Azerbaijan International

Winter 1998 (6.4)
Pages 86-87


Pipeline to Jeyhan:
The Turkish Perspective

by Nihat Gokyigit


Left: Photo showing the narrow straits of the Bosphorus.

Right: Turkey fears oil tanker collisions like the one that occurred in the Bosphorus in 1994.

For landlocked Azerbaijan, finding oil and pumping it out of the ground is only part of the struggle. An important question is still undecided: how will Azerbaijan transport its "major oil" to the world market? Which route will it take? Various proposals for main export pipeline routes have been put forward, but no single one has been finalized.

One route goes by land from Baku to Supsa, Georgia. At Supsa, the oil is transferred by ship across the Black Sea and through Turkey's Bosphorus Straits before reaching the Mediterranean. Another route goes by land from Baku to Novorossiysk, Russia, where the oil then takes a path similar to the Supsa route: over the Black Sea and through the Bosphorus Straits.

Turkey has repeatedly argued that these two options are problematic because the ship traffic going through the Bosphorus is already too congested. Any more ships in the waterway could create an environmental disaster.
One possible land route would travel from Baku through Georgia and Turkey to Jeyhan (Turkish spelling, "Ceyhan"), a Turkish port on the Mediterranean. Potentially, the pipeline could also be used to connect Kazakhstan and Turkmenistan's oil to the world market using Azerbaijan as a "transit country," perhaps via a pipeline to Baku across the bottom of the Caspian Sea.

Turkey is pushing for Azerbaijan to follow this latter route, called the Baku-Jeyhan route. Here Nihat Gokyigit, co-chairman of the Istanbul-based company Tekfen, examines these issues from the Turkish point-of-view.

Baku-Jeyhan pipelineDiversification
As a newly independent nation, Azerbaijan must not allow its economy to become dependent on any one nation. In this context, the path that Azerbaijan chooses for exporting its oil is crucial.

Left: Map shows the treacherous turns that oil tankers (the size of three football fields) must navigate in the Bosphorus.

In order for the Caspian to be considered on its own as one of the world's main oil regions, it must not rely too heavily on Russia or Iran. Diversification is key. Likewise, the West is anxious to diversify its energy sources; countries like the U.S. don't want to rely completely on the Persian Gulf for their oil supply.

For many of the proposed pipeline routes, Azerbaijan would have to depend on either Russia or Iran, potential competitors who have their own oil to sell. Using the Novorossiysk route, for example, would increase Russia's influence in the region. Directing the oil through Iran would be frowned upon by nations such as the U.S., which still views Iran as a terrorist state. A Baku-Jeyhan route would mean that Azerbaijan would not have to rely on either of these two countries.

Turkey is an independent outlet, and Azerbaijan's ally. It also has the potential to be one of Azerbaijan's biggest customers. Turkey has one of the largest fuel deficits in the region, as it only produces 15% of its own needs. The country consumes approximately 30 million tons of oil each year, providing a strong demand for Azerbaijan's oil.

Map showing the various pipeline route options from Azerbaijan and Central Asia.

Environmental Risks

Using either the Supsa or the Novorossiysk pipeline would mean transporting oil across the Black Sea. One problem with this process is that the sea is already very polluted.

Rough waves and bad weather make it difficult for ships to cross the sea safely. Oil would have to be loaded on and off of ships, increasing the chance of a spill and even more damage to the environment. Numerous non-governmental organizations have already organized against the pollution in the Black Sea, and it is highly probable that increased oil traffic would spur on even more protests.
Any oil transported via the Black Sea must pass through Turkey's Bosphorus Straits before it can reach the Mediterranean. The Bosphorus is an 18-mile-long international waterway that divides the city of Istanbul (pop. 12 million). At its narrowest point, the Bosphorus is 2,450 feet (750m) wide. The journey through it is a treacherous one-bad weather, fog and unpredictable currents increase the danger.

Ships have to change course at least 12 times to navigate the narrow, winding waterway. Sending tankers the length of three football fields through this passage is equivalent to inviting an accident to happen. (In fact, 150 serious accidents have already happened.)

The 1936 Montreux Convention guaranteed free passage through the Straits to any ship, day or night. But at the time, four to five ships passed through the Straits each day. Today the number is closer to 150, many of which are oil tankers. That's three times as much traffic as in the Suez Canal. Turkey is very worried about the environmental threat that this congested traffic poses, and believes that the framers of the Montreux accord did not foresee the danger of the chemical, explosive and nuclear cargoes now being carried through the Bosphorus.

Close to the water lie important historical landmarks such as the Topkapi Palace (built in the 1460s), the Hagia Sophia Mosque (also spelled "Ayasofya" or "Ayia Sofia") (537 AD), and the Dolmabahche Palace and Mosque (1853). Every tanker that passes through the Bosphorus endangers lives and cultural landmarks. Additional tanker traffic from Caspian oil would significantly increase that risk.

The Cost Factor
Many different estimates for the Baku-Jeyhan pipeline have been tossed around, putting the cost at anywhere between $1.8 and $4.5 billion. Oil consortium Azerbaijan International Operating Company (AIOC) recently upped their estimate from $2.5 to approximately $4 billion. Turkey estimates that the pipeline is more likely to cost around $2.3 to $2.4 billion and is willing to help subsidize the construction. Estimates for the Georgian and Russian pipelines are generally lower, but don't fully allow for other potential costs, including costs to the environment. For example, a tremendous loss would occur if there were to be a major accident and oil spill in the Bosphorus Straits. What would it cost to clean up the polluted environment? What would it cost to buy insurance to cover such a catastrophe?

Closure of the Straits due to an accident would block all traffic and choke the Black Sea states. What about the time a ship would spend waiting for the Straits to reopen? These costs must be considered in the estimate of any oil route that passes through the Bosphorus. A pipeline on the Baku-Jeyhan route may seem to be more expensive, but it is an investment that will save money (and the environment) in the long run.

Today's Myths
The major arguments by opponents of the Baku-Jeyhan pipeline are as follows:

Myth #1: The Bosphorus Straits can handle the additional traffic from Caspian oil.

Truth: There is not room for additional oil from the Caspian to pass through the Straits. Turkey recently passed safety regulations to slow down the traffic from cargo vessels, which increases by 15 to 20 percent each year. Additional tankers coming through with Caspian oil would spell disaster.

Myth #2: There's not enough oil in the Caspian to justify building the Baku-Jeyhan pipeline.

Truth: The oil reserves of the Caspian are estimated to be the world's second-largest, after Saudia Arabia. The 15 to 70 billion tons of reserves are believed to exceed those of Alaska and the North Sea. Accordingly, companies from 40 different nations are active in the Caspian Basin and are anxious to exploit its tremendous resources. In Azerbaijan alone, 16 production sharing agreements have been signed. Annual investments are expected to reach $2 billion a year by the year 2001, reaching a total of $47 billion. There is plenty of oil in the Caspian. With this in mind, the proposed Baku-Supsa pipeline is a temporary solution, as it would only be able to transport half as much oil as the proposed Baku-Jeyhan pipeline.

Myth #3
: Lower oil prices mean that the Baku-Jeyhan pipeline is no longer cost-effective.

Truth: Lower oil prices do put pressure on companies to minimize the cost of transporting oil. Even though prices for oil are at their lowest in more than a decade, interest in delivering Caspian oil to the West is still strong. If we use a reasonable estimate for the Baku-Jeyhan line, we see that this option is still competitive with other routes.

Myth #4: AIOC has to support the Baku-Jeyhan pipeline in order for it to be built. AIOC, a consortium of 11 companies led by British Petroleum-Amoco (a new merger) has yet to take a firm position one way or another on the pipeline issue. They want to keep their options open as long as possible. Lately, AIOC seems to be leaning toward the proposed pipeline to Supsa. Due to historically low oil prices and low production volumes from the Caspian area at present, AIOC is skeptical about the Jeyhan pipeline and fears that it may not be commercially viable.

Truth: AIOC is not the only decision-maker in this process, however. Other oil companies and consortia have large fields as well. They may very well decide to move forward with the Baku-Jeyhan pipeline with or without AIOC. For instance, Royal Dutch/Shell, Mobil, Chevron and the government of Kazakhstan recently agreed to undertake a study of the feasibility of an oil pipeline from Kazakhstan that would pass through the Caspian Sea to Baku, then overland to Jeyhan. Meanwhile, AIOC has decided to delay its final decision on the pipeline until at least early February.

Widespread Support
Heads of state in the Caspian region agree that the Baku-Jeyhan pipeline is the best choice for reaching the world market. On October 29, 1998, the leaders of Turkey, Azerbaijan, Georgia, Uzbekistan and Kazakhstan met in Ankara and signed an agreement to support the Baku-Jeyhan pipeline. The U.S. Secretary of Energy, Bill Richardson, signed the declaration as an observer. These leaders understand that a Baku-Jeyhan pipeline would benefit the entire Caspian region.

The U.S. has also voiced a strong preference for the Baku-Jeyhan pipeline route. It favors this route because much of the pipeline would go through Turkey, the country's only NATO ally in the region. To keep Russia and Iran from participating in a main export pipeline, the U.S. has urged the Caspian states to adopt an "east-west corridor" for oil; the Baku-Jeyhan pipeline is by far the most feasible option that Azerbaijan can take.

This article was based on a presentation given by Nihat Gokyigit at the Eurasian Transport Corridor conference in Washington, D.C. on November 18, 1998. Mr. Gokyigit is a Co-Chair of the Tekfen Company and a Board Member of Deik.

From Azerbaijan International (6.4) Winter 1998.
© Azerbaijan International 1998. All rights reserved.

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