U.S. Oil Giants Choose Azeri Pipeline

ALMATY, Kazakhstan -- U.S. oil companies Chevron and Mobil on Monday announced they would export oil from their giant Tengiz field in Kazakhstan through Azerbaijan, as they are eager to find an alternative export route because negotiations for a pipeline through Russia missed yet another deadline.


Tengizchevroil, or TCO, a venture of Chevron, Mobil and the Kazakh government, which is developing the Tengiz field, agreed to swap 20,000 tons of oil with Socar, Azerbaijan's state oil company, as one alternative export route to the restricted Russian pipelines.


Tengizchevroil will deliver the oil to Socar by barge across the Caspian Sea and Socar will send the equivalent by train to the Georgian port of Batumi, on the Black Sea, from where it can be shipped on further to Western markets.


"It's a one-time swap, testing out the system," said Nick Zana, director general for TCO. He added the swap, which could occur as early as this week, could be repeated "if there are economic merits."


Unable to export significant amounts of oil through Russianpipelines to the West, TCO already sends crude by pipeline to Lithuania, by train to Finland and by barge up the Volga river and down the Don to the Mediterranean.


In April a group of Western and Russian oil companies including Chevron and Mobil announced it would join the Caspian Pipeline Consortium of Russia, Kazakhstan and Oman that had been set up to build a pipeline linking Tengiz and other Kazakh fields to the Russian port of Novorossiisk. But the parties missed a Sept. 30 deadline and agreed to move back the deadline a second time, to mid-November.


"There should be no panic," said Edward Smith, general director of the CPC for Oman. "A lot of people realized they had a lot in front of them. It's just very complex. Just because you don't meet a deadline does not mean the deal is dead."


"There is a delay on the side of the Russian and Kazakh governments regarding taxes," Kazakh oil minister Nurlan Balgimbayev said last week. "Earlier the CPC was tax-exempt, now it is liable to taxes."


Smith said that the U.S. partners are pushing to raise their stake to 30 percent, the minimum required to obtain tax exemption in the United States.


This had to wait until Arco, a U.S. oil company, finalized its $5 billion venture with the Russian oil company LUKoil, already committed to joining but short of cash.


Arco plans to take a 46 percent stake of LUKoil's expected 12.5 percent, just enough to push the U.S. stake to 30 percent.


Another issue is the insistence of Transneft, the Russian pipeline monopoly, that it be both a contractor and have a say in management of the consortium, according to Smith. "Companies from the West are particularly sensitive to conflict of interest," he said.


The Kazakh government plans to ship its share of oil production to northern Iran, in exchange for Iranian crude deliveries to clients in the Persian Gulf. But that swap missed a September deadline as well.


Balgimbayev said that Iran had recently demanded compensation for refitting facilities to handle Kazakh crude.


Chevron and Mobil have distanced themselves from this swap, fearing a U.S. boycott against Iran. "I don't want to go to jail," Zana said.


But U.S. President Bill Clinton has told the U.S. Congress he instructed the treasury to consider licensing U.S. participants in swaps of crude from Azerbaijan, Kazakhstan and Turkmenistan.


"If the U.S. government says it's O.K., of course I'd be interested in the Iranian option," Zana said. "But our energy is focused on the CPC pipeline. Without CPC, things just aren't going to move here."