Pipelines to Caspian Sea Oil

The consortium of Western oil companies exploring the Caspian Sea has already spent more than $600 million. (Source:Arttoday)

The war in Chechnya has heavily damaged a pipeline from Azerbaijan to the Russian terminal at Novorossiisk on the Black Sea.

In November 1999, various countries approved another pipeline to run 1,000 miles running from Baku, Azerbaijan, across Georgia, and to the Mediterranean port of Ceyhan, Turkey. Analysts remain divided, however, on whether the $2.4 billion project will be economically viable.

That project was heavily pushed by the United States. Iran had attempted to block its construction, offering to sell Azeri oil in northern Iran, while selling oil from southern Iran on Azerbaijan's behalf on the world market.

Russia has accused the US of blocking its plan to build a pipeline bringing oil from Turkmenistan under the Caspian and into Russia. However, in 1993 Russia closed down a natural gas pipeline from Turkmenistan because it competed with Russian attempts to develop its own natural gas industry. Turkmenistan currently uses a pipeline through Iran, which has irritated the US.

Caspian oil production is expensive in other ways besides pipelines. The consortium of Western oil companies exploring the Caspian Sea has already spent more than $600 million on the Kashagan project.

Speaking last year, before the recent Kashagan discovery, Tim Cejka, vice president of exploration at Exxon Ventures, told an audience at Harvard University's John F. Kennedy School of Government that oil companies will have to spend between $300 and $500 billion to pump Caspian Oil. He said the entire infrastructure to build the platforms would cost between $5 and $30 billion.

In contrast, he said it will be much easier to drill oil off the Nigerian coast, where large deposits have also been discovered recently, because the platforms and drilling equipment can simply be floated into place.

He said however that costs will be shared, since at the time, 19 different companies had signed drilling agreements in the Caspian.