax) - Armenia and Iran will sign an agreement on the

construction of a gas pipeline between the two countries in

February-March 2004, said Armenian Energy Minister Armen Movsisian.

 

The agreement will be signed in Yerevan during a visit by the Iranian

oil and gas minister, he said.

 

The project has been under consideration since 1992. Russia,

Turkmenistan, Ukraine, EU member-countries and China are also

interested in it. The European Bank for Reconstruction and Development

has said it is ready to fund the project.

[gamavor]

I'm sure we gonna witness some interesting developments around Baku-Jeyhan. I wonder if the Armenian-Iranian pipeline will go underneath or over the Judeo-Anglo-American pipeline?

 

To make things more exciting...Americans are going to have military base in Azveristan, while Russian's military base in Georgia is not welcome anymore. There is Russian base in Armenia and the future of the one in Georgia is not certain.

 

The Western pipleline goes directrly through occupied Armenian territories...should we ask BP for royalties and transportation fees?

 

I wonder also why they burried the pipe few metters deep. Aren't they aware of ecological consiquences?