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. Last Updated: 07/27/2016

$3Bln Baku-Ceyhan Pipeline Gets Under Way

APFrom left to right, U.S. Energy Secretary Spencer Abraham, Azeri President Heidar Aliyev and Turkish President Ahmet Necdet Sezer launching the Baku-Ceyhan oil pipeline's construction on Wednesday.
SANGACHAL, Azerbaijan -- U.S. Energy Secretary Spencer Abraham joined the presidents of Azerbaijan, Georgia and Turkey on Wednesday for what he called "one of the most important energy undertakings" -- the start of construction of the Baku-Ceyhan oil pipeline.

The pipeline from Azerbaijan's Sangachal terminal, 40 kilometers south of the capital Baku to the Turkish Mediterranean port of Ceyhan, has been under discussion for eight years. When completed, it is expected to reduce dependence on Persian Gulf exporters and Russian pipelines.

Abraham, Azeri President Heidar Aliyev, Turkish President Ahmet Necdet Sezer and Georgian President Eduard Shevardnadze, whose territory the pipeline will cross, participated in Wednesday's groundbreaking ceremony.

"This project guarantees peace, security and stability in the region and still further unites three countries and three peoples," Aliyev said at the opening ceremony.

The 1,760-kilometer pipeline, which will be operated by BP, will carry Caspian energy resources -- the world's third largest -- to a Turkish port en route to Western markets.

It has won strong support from the United States, which is eager to find a more stable energy source outside the sway of the Middle East. Aliyev said Wednesday that U.S. help in championing the pipeline had been crucial.

"This project is one of the most important energy undertakings from America's point of view, as well as for this region," Abraham said Tuesday at a meeting with Aliyev.

Reading a letter from U.S. President George W. Bush, Abraham said during Wednesday's ceremony that the project would increase the world's energy security and strengthen the sovereignty and independence of the nations involved.

"Although it will be some time before the first barrel of oil flows through this pipeline, it has already made a significant contribution to the future of this region," Bush said in the letter.

Abraham said the project could serve as a model for further endeavors, adding that it opened the door to investment in this impoverished region.

Construction of the pipeline, estimated to cost about $3 billion, is to be completed by early 2004, and the first oil is expected to flow through it a year later.

Experts expect about 349 million to 421 million barrels of oil to move through the pipeline every year.

Fuad Akhundov, a spokesman for Aliyev's administration, told Russia's Ekho Moskvy radio that the pipeline is expected to bring $100 million per year to the regions it passes through.

The project "is no longer a legend and has become a reality," Sezer said at the ceremony. "Now we must make a new legend come true."

Shevardnadze, whose small country is heavily dependent on energy from Russia, declared the project to be "Georgia's main achievement in the past 10 years since it declared independence."

Georgia is particularly eager for new energy sources given the new low point reached in its relations with Russia.

However, the project has not won unanimous support. The Kremlin has refused to participate amid fears the pipeline will sideline Russia from the Western market. Oil from Azerbaijan is now shipped through Russian and Georgian lines.

Russia's biggest oil company, LUKoil, did not join the Baku-Ceyhan consortium.

"We are ready for cooperation but will not put up with the attempts to crowd Russia out of regions in which we have historic interests," Itar-Tass quoted Foreign Minister Igor Ivanov saying of the pipeline.

Some Western oil companies also have their doubts, saying the proposed route is an expensive alternative to shorter routes through Russia or Iran. Analysts say the Baku-Ceyhan path was chosen for strategic and not commercial reasons.

The international consortium developing an offshore oil field in the Caspian Sea announced Monday that it will go ahead with the project's second phase, estimated to cost $5.2 billion.

The Azerbaijan International Operating Co., led by BP, is developing the Azeri-Chirag-Gunashli field. AIOC plans to funnel second-phase oil production, expected to total 1.6 billion barrels, through Baku-Ceyhan once the pipeline is commissioned.

BP, with 34 percent, is AIOC's largest shareholder. LUKoil Overseas, a subsidiary of LUKoil, and the Azeri government both hold 10 percent.