Talks on $2.4bn-$3bn Pipeline Reach Crucial Stage

Strategic Insights -

Turkish and Azerbaijani presidents, Suleyman Demirel and Heidar Aliyev, met in Baku to finalize the basis for financing a pipeline to transport oil from Azerbaijan to western markets via Turkey. The proposed pipeline has attracted significant support from the governments of Azerbaijan and Turkey, as well as the US, despite concerns from western oil companies about its commercial viability. BP Amoco, the leader of the international oil consortium operating in Azerbaijan, has reportedly softened its stance on the project, but insists that it will not finance the "geo-political" elements of the pipeline.

Key Takeaways:

  • The pipeline project is estimated to cost between $2.4bn and $3bn and has attracted significant support from the governments of Azerbaijan and Turkey, as well as the US.
  • The US has exerted strong pressure on BP Amoco and other members of the Azerbaijan International Operating Company (AIOC) to finalize terms for the pipeline.
  • Turkey has guaranteed any cost overruns above its estimated cost of $2.4bn for the pipeline, but the companies involved are seeking additional alternative financing from international institutions.
  • The pipeline would enhance Turkey's access to energy supplies and bolster its role as a regional power.
  • The BP Amoco-led consortium has been reluctant to endorse the pipeline due to concerns about the profitability of the project, but has softened its stance following US pressure.
  • Agreement on a framework for financing would allow the companies to decide whether they could justify investing in the pipeline on a commercial basis.
  • The pipeline project would require the companies to secure sufficient volumes of oil to make the project attractive to lenders and oil company shareholders.
  • Turkish officials are hoping to finalize the agreement by next month's Organisation for Security and Co-operation summit in Istanbul.

Statistics:

  • Estimated cost of the pipeline project: $2.4 billion - $3 billion.
  • Turkish government's estimate of cost overruns: above $2.4 billion.
  • Number of issues yet to be resolved in the negotiations: 3-4.
  • Percentage of commercial viability concerns among western oil companies: unquantified.
  • Number of countries being approached by the AIOC for oil commitments: 1 (Kazakhstan).

Sources:

  • "Says talks on $2.4bn pipeline are 'very close'". The Financial Times, [Untitled] (1999).
  • -
  • -