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United States
Energy Information Administration

June 2000

Caspian Sea Oil and Natural Gas Export Routes

Options for Oil and Gas Export Routes
To China Oil - Tengizchevroil has made test deliveries to China by rail, and Kazakhstan exported 50,000 bbl/d of crude oil to China via rail in 1999. A feasibility study for an oil pipeline from Kazakhstan and Turkmenistan to China was halted in September 1999 because Kazakhstan would not be able to commit the minimum flows needed (400,000 bbl/d) for the pipeline to be viable for the next 10 years. Both pipelines face numerous financial and technical difficulties because of the distances and terrain along this route.

Natural Gas - Exxon, Mitsubishi, and China National Petroleum also submitted a preliminary feasibility study for the construction of the world's longest natural gas pipeline from Turkmenistan to the Chinese coast, and perhaps continuing onwards to Japan.

Via Georgia Oil - The western route for early oil from the AIOC joint venture in Azerbaijan passes from Baku, Azerbaijan to the Georgian port of Supsa on the Black Sea. The pipeline became operational in April 1999. Proposals have been made to increase to increase throughput along this route from the original design capacity of 115,000 bbl/d to 300,000 bbl/d or even 600,000 bbl/d. This western route was one of the alternative routes considered for the MEP for oil from the AIOC, but support for the final route has recently been given to another route, the Baku-Ceyhan route that traverses Georgia en route to Ceyhan, Turkey.

Georgia is part of the Eurasian Transport Corridor (TRACECA) to transport goods across Azerbaijan and Georgia en route to Europe via Georgia's Black Sea ports. Georgian President Shevardnaze has encouraged expansion of these ports, and proposed that Kazakhstan could build additional oil terminals at Georgia's Black Sea ports that would be owned by Kazakhstan. Oil transit through Georgia by pipeline and rail totaled 120,000 bbl/d in 1999.

This total could increase by 140,000 bbl/d via a pipeline separate from the ones for the early AIOC oil in 2000. Chevron and Caspian Transco agreed to improve and operate the smaller pipeline from Khashuri to the ports of Supsa and Batumi in 1998, and the pipeline could provide a cheaper way of moving Tengiz oil across Georgia. In addition, the World Bank and the European Bank for Reconstruction and Development are financing the reconstruction of the Gardabani-Batumi oil pipeline that transports oil produced in Azerbaijan and Georgia to the refinery at Batumi. Shipments have been limited by capacity at ports such as Dubendi (Azerbaijan), where the terminal has a capacity of about 50,000 bbl/d.

Georgia has already become a rail transit center for Caspian Sea oil, and over 50,000 bbl/d of oil from the Tengiz project in Kazakhstan were shipped across the Caspian Sea by barge to Azerbaijan and carried across Azerbaijan and Georgia by rail. Georgian President Eduard Shevardnadze has approved the Georgian-Austrian company Terminal-2000's recent plan to transport 12,000 bbl/d of oil from Turkmenistan across Azerbaijan and Georgia by rail to a new oil terminal to be built at Kulevi.

Georgia and Turkey also announced plans to utilize a 172 mile railway line between Tbilisi (Georgia) and Kars (Turkey) to transport up to 200,000 bbl/d of crude oil from the planned trans-Georgian pipeline to Turkish refineries. The plan will require refurbishing an existing line from Tbilisi to Akhalkalaki for $200 million, and extending the line 77 miles to Kars for $400 million, and could take three years.

Natural Gas - Georgia could become a major transit center for natural gas. The proposed trans-Caspian gas pipeline agreed upon in the Ankara declaration would pass through Georgia en route to Turkey along part of the route used by the Baku-Ceyhan oil pipeline. Delegations of the four countries involved in the Trans-Caspian gas pipeline project - Turkmenistan, Azerbaijan, Georgia and Turkey - focused on the project treaty, signing of which will allow negotiations with investors to begin. They also discussed the agreements that the operators of the project, PSG of the U.S. and Royal Dutch/Shell, must conclude with each of the four countries.

Azerbaijan plans to export over 175 bcf per year of its own natural gas via Georgia in 2002-2003 once production at the Shah Deniz field comes on line. Turkey would be the first export market, with Bulgaria, Greece, and Romania also possible markets. Exports via Georgia to Turkey could begin with the reconstruction of the Gazi Mahammad-Agdash-Gazakh pipeline in Azerbaijan and Georgia, and completion of an extension to Erzerum, Turkey. Expansions of this route to over 565 bcf per year have been proposed.

Natural gas also could transit Georgia via a proposed north-south pipeline from Russia to eastern Turkey, with one route also passing through Armenia en route. Georgia held discussions with Gazprom (Russia) on refurbishing the existing North Caucasus-Transcaucasian natural gas pipeline and extending it into a trans-Georgian pipeline to bring Russian gas to Armenia and Turkey. The $250-million project to upgrade pipelines could eventually carry 425 bcf per year of gas. Gazprom has not made construction of this pipeline a priority, concentrating instead on its Blue Stream pipeline that will transport Russian natural gas to Turkey via an undersea route across the Black Sea. A smaller north-south pipeline has been proposed that would transport up to 88 bcf per year of natural gas from Iran to Armenia, and then to Georgia, Russia's North Caucasus region, and northeastern Turkey. Gazprom, Gas de France, NIOC, and the Armenian Energy Ministry are moving forward with this project, which initially will consist of a $200 million, 87 mile-long pipeline into Armenia.

Conoco is also moving forward with a plan to ship 1.5 million metric tons of liquefied natural gas (LNG) per year from Kazakhstan and Turkmenistan across the Caspian to Baku, where it would then be shipped by rail to Georgian ports en route to Turkey and other Mediterranean customers. Conoco has set up a joint venture with Georgia's Ajargazi railway and a Turkish partner, and has also spent $600,000 to install facilities at the Georgian port of Batumi.

Via Iran to the Persian Gulf or Turkey - Any large investment in Iran's oil and gas sector would be legally problematic. U.S. Presidential Executive Orders signed in 1995 prohibit U.S. companies from conducting business with Iran. Furthermore, the U.S. Iran and Libya Sanctions Act of 1996 imposes sanctions on non-U.S. companies that make large investments in the Iranian oil and gas sectors.

Oil - Iran has long maintained that routes through Iran to the Persian Gulf are the shortest and most economical for exporting oil from the Caspian Sea. In addition, the Persian Gulf routes would transport oil to Asia, where the demand for oil is projected to grow faster and command a higher price than the Mediterranean markets that most of the competing pipelines would serve. Oil could be exported via Iran in two ways: 1) by direct transportation by pipelines that pass through Iran en route to the Persian Gulf; and 2) by oil swaps. Under this arrangement, Caspian oil would be shipped to Iran's Caspian Sea ports, and transported via pipeline, rail, and tanker trucks to refineries located in northern Iran. There is a corresponding reduction in the amount of oil shipped to the refineries by Iran from its southern oil fields via the north-south pipeline, with the oil exported instead from Iran's Persian Gulf ports on the oil producer's behalf. The United States has opposed large-scale swap arrangements with Iran by American companies.

Kazakhstan signed an agreement in 1996 to begin oil swaps with Iran, although volumes were limited by contract and technical issues, including the initial problems by Iranian refineries in processing Kazakh crude oil. With the resolution of these issues, oil swaps of 40,000 bbl/d could resume in the near future. Volumes could increase further with the completion of an oil pipeline project that would increase transport capacity from the Iranian Caspian Sea port of Neka to Tehran to 175,000 bbl/d (rising to 370,000 bbl/d), and tie into the existing Iranian pipeline network. Proposals have been made to further increase capacity to over 800,000 bbl/d with the construction of additional pipelines.

Several possibilities are available for direct transportation of Caspian oil to the Persian Gulf. One option would be to construct a new 1 million bbl/d pipeline from Kazakhstan through Turkmenistan to the middle of Iran, connecting to Iran existing pipeline network that could be used to transport oil south to Iran's Persian Gulf ports. Iran has suggested that Azerbaijan could transport its oil through Iran, either by: 1) shipping oil eastwards from Baku across the Caspian to the port of Turkmenbashi, Turkmenistan, where it could connect with the proposed new pipeline; or 2) by transporting oil from Baku via a proposed 190-mile pipeline to Tabriz in northwest Iran, where it would also connect with the existing Iranian pipeline network and refineries. France's Elf Aquitaine and TotalFina have proposed building a 200,000 - 400,000 bbl/d pipeline for this plan. Azerbaijan has indicated that progress on disputes with Iran concerning the division of the Caspian would need to occur before such as project moved forward, as well as Iranian progress towards improved relations with the West.

Natural Gas - Iran has proposed that Turkmenistan could export up to 1.8 Tcf of natural gas per year via Iran. This option differs from the Russian and Trans-Caspian options in that Turkmenistan would not export its gas directly to customers via trans-Iranian pipelines. Instead, completion of pipelines to Iran would enable Iran to buy Turkmen gas at the border, and either consume or re-export this gas to markets such as Turkey by linking to a proposed Iranian gas pipeline to Turkey. The Iranian option would require the construction of two natural gas pipelines. Phase I - completing a pipeline from Korpeje in Turkmenistan to Kord-Kui in Iran - was completed in late 1997, and flows are projected to reach capacity of 0.5 Tcf per year 2001-2003. Proposals have been made to increase the capacity of this pipeline to 1.1 Tcf in 2010. Royal Dutch/Shell determined that it would also be both technically and economically feasible to build a pipeline segment connecting the Iranian natural gas pipeline network with Turkey's natural gas network to carry these volumes. However, this option is currently not being pursued both because Iran is a competitor with Turkmenistan for gas supplies to Turkey, and because Turkmenistan wants to export directly to Turkey at a fair price, and does not want its gas re-exported to Turkey by Iran.

Iran has also shown interest in natural gas swaps with Azerbaijan using an existing 283 bcf per year pipeline built during Soviet times from Baku to Astara, Iran that has been unused for two decades. Iran has estimated that the pipeline could be rehabilitated within six months of an agreement. Iran has offered to pay for the renovation, but the proposal faces opposition from the United States.

To Pakistan via Afghanistan Oil - Turkmenistan has signed a memorandum of understanding with Afghanistan and Pakistan to build a 1 million bbl/d pipeline to carry petroleum to Pakistan and world markets via Afghanistan. This eastward route, along with one to China, is one of the few alternatives to the Iranian route for exporting Central Asian oil to Asian markets. In October 1997, a tripartite commission comprising the Islamic State of Afghanistan, Turkmenistan, and Pakistan was formed to start work on building this pipeline. Two competing groups, led by Bridas of Argentina and Unocal of the United States, offered to build the pipelines.

No progress has been made on these pipelines due to the ongoing civil war in Afghanistan. Following the August 20, 1998 U.S. bombing raids on suspected Afghan strongholds of suspected terrorist Osama bin Laden, Unocal announced that it was suspending work on the pipelines, and in December 1998, it withdrew from the consortium (comprising the Turkmenistan government, Delta Oil (Saudi Arabia), Itochu (Japan), Pakistan's Crescent Group, Hyundai (South Korea), and Japan's Indonesia Petroleum Company). Unocal cited low oil prices, turmoil in the region, and high risk. Bridas has stated that it would not need to wait for resolution of all political issues, and that it would have the necessary finances to move forward with the gas pipeline project on its own.

Natural Gas - In July 1997, Turkmenistan signed a memorandum of understanding with Afghanistan, Pakistan, and Uzbekistan to build a Central Asia Gas (Centgas) pipeline to carry 0.7 Tcf per year of natural gas to Pakistan via Afghanistan (and possibly to India as well). The Central Asian oil and natural gas pipelines could share a common right-of-way for a portion of the route. However, the withdrawals of consortium members Gazprom in June 1998 and Unocal in December 1998 left the project in limbo. In April 1999, Pakistan, Turkmenistan and Afghanistan agreed to reactivate the Centgas project, and to ask the Centgas consortium, now led by Saudi Arabia's Delta Oil, to proceed.

To Russia Oil - Prior to the breakup of the Soviet Union, there was only one major crude export pipeline - the 200,000-bbl/d Atyrau-Samara pipeline from Kazakhstan to Russia - that connected Caspian Sea oil production to the Russian crude oil export pipeline system and world markets. The current availability of alternate routes has put Russia is the position of competing with other export outlets for Caspian oil. Russia began by increasing Kazakhstan's export quotas along the Atyrau pipeline, and Russian tariffs fell sharply following the devaluation of the ruble in the aftermath of its 1998 financial crisis. In addition, Russia will further expand the capacity of the Atyrau-Saransk-Samara pipeline to 310,000 bbl/d.

Furthermore, Russia has been developing additional pipeline and shipping routes. The Caspian Pipeline Consortium (CPC) has chosen the Tengiz-Novorosiisk route to transport Kazakh oil from the Tengiz oil field to world markets via Black Sea ports around Novorosiisk. The CPC will also refurbish an existing 136 mile long pipeline in the Astrakhan region that could also be used to export oil from the Tengiz field and the Astrakhan region. The pipeline is expected to be commissioned in 2001 with a first phase capacity of 564,000 bbl/d, but it will not reach its full capacity of 1.34 million bbl/d until about 2015. The pipeline could also connect with Russia's Caspian Sea ports in Astrakhan. With the completion of Phase I of the CPC line in mid-2001 and the expansion of the Atyrau line, Kazakhstan will have about 1 million bbl/d of pipeline export capacity. Chevron has estimated that during its 35-40 year expected life, the pipeline could bring in $23 billion in taxes for Russia's federal and provincial governments (Kazakhstan's tax revenues were projected at $8 billion), and add about $84 billion to Russia's GDP.

Novorosiisk is also the terminus for the northern route for early oil export route for AIOC oil. Initial exports, or "early oil", began flowing by end-1997 at an average rate of 40,000 bbl/d from the 100,000-bbl/d pipeline (design capacity) along a northern route from Baku, Azerbaijan via Chechnya to the Russian Black Sea port of Novorosiisk. Throughput on this line had been limited because of disputes over transit payments to Chechnya, pumping limitations, and the conflict in Chechnya.

The war in Chechnya prompted Transneft to construct a 120,000 bbl/d Chechnya pipeline bypass (160,000 bbl/d including rail links) completed in 2000 that includes a spur to Russia's Caspian Sea port of Makhachkala. Transneft has stated that Azerbaijan has not fulfilled its commitment to export oil along the bypass. The pipeline could eventually transport up to 360,000 bbl/d of oil, enabling additional exports from Azerbaijan, Kazakhstan, and Turkmenistan.

The Russian Transport Ministry has proposed shipping oil via barge and tanker from Turkmenistan and Kazakhstan to Russian ports on the Caspian Sea such as Makhachkala and Astrakhan. From there, it could be shipped via a 100,000 bbl/d pipeline or by rail to ports such as Novorosiisk and Tuapse on the Black Sea; Kazakh rail exports from the Tengiz oil field through Russia could reach 100,000 bbl/d in 2000. The Transport Ministry indicated that Mobil is planning to transport 12,000 bbl/d along these routes, and the Transport Ministry said that total shipments from Turkmenistan could increase to 240,000 bbl/d as port facilities were upgraded. Turkmenistan plans to increase the capacity at its Aladzha and Okarem terminals from 72,000 bbl/d in 1999 to 188,000 bbl/d by 2005, and Kazakhstan has also recently expanded its port facilities.

Other options include exporting oil to world markets via the Russian pipeline system using not Black Sea but Mediterranean ports. Under this plan, Russia's Druzhba pipeline would be extended to connect with the Adria pipeline, which would bring the oil to the Croation port of Omisalj on the Adriatic Sea (the flows in the Adria pipeline would need to be reversed to flow into the Adriatic under this plan). This option is under consideration because Turkey has limited exports via the Bosporus to tankers of 160,000 deadweight tons, and could limit the passage of oil further.

In addition, Russia could also export Caspian oil to world markets in the future via the Russian pipeline system to Baltic Sea ports. Under one proposal, pipelines in the Caspian region could be connected to the planned Baltic Pipeline System, and exported via the planned Baltic port of Primorsk. In addition, Kazakhstan has exported oil to Lithuania in the past, and could export crude oil via Lithuania's port of Butinge.

Natural Gas - The existing Russian gas system could be expanded to allow Central Asian gas exports to enter the Russian pipeline system to bring gas to Europe. Existing pipeline through Kazakhstan and Russia have the capacity to transport over 700 bcf per year, and capacity could be increased by an additional 50% by adding more compressors. The Russian natural gas pipeline through Astrakhan and Dagestan provides another option for exports. Disputes between the Russian gas company Gazprom and Turkmenistan had led to a curtailment of exports from Turkmenistan via Russian pipelines. The dispute was settled and Turkmenistan and Gazprom agreed to increase shipments of Turkmen gas via Russia by 350 bcf per year until total shipments increased to 1.8 - 2.1 Tcf per year, and Turkmenistan's President Saparmurat Niyazov has stated that Turkmenistan is prepared to export up to 3.5 Tcf per year through Russia. Another proposal has been to transport natural gas from Kazakhstan to a proposed new LNG terminal on the Taman peninsula in Russia, where it would be transported to world markets via tankers.

Turkey could be served by using an existing Russian gas pipeline to Georgia, connecting to a proposed new pipeline from Georgia to Turkey, possibly passing through Armenia en route. Gazprom has not made construction of this pipeline a priority, concentrating instead on its Blue Stream pipeline. Russian gas exports will compete with Caspian Sea gas to Turkey with the planned Blue Stream pipeline that passes under the Black Sea from the Russian port of Tuapse north of Georgia to the Turkish coastal city of Samsun.

Trans-Caspian Routes (other than to Iran or Russia) These trans-national pipelines have raised a series of Caspian Sea legal and environmental issues amongst all of the Caspian littoral countries. Russia and Iran have raised concerns about the environmental impact of Caspian Sea development, and in the past have opposed the laying of trans-Caspian pipelines on ecological grounds. Territorial disputes need to be resolved as well.

Oil is being shipped across the Caspian from Kazakhstan and Turkmenistan to the port of Baku in Azerbaijan for further trans-shipment westward to the Black Sea. Shipping volumes have risen from 2,000 bbl/d in 1996 an estimated 54,000 bbl/d in 1999. Texaco has estimated that 400,000 bbl/d could be transported across the Caspian this way with capacity expansions at the Turkmen (see Russian routes) and Kazakh Caspian Sea ports. Capacity at Kazakhstan's Aktau seaport was increased to 160,000 bbl/d in 1999.

These totals are expected to rise further with expansions to pipeline, port, and rail infrastructure in Azerbaijan and Georgia. The Tengizchevroil joint venture plans to export up to 200,000 bbl/d along these routes by 2000 (the pipelines they will use are separate from those in the western route for AIOC's "early oil"). The expansions to the Sangachal oil terminal facilities at the seaport in Dyubendi (30 miles northeast of Baku) will increase its capacity to receive oil from 115,000 bbl/d to 500,000 bbl/d by mid-2001.

As Caspian production increases, trans-Caspian pipelines could bring increasing volumes of oil and gas from Kazakhstan and Turkmenistan across the Caspian. The cross-Caspian pipelines would connect with other export pipelines from the Caspian region, such as the proposed MEP. Eventually, the cross-Caspian pipelines could be connected on the east with export routes flowing eastward as well. In December 1998, Royal Dutch/Shell, Chevron, and Mobil signed an agreement with Kazakhstan to conduct a feasibility study for twin oil and gas pipelines that would pass across the Caspian Sea from Aktau in western Kazakhstan to Baku. Valerii Garipov, Russia's Deputy Minister of Fuel and Energy, expressed doubts that there will be enough Kazakh and Turkmen oil to export to make this project economically viable.

Natural Gas - The United States has supported trans-Caspian routes for Central Asian oil and gas as an alternative to pipelines passing though Iran. The U.S. Trade and Development Agency funded a $750,000 feasibility study conducted by Enron for a natural gas pipeline from Turkmenistan to Azerbaijan, and another feasibility study was also completed by Unocal. On May 21, 1999 Turkey and Turkmenistan signed a 30-year agreement to ship 700 bcf/year of Turkmen gas to Turkey, with the rest exported to Europe. Georgia has proposed that trans-Caspian pipeline could also be linked to the Russian natural gas pipeline system.

On November 18, 1999, Azerbaijan, Georgia, Turkey and Turkmenistan met in Istanbul, Turkey, and began laying the legal framework for this route by signing an Intergovernmental Declaration outlining the principles for the Trans-Caspian gas pipeline route running from Turkmenistan, through Azerbaijan and Georgia, to Turkey. The document signed by the Governments of Turkmenistan, Azerbaijan, Georgia, and Turkey will provide the foundation for an Intergovernmental Agreement and Host Government Agreements expected to be concluded in 2000. Construction is anticipated to begin immediately following financial closure, which is expected in end-2000, with natural gas scheduled to begin flowing in late 2002. The document provides the first explicit permission by the Governments on Azerbaijan and Georgia to permit this pipeline to cross their territories.

PSG (a joint venture between General Electric and Bechtel) signed an agreement to be the operator of the project, and was later joined by Royal Dutch-Shell. Further agreements are necessary to define more clearly the rights and obligations among the parties. In particular, Azerbaijan and Turkmenistan have been unable to agree on space allocations for the 1 Tcf capacity pipeline, with Turkmenistan offering Azerbaijan 10% of the pipeline volumes for Azeri exports, while Azerbaijan, which had asked for 50% of the available capacity on the pipeline, but has tentatively agreed to a 1/6 share.

Armenia has argued that trans-Caspian routes passing through it northern section would be technically easier, and cost at least half a billion dollars less than other routes. The Armenian routes have been included in the EU's INOGATE program, but Azerbaijan has stated that economic cooperation with Armenia would only come after resolution of the Nagorno-Karbakh conflict.

To Turkey - The Turkish port of Ceyhan was one of several oil export destinations considered for the MEP route for oil from Azerbiajan. On October 29, 1998, support for this option was affirmed with the signing of the Ankara Declaration backing the Baku-Tbilisi-Ceyhan route. The declaration was signed by the governments of Azerbaijan, Georgia, Kazakhstan, Turkey, and Uzbekistan, with Turkemenistan abstaining. The United States also has backed this route.

On November 18, 1999, Azerbaijan, Georgia, and Turkey began laying the legal framework for the Baku-Tbilisi-Ceyhan route for the MEP by signing the initial documents for this framework agreement at the Organization for Security and Cooperation (OSCE) Summit in Istanbul. The Istanbul Protocol serves as an umbrella for a unified agreement consisting of four components:

On April 28, 2000 Azerbaijan, Georgia, Turkey, and the United States participated in a signing ceremony for Georgia's Host Government Agreement, the final document of the framework agreement for this route. The next phase of this effort will require companies from the United States, Western Europe, and Russia to work with those of Azerbaijan, Georgia, Kazakhstan, and Turkey to transform legal frameworks into commercial reality. For this project to go forward, the Main Export Pipeline Company, known as MEPCO, will need to be formed and to finalize the financing package to pave the way for construction to begin. Construction is targeted to begin in the third quarter of 2001. The agreements proposed that the pipeline would begin operations in 2004. Georgia has also proposed that the Baku-Tbilisi-Ceyhan pipeline could be linked to the CPC oil pipeline and the Russian oil pipeline system in order to give oil from the CPC pipeline and Russia an alternative outlet to the port of Novorosiisk.

Natural Gas - Turkey also is looking for gas supplies in addition to the earlier-referenced deal to import natural gas from Turkmenistan via a pipeline that will likely cross Iran. The Ankara declaration backs a proposed cross-Caspian natural gas pipeline from Turkmenistan-Azerbaijan that would follow part of the Baku-Ceyhan oil pipeline route to bring gas to Turkey. The U.S. Trade and Development Agency awarded another grant in October 1998 to Turkish pipeline concern Botas to evaluate the feasibility of the joint routes.

Azerbaijan could also begin exports to the fast-growing Turkish natural gas market under a $600- $700 million proposal to extend existing pipelines to Georgia 174 miles to Erzurum, Turkey. Tentative plans call for the extension to be able to export 175 bcf for the 2002-2003 winter season, rising to 300-350 bcf. A feasibility study on utilizing existing pipelines for exports is being developed under the European Union (EU)'s INOGATE program.


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