First Direct Caspian Pipeline Opens

ALMATY, Kazakhstan Ч The first dedicated pipeline to move oil from the Caspian, the world's last great undeveloped hydrocarbon reserve, direct to international markets will open Monday after a decade of hype, diplomacy and drama.

As well as potentially transforming the economies of Kazakhstan and other countries in the region, the line will also have an impact on global markets, delivering perhaps the largest single slug of new oil to markets for a quarter of a century.

Kazakh Prime Minister Ka-sym-zhomart Tokayev will turn the tap on a pipeline running from the giant Tengiz field in western Kazakhstan to the Russian Black Sea port of Novorossiisk, from where it can move by tanker anywhere in the world.

The ceremony will take place nearly a decade after the Soviet Union collapsed and a host of new countries emerged, all desperate to take advantage of the Caspian basin's oil wealth.

It is a triumph for the Caspian Pipeline Consortium (CPC), builder of the 1,580-kilometer link, for TengizChevroil, the consortium led by U.S. oil major Chevron, which is developing Tengiz, and for the governments of Kazakhstan and Russia.

Since the Soviet Union broke up at the end of 1991, the new nations of Kazakhstan, Azerbaijan, Turkmenistan and Georgia have seen oil and gas as providing their best hope of becoming rich. But while the potential reserves of the region were not in doubt, getting the resources out of the region has proved more problematic and time consuming.

The Caspian basin is landlocked, so crude leaving the region must move by pipeline. Russia, long the regional superpower, wants the oil to transit its territory as a way of retaining political influence and of garnering lucrative transit fees. Iran, to the south of the Caspian, wants the transit for itself, while Turkey also sees itself as the logical export route, and has strong U.S. backing for a line running from Azerbaijan's capital Baku to Ceyhan on the Mediterranean.

Such are the reserves of the Caspian that all three routes may eventually come into play, providing diversity of supply. Tengiz alone contains six to nine billion barrels of recoverable reserves.

Another monster Kazakh field, Kashagan, may contain 10 billion recoverable barrels or more, making it the largest discovery in 30 years. That is without even considering the fields offshore Azerbaijan, home to half the world's oil output 100 years ago, or reserves in Turkmenistan, Uzbekistan and Russia itself.

But while multiple routes are for the future, the CPC line's route gives first blood to Russia in the great Caspian oil game.

"For the region this finally provides an exit route for a major landlocked field," said Stephen O'Sullivan, head of research at United Financial Group in Moscow. "It also has the potential to have a significant impact on global supply and demand balance. Here is the first evidence that what's been said about the Caspian's reserves is true."

The pipeline will have an initial capacity of 560,000 barrels per day, rising to around 1.5 million bpd Ч a big addition to total global demand of around 75 million bpd.

"This is probably the first time since the 1970s, when pipelines in Alaska and the North Sea came onstream, that so much capacity has come onto the market in a single slug," O'Sullivan said.

CPC unites Russia, Kazakhstan, Oman, Chevron Caspian Pipeline Consortium, LUKARCO, Rosneft-Shell Caspian Ventures, Mobil Caspian Pipeline, Agip International, BG Overseas Holding, Kazakhstan Pipeline Ventures, and Oryx Caspian Pipeline. TengizChevroil combines Chevron (50 percent), ExxonMobil (25 percent), Kazakhstan (20 percent) and LUKARCO (5 percent).