[Congressional Record Volume 147, Number 178 (Thursday, December 20, 2001)]
[Extensions of Remarks]
[Pages E2354-E2355]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         CASPIAN PIPELINE OPENS

                                 ______
                                 

                            HON. JOE BARTON

                                of texas

                    in the house of representatives

                      Wednesday, December 19, 2001

  Mr. BARTON. Mr. Speaker, I commend to my colleagues the following 
article:

               [From the Washington Times, Dec. 3, 2001]

                         Caspian Pipeline Opens

                         (By Christopher Pala)

       Almaty, Kazakhstan.--The first pipeline built to bring 
     Kazakhstan's oil to world markets was dedicated in Russia 
     last week, four months late and minus the presidents of the 
     two countries through which it passed.
       Speeches delivered near the Russian port of Novorossiisk 
     called the 940-mile steel tube a symbol of international 
     cooperation, and that it is indeed: The Russian Federation 
     and American and Russian oil companies have provided most of 
     the $2.6 billion cost, and Russia stands to earn $20 billion 
     over the 40-year life of the pipeline.
       But the pipeline is also:
       The first step to Kazakhstan's ambitious plan to deliver 3 
     million barrels a day in 15 years to world markets and become 
     one of the top three oil exporters in the world.
       A mutibillion-dollar bet by Chevron Corp. in 1993 that is 
     now set to pay off handsomely.
       An example of the difficulty of doing business in Russia.
       Proof that with perseverance, it can be done.
       The pipeline, built by the 11-member Caspian Pipeline 
     Consortium, known as CPC, starts on the desert shores of the 
     northeast Caspian Sea at Tengiz, Kazakhstan, the world's 
     sixth-largest oil field.
       The longest 40-inch pipe in the world then curls around the 
     Caspian before striking west across the broad plains north of 
     the Caucasus range and ends at a tanker terminal 10 miles 
     west of Novorossiisk.
       When completed, at a final cost of $4 billion, it will be 
     able to carry up to 1.3 million barrels per day (bpd), more 
     then double its initial capacity.


                           Peak a decade off

       Output at the Tengiz field, now 270,000 bpd, is not 
     expected to rise to a peak of 700,000 bpd until the end of 
     the decade, said Tom Winterton, head of the Tengizchevroil 
     consortium exploiting the field.
       Thus, the pipe has plenty of room for oil from other 
     fields--and there lies one of the major disputes that have 
     delayed the opening.
       When Chevron took over Tengiz from its post-Soviet 
     managers, it created one consortium for the oil field and a 
     second one to build a pipeline to the Black Sea.
       For the first few years, Tengizchevroil, in which Chevron 
     owns 50 percent, diligently overcame such obstacles as the 
     extreme depth of the reservoir (2\1/2\ miles below the 
     surface), its high content of poisonous sulfur dioxide and 
     the high pressure at which the oil was flowing. Production 
     steadily climbed from 25,000 bpd and the jinx that gave 
     Tengiz the longest uncontrolled blowout in soviet history was 
     overcome.
       But in those years, the pipeline consortium got strictly 
     nowhere in its efforts to persuade Russia and its pipeline 
     monopoly Transneft to allow an outlet through Russia to the 
     Black Sea.
       It was not until 1996 that two newly created Russian oil 
     giants, Lukoil and Rosneft, bought into the consortium while 
     the Russian government took a 24 percent share. Then things 
     started moving.
       Construction took less than three years.

[[Page E2355]]

       Transneft Director Semyon Vainshtock tried to fight a rear-
     guard battle, insisting that what was bad for Transneft was 
     bad for Russia, but the pipeline consortium, headed by 
     Russian Sergei Gnatchenko and assisted by Chevron's Fred 
     Nelson, the consortium's deputy general director for 
     projects, argued that Russia stood to gain from the added 
     production in a non-zero-sum game.
       That was just the beginning.


                           Rocky road so far

       ``We had to go through five Russian local governments,'' 
     Mr. Nelson said recently. ``It wasn't always easy.''
       Twice, customs disputes halted the flow of the oil at the 
     Russia-Kazakhstan border.
       This year, the biggest dispute among CPC members turned 
     ugly and public when it derailed the opening ceremony that 
     had been scheduled for Aug. 6 with the Russian and Kazakh 
     presidents in attendance.
       Tengiz oil, until the pipeline was built, was exported 
     entirely through Russia and mostly by rail.
       Part of its highly prized light ``sweet'' crude (which 
     sells for up to a dollar a barrel more than Brent, the 
     benchmark crude oil) was mixed along the way with less 
     desirable Russian crudes to make ``Urals Blend,'' which 
     trades at nearly a dollar below Brent.
       ``The Russians got a free ride for years,'' said a diplomat 
     familiar with the situation.
       But for the pipeline, Chevron insisted on instituting what 
     is called a quality bank--a system penalizing those who would 
     add low-quality crude to the mostly Tengiz CPC Blend.
       Quality banks are used in most places in the world where 
     low- and high-quality crude oils are blended in pipelines, 
     but the Russian partners relented only three days before the 
     planned inauguration date, which was to coincide with the 
     loading of the first tanker. The ceremony already had been 
     canceled.
       Then, the port authority of Novorossiisk extended its 
     jurisdiction to the deserted piece of coast where holding 
     tanks are buried near the end of the pipeline. There is no 
     port: floating hoses are used to fill tankers moored 
     offshore.
       The move allowed the port authorities to demand a hefty 
     port tax. Negotiations caused further delays. Eventually, 
     said oil analyst Ivan Mazalov at Troika Dialog in Moscow, 
     ``They were bargained down quite a bit.''
       Other delays pushed back the date of the loading of the 
     first tanker to Oct 13.
       By the time all the difficulties were ironed out, five 
     fully loaded tankers had weighed anchor and sailed over the 
     Black Sea to the Bosphorus Strait, across the Sea of Marmara, 
     through the Dardanelles to the Mediterranean Sea, and on to 
     refineries in Europe.
       A sixth one was loading when the ceremony took place.


                          Chevron gambled, won

       While Russia and the United States ended up represented by 
     deputy ministers, Chevron-Texaco sent Chairman David O'Reilly 
     and the incoming and outgoing vice chairmen of the world's 
     fourth-largest oil company.
       That was not surprising: Both the pipeline and the giant 
     oil field it serves are Chevron's babies, multibillion-dollar 
     gambles that finally are paying off. As the foreign biggest 
     investment in the former Soviet Union, oil field and pipeline 
     are testimony that with perseverance, Westerners and Russians 
     can work together.
       ``CPC is a bellwether project for successful international 
     cooperation,'' Mr. O'Reilly reportedly said at the ceremony. 
     ``It demonstrates the confidence the international business 
     community has to invest in Russia and Kazakhstan.''
       But if Russia, Kazakhstan and world consumers can join 
     Chevron in rejoicing at the pipeline's completion, Turkey has 
     exhibited mostly concern.
       The extra tankers carrying Tengiz oil, which eventually 
     will number three a week, will further clog the Bosphorus 
     Strait that bisects Istanbul and increase the chances that 
     the city of 12 million people some day will have to cope with 
     a major oil spill or even a fire.
       But turkey is committed to upholding the 1936 Montreux 
     Agreement and, barring a catastrophe, Caspian oil will be 
     able to navigate the strait to reach European markets for the 
     foreseeable future, analysts say.

     

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