Q. Mr. Rich, we interviewed you two years ago on the issues related to the oil pipeline for the AIOC consortium and since then things have changed a lot. So, can you please update us on the developments during this period and what is new now?
A. Two years ago we were just embarking on the process to identify and secure the safest route for the Early Oil project from the Azeri,Chirag and deep-water Gunashli (A-C-G) oil fields, which are to be developed under the contract ratified in December 1994 by the Azerbaijan Parliament.
Since that time we have effectively negotiated two routes for the Early Oil project. One is northerly through the Russian Federation to Novorossiysk which requires reversing of the flow of the existing pipeline. AIOC is operator of this pipeline up to the Russian border and JSC Transneft of Russia has responsibility for the transportation of the oil through the Russian territory to Novorossiysk.
This pipeline is operational as of today and Azeri oil is sitting at the border of the Russian Federation waiting to be transferred to the Transneft system. Once Transneft solves some operational issues and various matters are resolved between the Russian Federation and Chechnya following the January 27th elections in Chechnya, we expect that oil will start flowing through this system in the next three-four months. This oil will be SOCAR’s oil. This will be followed by the AIOC volumes starting in late 1997. AIOC expects to begin to produce its own oil in late August and it will take four months to fill the pipeline from the offshore platform to the terminal to the Russian Federation border.
The second route we negotiated is the western pipeline, stretching from Baku to a new port which will be built at Supsa, Georgia on the Black Sea. This project is estimated to cost about $315 million and contracts for the construction of this pipeline will be awarded by late March. Construction and refurbishing of this pipeline will start immediately and it will become operational in the fourth quarter of 1998. At that point, we will have two pipelines for export of oil from Baku
Q. What about the main export pipeline for oil?
A. We believe the pipeline needs to be a shipper-led effort by shippers who can make a financial commitment to the pipeline. This will ensure its financial viability for the benefit of all parties. While oil from the A-C-G fields will be transported in the main export pipeline, the pipeline is anticipated to also serve the needs of the other production sharing contracts which have been signed in Azerbaijan as well as other regional shippers.
Under the terms of the production sharing contract, AIOC has the obligation to study the options and issues for the route of the main export pipeline from Baku to international markets. Upon completion of the study of these options, we will make our recommendations by mid-1997 to the Steering Committee which is made up of the AIOC shareholders and representatives of the Government of Azerbaijan. The recommendations will include the route options to pursue and the workplan to advance the work. Shortly thereafter, we anticipate to begin negotiations on the various routes with the affected governments of the region to establish the final commercial and technical framework for the pipeline.
Q. What routes are being considered?
A. There are three primary routes which have been identified for the main export pipeline. One is basically parallel to the northern Early Oil route to Novorossiysk while the second parallels the western Early Oil route to Supsa. The third proceeds from Azerbaijan through Georgia to the Turkish port of Ceyhan. Since transit of future crude oil volumes through the Bosphorous Straits continues to be an issue for discussion and concern among many groups, AIOC is also evaluating various bypasses of the Bosphorous Straits for the two options which terminate on the Black Sea.
Q. Can you elaborate on the issue of the Bosphorous bypass and how it may be built?
A. There are a variety of options being proposed by different organizations and companies. There are two well-known alternatives. The first is the Burgas-Alexandropolis bypass which is being sponsored by the governments of Bulgaria and Greece and Gazprom of Russia. The second bypass is in the same area and traverses the route between Burgas, Bulgaria and Vlore, Albania. These are technically feasible alternatives, so it is just a question of determining their commercial feasibility.
Q. Are you optimistic that the A-C-G oil will flow this year?
A. Yes, we are very confident. Everything is on schedule, construction is on a very fast track by world standards and all materials are available. We have a goal to start production at the end of August and as everyday goes by without problems we are one day closer to our target. So yes, we are very optimistic.
Q. We wish you good luck!
A. Thank you!