PULSE of TURKEY No 57........................FRIDAY,OCTOBER 2^nd 1998

Prime Minister Mesut Yılmaz and Foreign Minister İsmail Cem returned from their visits to North America’s three biggest countries, the United States, Canada and Mexico, confident that the Baku-Ceyhan pipeline route is about to be determined irrevocably. This optimism was mostly due to their contacts in New York with the Central Asian and Caucasus countries during the UN debates, rather than the American leg of these arrangements. It is still not certain if the US intention to postpone the Baku-Ceyhan pipeline project until future years continues.

Emine Uşaklıgil reports from New York in Yeni Yüzyıl (30^th) that the final obstacle in the way of the realization of the Baku-Ceyhan pipeline has now been eliminated by Turkmenistan’s acceptance of building a pipeline under the Caspian to ship its natural gas to Baku and then to Ceyhan. In letters President Turkmenbaşı Niyazov sent to President Demirel and PM Yılmaz last week, he urged Turkey to determine the amount of natural gas to pass through this pipeline so that the investment could start without delay. Thus Turkmenistan has de-linked its dispute with Azerbaijan over the demarcation of the Caspian oil fields and given the green light to this project which is, in fact, an American project or rather a US-Turkish “Joint Caspian Initiative.”

In his address to the nation on the occasion of the reopening of the new parliamentary year on October 1^st, President Demirel confirmed that President Niyazov had sent him a message about the Trans-Caspian natural gas pipeline and that American companies would undertake the financing and realization of the project.

Energy Minister Cumhur Ersümer said that eight multinationals were interested in building the gas pipeline from Turkmenistan and that Turkey preferred these eight companies to form a consortium for this purpose. In May Koç Holding and the American company, Unocal completed the feasibility reports for building this Trans-Caspian gas pipeline up to Ceyhan for $2.9 billion. Rahmi Koç said on September 15^th that the construction of this pipeline should be speeded up.

A BP-Amoco representative told the MFA (Ministry of Foreign Affairs) in Ankara on the same day that they had hit natural gas in the Caspian while prospecting for oil and that they wanted to ship it with a pipeline parallel to the Baku-Ceyhan oil pipeline.

American outlook of the Baku-Ceyhan pipeline

US Ambassador Richard Morningstar, Special Advisor to the President and Secretary of State for Caspian Basin Energy Diplomacy, told the 17^th Congress of the World Energy Council in Houston on September 15^th that the US Government had a duty and an obligation to play a major role in Caspian oil and natural gas pipelines. He reiterated the Administration’s “firm commitment to developing a network of east-west pipelines that will enhance US national security interests and business opportunities for US companies in the strategically critical Caspian region.”

Ambassador Morningstar said, “Building a Baku-Ceyhan oil pipeline and a trans-Caspian gas pipeline makes absolute sense for both national security and commercial reasons…Both pipelines will increase energy security by avoiding the concentration of a vast new source of oil and gas in the Persian Gulf region. Finally, both pipelines enjoy great potential to become lucrative investment opportunities for US companies.”

He urged the countries concerned to negotiate inter-governmental framework agreements. “We believe such agreements should be based on the principles of the Energy Charter Treaty, which Kazakhstan, Turkmenistan, Azerbaijan and Georgia have already ratified…We are encouraging Kazakhstan and Azerbaijan to reiterate their commitments to aggregating oil volumes from the eastern Caspian into a main export pipeline. Aggregating volumes is critical to the commercial viability of Baku-Ceyhan,” said Ambassador Morningstar.

About Russia and Iran the Ambassador said, “We believe Russia can play an even greater role in the east-west transit corridor by helping Turkey to meet its energy needs by shipping gas via the Caucasus and into a Turkmenistan-Turkey pipeline…We believe it makes no sense to undermine the independence of the Caspian NIS (newly independent states) by tying their hydrocarbon exports into the pipeline system of Iran, one of their primary competitors. It makes equally little sense from an energy security standpoint to concentrate oil and gas from the Caspian into the Persian Gulf region…In the meantime, we will press ahead as vigorously as possible on east-west pipelines.”

Turkey’s future energy needs are the key factor for pipelines

The American policy and outlook of the Caspian oil and gas routes, as summed up by Ambassador Morningstar, extensively conform to Turkey’s policies, and the inter-governmental framework agreements by Turkey, Azerbaijan and Georgia, which the Americans are suggesting, are ready. President Shevardnadze of Georgia told the press in Tbilisi that the Baku-Ceyhan oil pipeline agreement was now final and that it would not be altered. The presidents of the three countries, as well as the representatives of the oil multinationals would sign the relevent agreement on October 9^th. “This is a historic day for both Southern Caucasus and the other countries concerned,” he said.

A delegation from Turkmenistan is expected to come to Ankara soon to negotiate the details of 16 billion m³/year natural gas Turkey intends to buy from that country. Turkmenistan wants this pipeline to have a capacity of 30 billion m³/year if possible, but the final figures will be determined after the negotiations in Ankara.

Plans and international arrangements have already been made by Turkey to import 45 billion m³/year natural gas in the year 2005. It will rise to 53.5 billion m³ in 2010, 64.6 billion m³ in 2015 and 80 billion m³ in 2020. To this end, agreements will be signed with six energy exporting countries to procure these imports from various countries so that Turkey will not be overdependent on any one country for its energy imports in future. These countries are Russia, Turkmenistan, Iran for natural gas through pipelines, and Libya, Algeria and Egypt for LNG (liquid natural gas) by sea. Other countries such as Nigeria, Qatar, Yemen, Oman, Norway and Abu Dhabi are also being considered for LNG imports.

Arrangements for 45 billion m³ in 2005 have already been made and the relevent investments are underway. 30 billion m³ will be imported from Russia (14 billion m³ through the existing pipeline via Bulgaria and 16 billion m³ through the Blue Current pipeline) and the rest from Iran.

The 16 billion m³/year natural gas from Turkmenistan will meet Turkey’s needs after 2005 and it may be shipped further West. In short, everything is ready to make Turkey the energy terminal of Caspian oil and gas.

Even though all these plans are in conformity with the plans and principles set out by Ambassador Morningstar, Washington is greatly disturbed by the Blue Current Project and the gas pipeline from Iran. Yet these two projects are advancing to schedule. There is a small delay in the completion of the pipeline from Iran as it was supposed to be operable this month (October 1998), but the necessary arrangements are being made between Ankara and Tehran to make up for lost time.

While these activities go on to meet Turkey’s energy needs for the next two decades, projects are being put into force to generate electricity from this natural gas or to use it in industry or for heating. On October 8^th, the contracts will be signed in Ankara for the construction of four big natural gas power plants in Gebze, Adapazarı, İzmir and Ankara.

The first three will be built by Shell-Bechtel-ENKA and the fourth by Bayındır. As the investments will be made on build and operate basis, it will not cost the Government any money.

American oil companies seem to be in two minds about Baku-Ceyhan 

It is still unknown if American participation in the Turkmen natural gas project will be forthcoming at this stage, even though Washington and Ankara do not differ greatly in their Caspian policies. Some American companies, however, seem to prefer the Baku-Supsa or Baku-Novorossiysk routes to Baku-Ceyhan. They maintain that it is better and cheaper to enlarge the early oil pipelines to Supsa and Novorossiysk from Baku instead of the Baku-Ceyhan pipeline that requires at least 25-30 million tons of crude oil a year to be viable and profitable,. The President of AIOC (Azerbaijan International Oil Corporation), John Leggate, said at the end of August that Baku-Supsa could go to operation in 1999 or the Iranian route could be used for the oil from Azerbaijan. As the new BP-Amoco owns 40% of the shares in AIOC it may oppose Baku-Ceyhan when it comes up at the AIOC shareholders’ talks this month. Azerbaijan-Georgia and Turkey have already reached an agreement on signing the agreement for Baku-Ceyhan this week.

The claim that the Turkmen oil and gas may be shipped to the Indian Ocean via Afghanistan and Pakistan instead of the Baku-Ceyhan route is a joke as economic, political and international conditions stand today, stress oil experts. uras@ada.net.tr, October 2nd, 1998

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