The B.T.C. Pipeline and the Increasing Importance of Energy Supply Routes

The B.T.C. Pipeline and the Increasing Importance of Energy Supply Routes

Posted in Other | 09-Aug-06 | Author: Michael Piskur

On July 13, world leaders and energy industry officials gathered in Turkey to inaugurate the Baku-Tbilisi-Ceyhan (B.T.C.) pipeline, the east-west hub intended to connect energy supplies in the Caspian region and Central Asia to Western markets. The first shipment of Azerbaijani crude oil, originally pumped on May 10, 2006, arrived in Italy to coincide with the inauguration. This occasion came just days before the annual G8 summit in St. Petersburg, Russia, where Moscow and Washington clashed over such issues as Russian membership in the World Trade Organization and the exploration of gas and oil reserves in the North Atlantic and Baltic Sea.

The B.T.C. pipeline connects the Azeri-Chirag-Gunashli oil fields to Turkey's Mediterranean port city Ceyhan through Baku, Azerbaijan, and Tbilisi, Georgia. As the world's second longest pipeline at 1,760 kilometers (1,094 miles), the majority of which is far underground, and with a path that traverses a politically unstable region, the B.T.C. pipeline has been criticized for being prone to sabotage or malfunction. Western leaders, however, hail it as one of the most important projects of the 21st century.

The World Bank's International Finance Corporation and the European Bank for Reconstruction and Development funded the US$4 billion project. Energy company BP is the main operator and controls a 30.1 percent stake in the pipeline. Other major contributors include State Oil Company of Azerbaijan (S.O.C.A.R.), American firms Unocal Corp. and Chevron, Norway's Statoil, Turkish state oil firm T.P.A.O., and Italy's Eni SpA.

B.T.C. Provides an Alternative to Russian Energy

From its inception, the B.T.C. pipeline was designed to challenge Russian hegemony over energy in the Caspian Sea region. Planning for a pipeline that could carry oil from the landlocked Caspian to the Mediterranean Sea -- while avoiding Russia and politically unstable areas such as Armenia -- began in earnest in 1999 and construction commenced in September 2002. The Western governments and firms behind the pipeline intended for it to rival the Russian-backed Blue Stream pipeline, which sends Russian gas to Turkey and Italy. [See: "Economic Brief: The Blue Stream Gas Pipeline"]

Since much of Europe's energy -- 50 percent of the E.U.'s imported natural gas and about 25 percent of its imported oil -- is imported from Russia primarily through the state-owned energy giant Gazprom, Moscow has been firmly opposed to the B.T.C. since planning for it began more than ten years ago. In light of this year's Russia-Ukraine gas dispute that temporarily cut natural gas supplies to Europe, and Moscow's heavy-handed use of political leverage against its smaller neighbors, the European Union has made diversity of energy resources and providers a top priority. The B.T.C. pipeline will account for only a small percentage of global oil, but the West considers a stable -- and not Moscow-controlled -- supply to be worth the financial and political costs.

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