Caspian Pipeline to Double Capacity

ReutersDeputy Energy Minister Yanovsky, left, speaking with Transneft vice president Barkov in Moscow on Wednesday.
Shareholders in the Caspian Pipeline Consortium agreed Wednesday on plans to double the line's capacity.

One partner -- LUKArco, owned by LUKoil and BP -- did not sign the agreement but agreed not to block the expansion project.

"BP supported the approval by LUKArco of a plan allowing expansion of the CPC to go ahead in 2009," said BP spokesman Vladimir Buyanov.

Among those signing the deal in Moscow were Deputy Energy Minister Anatoly Yanovsky, his Kazakh counterpart Kairgeldy Kabyldin, Transneft vice president Mikhail Barkov and representatives of the energy companies.

BP has been in negotiations to sell its 46 percent stake in LUKArco to LUKoil, which holds the rest of the shares in the company. BP also owns 49.9 percent of Kazakhstan Pipeline Ventures, a joint venture with KazMunaiGaz.

Together, the two holdings give BP just over a 6 percent stake in the entire consortium, according to CPC.

BP said it is looking to sell because its production in the region is too low to warrant participation in the project.

"We don't have a sufficient amount of oil to pump through the pipeline," Buyanov said. "The commercial terms of expansion are currently disadvantageous for BP, as BP is the only investor without substantial upstream production to export."

Representatives of BP and LUKoil declined to comment on the negotiations, other than to say they are ongoing. BP is also in talks with KazMunaiGaz to sell its 19 percent share in Kazakhstan Pipeline Ventures. Chevron, ExxonMobil and Shell are other foreign firms with stakes in the construction of the pipeline.

TengizChevroil, in which Chevron holds a 50 percent stake, is the largest consortium member in terms of production. This year, it will export 13 million tons of oil through the pipeline from Kazakhstan, said Chevron spokeswoman Irina Rybalchenko. The increase in the pipeline's capacity will eventually allow the company to raise the annual figure to 30 million tons. The members of the consortium expect the expansion to be completed by 2013.

The work will not require the building of any new pipe but will expand capacity through the introduction of 10 additional pump stations, six new crude oil storage tanks near the Black Sea port of Novorossiisk and a third, single-point mooring buoy at the terminal in the Black Sea. The improvements will double the capacity of the pipeline, which is currently at 33 million tons per year.

The total cost is expected to be $1.6 billion and will be financed by the consortium with funds generated by a tariff of $38 per metric ton on oil passing through the line. Transneft controls Russia's 24 percent stake in the consortium. The company is also planning to build a separate, 280-kilometer pipeline from Bulgaria's Black Sea shore to Greece's Mediterranean coast, which will begin next summer and take 18 months. When completed, it could be integrated well into a larger system including an expanded CPC.

The pipeline expansion would be "significant news" for Kazakhstan, said Kate Hardin, head of Russian and Caspian Energy at Cambridge Energy Research Associates. "Having this fall into place even five years from now is going to make a real difference for those producers," Hardin said.