Autumn 1995 (3.3) Pages 44, 48, 51 Choosing the Route for Early Oil by Natig Aliyev, President of SOCAR It's been nine months since the Contract with the Foreign Oil Consortium for the development of Azeri, Chirag and deep water Guneshli was ratified in Parliament (December 12, 1994). We're moving right ahead on schedule as planned. These days we are exploring the possibility of finding a plausible route for "early oil" which could be exported prior to the main development of these fields. We hope to be able to begin extraction of "early oil" in 1996. In regard to the choice of route, we hope to be making a decision in mid-October. At present, we are exploring the possibility of routing the oil either through Georgia or Russia. Either route could be acceptable to Azerbaijan. There are various aspects that must be considered in making this decision because of the complexities. First of all, it has to be technically feasible. Then, it's critical that we weigh the geopolitical situation, the legal situation, and understand the infrastructure that is necessary to support such an operation. Of course, economical considerations including the tariff fees that a country will charge for the transmission is one of the most important considerations. Then there's the trust and confidence factor that plays into all of this. Azerbaijan will be involved in paying for infrastructure on our own territory, but beyond our borders, the other countries will have to bear responsibility for finding funding for their investment. The Steering Committee of AIOC (Azerbaijan International Operating Company) has allocated an additional $46 million for the inspection of the routes as well as for conducting studies both offshore and onshore in relation to the study of implementation for early oil. These funds are in additional to the $106.49 million for expenses in 1995 that has already been allocated. Georgian Route Concerning Georgia, there are three possibilities for exporting oil to Poti (Georgia) with its port facilities on the Black Sea. We can either transport it via railway to Hashuri (Georgia) and then transfer the oil to a pipeline for the rest of its journey to the Black Sea. The second possibility is to restore an existing pipeline between Azerbaijan and Georgia. The third option would be to convert the existing gas pipeline between Baku and Tbilisi into an oil pipeline. Technically, any of these are possible. But the question of economics and geo-politics must also play into the formula. Presently, the pipeline through Georgia is not in very good condition, an estimated $250-$300 million would be necessary for its reconstruction. The route must be reliable and safe from a political point of view. These days there is instability in Georgia. Also some private enterprises have taken over some of the infrastructure that would be critical for crude oil transportation and export. There are also legal and geo-political considerations that would have to be examined. It is impossible to ignore any of these vital criteria. We have met with Georgia's President, Mr. Shevarnadze, and others in leadership positions. They are quite eager to get involved and are guaranteeing the reliability and security as well as access to all the infrastructure. Not all details have been resolved as some depend entirely on internal arrangements within the Georgian government. Russian Route Terry Adams, President of AIOC, and I have met with Russian Energy Minister, Yuri Shafrannik, as well as the head of Transneft Chernyayev, the head of LUKoil and others. We also have met with Russian Government officials, who eager to cooperate in this process. A pipeline already exists between Baku and Daghestan which is in quite good condition. The line was originally constructed so that it could work either direction to or from Azerbaijan. To utilize these routes, we would have to reverse the present direction so that oil could flow out of Azerbaijan. The estimated costs for this work is $45 million. As far as financing the Russian portion of the pipeline from Daghestan to the Black Sea port of Novorossisk is concerned, this would be Moscow's responsibility. The pipeline for "early oil" is expected to be used for the first five to six years. However, even afterwards, its activities should not be suspended. In the final analysis, the choice will be made that takes into account all these variables-technology, economy, geo-politics, legality, infrastructure, conveyance tariffs and confidence and trust. The final decision will be that which to the best of our judgment would fulfill the interests of Azerbaijan. In anticipation of oil beginning to be implemented in 1996 if the "early oil" decision is made, we are presently involved in conducting an environmental baseline survey of the area in regard to the Chirag, Azeri, and Guneshli fields. This work is being carried out by the firm, Clyde Woodward. Much attention is being given to the ecological problems. All the foreign oil companies are extremely attentive and sensitive to our ecology as they would have to pay enormous fines if there were ever a violation on their part. We will be following the international standards adopted in other parts of the world, with particular attention to the conditions in the North Sea and the Gulf of Mexico. Environmental Survey The Environmental Baseline Survey Contract for the Consortium's development of the Azeri-Chirag-Guneshli fields has been awarded by AIOC to Woodward-Clyde. It is to be completed within 11 months in order to meet AIOCs planning and production schedules and commitments. The Baseline Survey include three aspects: (1) a detailed Environmental Baseline Study relevant to the contract area, including a proposed littoral and offshore pipeline route; (2) an environmental assessment of location for AIOC's proposed onshore facilities; and (3) provision of bio-assay laboratory facilities in Azerbaijan. Woodward-Clyde has established a Project Office in Baku under the direction of Resident Program Manager, Jack Colonel. According to Bjorn Kristoffersen, Manager of the Environmental Department for AIOC, "Oil and gas field operations in the former Soviet Union, including those in Azerbaijan, clearly demonstrate that environmental protection was not high on their priorities as there are noticeable areas of oil contamination in the ground, water and sea. The Caspian itself has become a sink to many pollutants deposited from the inflowing rivers as well as from the oil industry. As the Caspian has no outlet, the environmental system is particularly sensitive." Woodward-Clyde, established in 1950, has more than 2,800 employees in over 85 offices worldwide with a yearly revenue of US $318 million (1994). Seismic Survey AIOC has recently awarded Caspian Geophysical to carry out a 3-D Seismic Survey in the Caspian. This will be the first 3-D dataset meeting international standards that has ever been made in the Caspian Sea. The survey, which began in August 1995, is being carried out on the vessel M/V Baki, which will acquire 26,000 km of subsurface, 3D seismic data over a 3-month period as it relates to the unitized Chirag, Azeri and deep water section of the Guneshli fields The contract is worth nearly US $8 million and was signed July 31, 1995. Caspian Geophysical is a Baku-based Azerbaijani-American Joint Venture between SOCAR and M.D. Seis, which, in turn, has formed a joint venture with Western Atlas Inc. under the name of PetroAlliance Services Company Ltd. From Azerbaijan International (3.3) Autumn 1995. © Azerbaijan International 1995. 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