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. Last Updated: 07/27/2016

U.S. Pushes Oil Pipe Through Caucasus

U.S. officials are reiterating their commitment to building a controversial Caspian pipeline, emphasizing the importance of "diversification" as political volatility increases after terrorist attacks on the United States.

"The U.S. will not be deterred from its business by these events," said U.S. ambassador Steven Mann, senior adviser for Caspian basin energy diplomacy. "We will continue to build stability and cooperation."

What Mann was addressing was the imminent construction of a long-debated pipeline running from Baku, Azerbaijan, through the Georgian capital Tblisi to the Turkish port of Ceyhan. Conceived as a oil route that would bypass Russia, government and industry experts now see it as a pipeline that can become commercially viable if enough crude is found off the coast of Azerbaijan.

An engineering study commissioned last year is progressing according to schedule and construction will start next summer, Mann said. Cost estimates range from $3 billion to $3.7 billion.

"The policy of pipeline diversification is inevitable," he said at a Moscow oil conference last week. "I must stress that this is not an anti-Russian policy. It's a policy of anti-monopoly."

The Baku-Ceyhan pipeline was seen as competing with the Caspian Pipeline Consortium, which has already completed its 1,580-kilometer stretch from Kazakhstan's Tengiz field to the Black Sea port of Novorossiisk. Although the release valves were cranked open earlier this year, tankers won't be loaded for another three weeks, said CPC general director Sergei Gnatchenko.

This kind of half-victory for CPC has led Russian industry leaders to be more skeptical about the need and cost of the U.S.-led campaign for Baku-Ceyhan.

"We welcome this project," Transneft president Semyon Vainshtok -- through a half-smile -- told a U.S. delegate. "If you want to spend $3 billion and then look on as the oil companies choose a more economical route, then go ahead."

Transneft, the state-owned pipeline monopoly, itself is fighting for the opportunity to transport Caspian crude through Russia to other ports, and it has the capacity. The first stage of the Baltic Pipeline System -- stretching from the Timan-Pechora region to the Baltic port of Primorsk -- will add 240,000 barrels a day to Russia's export capacity and is set to go on line by year end.

Other events have called Baku-Ceyhan into question. Several exploratory wells that were drilled off the coast of Azerbaijan earlier this year came up dry, leading some geologists to suspect that the Azeri government has overstated the amount of reserves in the region. Without huge reserves, the pipeline may not make commercial sense.

Mann acknowledged as much."It has to be justified economically," he said.

But there are other reasons driving Baku-Ceyhan's construction. Turkish officials have complained the congestion of ships along the Bosphorus straits pose environmental and safety risks. Baku-Ceyhan will alleviate the jam created by tankers trying to get through to sea.

Chevron has tried to alleviate these fears by guaranteeing that it will do all it can to minimize accidents brought on by oil tankers. The oil major holds 50 percent of the Tengizchevroil venture, which is developing Kazakhstan's Tengiz field. Once CPC begins loading tankers and sending them across the Black Sea, the Turkish government anticipates another 3,000 tankers on top of the 7,000 that annually cross through the straits.

Faced with growing opposition from Turkish environmentalists, Chevron has thrown its weight behind Baku-Ceyhan.

"Chevron supports the Baku-Ceyhan pipeline and believes it will be built," said Ian MacDonald, president of Chevron Neftegaz.