The Times: "Price cut hopes as Azerbaijan oil comes on stream"

The first attempt to forge a direct link between Europe and the oilfields of Central Asia, the BTC pipeline is coming on stream as concern mounts that a speculative bubble is supporting the current high price of crude oil.

A steady and increasing flow of crude from the Caspian Sea will help to quench the fire in the oil futures market, according to Leo Drollas, director of the Centre for Global Energy Studies.

"It's good news. It is the kind of crude that we want. It should help to bring down prices in due course," he said.

The British Hawthorn, a BP vessel, is the first of many very large crude carriers that will dock at Ceyhan, a deep-water port in Eastern Turkey that was once an important export terminal for Iraqi crude.

Its cargo of 700,000 barrels, which will take several days to load, has already been sold to ExxonMobil to be delivered to an undisclosed destination.

Demand for Azeri crude is strong. According to oil market traders, the current weak volume of Azeri light exported through Novorissysk and Supsa, Black Sea ports in Russia and Georgia, fetches a high price, equal to — or at a small premium to — Brent, the global benchmark.

The oil pumped by the BP consortium from the Azeri and Chirag fields, offshore of Baku in the Caspian Sea, is low in sulphur and of high quality, well suited for the manufacture of petrol.

Such oil is becoming scarce as volumes decline among the major global reservoirs of "light, sweet" crude, such as the North Sea and onshore American oilfields. The deficit in sweet crude has been a major factor in supporting high oil prices because the vast reservoirs of the Middle East are mainly high sulphur, more viscous oils that are more expensive to refine into petrol.

BTC was a project conceived in Washington over a decade ago and vigorously supported by Turkey, which sees itself as a potential energy hub, a transport link for gas and oil in Central Asia heading to European markets.

Its attraction is both political and logistic, the side-stepping of Russian territory and a route that avoids the traffic logjam in the Bosphorus. The deep-water port of Ceyhan, once busy with giant carriers loading Iraqi crude, has been hard hit by the war and closure of Iraq’s northern export route. Oil from Azerbaijan will fill the gap and a new political game is being played as the BTC sponsors seek to entice more Caspian crude into their oil caravan from the east.

An energy tug-of-war is pulling Kazakhstan in two directions. The central Asian republic has vast oil and gas resources, including the 10 billion-barrel Kashagan oilfield. It is a potential rival to the Kremlin’s ambition to tighten its grip on European and Asian energy markets. Early in May, Dick Cheney, the US Vice-President, attempted to persuade the Kazakh president, Nursultan Nazarbayev, to forgo oil Russian export routes and use BTC, extending a pipeline across the Caspian Sea.

BP’s pipeline is an unprecedented feat of engineering. Its 1,760 kilometres of steel tube traverses three countries, rising to 2,800 metres in the Caucasus mountains in Georgia before reaching the Turkish Mediterranean coast. Costs have soared above the original estimate of just under $3 billion and a year’s delay in completion has added to the bill.

/www.timesonline.co.uk/