Date: Nov 17, 1998 [ 0: 0: 1]

Subject: DNI-NEWS Digest - 13 Nov 1998 to 16 Nov 1998

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Subject: DNI-NEWS Digest - 13 Nov 1998 to 16 Nov 1998
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There is one message totalling 105 lines in this issue.

Topics of the day:

1. Azeri Oil Consortium Row Led to Pipeline Delay

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Date: Sun, 15 Nov 1998 21:56:30 -0500
From: Rahim Bajoghli <rbajoghli@JUNO.COM>
Subject: Azeri Oil Consortium Row Led to Pipeline Delay

Azeri Oil Consortium Row Led to Pipeline Delay

BAKU, Nov. 09, 1998 -- (Reuters) Disagreements between
Azerbaijan and an $8 billion British Petroleum -led oil consortium are
responsible for the latest delay in deciding on a pipeline route for
Caspian crude, diplomats and industry officials here say.

Charles Pitman, chairman of Amoco Eurasia, one of 12 consortium members,
said on Thursday that a recommendation on the route to Azeri President
Haydar Aliyev by AIOC and Azeri state oil company SOCAR was unlikely
before December.

AIOC officials have said in the past that they were shooting for a
recommendation by the end of October. Increasingly they seem reluctant to
name any date at all.

"I really can't tell you when there will be a recommendation on the
pipeline. We have never put an exact date on this," said AIOC spokeswoman
Pamela Mounter.

"The negotiations are just very complex," she said.

The pipeline tug-of-war pits AIOC members, who must ultimately pay for
most of the pipeline, against the governments of the United States,
Turkey and Azerbaijan.

These three want a giant 1,800-kilometer (1,070-mile) pipeline from Baku,
through Georgia and on to Turkey's Mediterranean port at Ceyhan, mostly
for geopolitical and strategic reasons.

But the route would cost an estimated $4 billion and AIOC members,
worried by falling crude prices and the true volume of Caspian reserves,
are delicately lobbying Aliyev to settle for a shorter and cheaper line
to Georgia's Black Sea outlet at Supsa.

This option would allow for a spur to Ceyhan to be added later, when
commercially viable.

"In the end it comes down to money," said a diplomat in Baku. "The AIOC
is in a very delicate situation. It does not want to offend the
President. So it is trying to show that the Ceyhan option would cost too
much at present," he said.

Continuing low crude prices mean Azerbaijan stands to earn
significantly less from the "contract of the century," as it was labeled
when signed in 1994, than originally thought.

"Given low oil prices, the Azeri income from the contract is less than
had once been projected. Baku-Ceyhan's cost will eat up more of the
profits," said the diplomat.

Western oil company officials in Baku say the AIOC does not see why it
should have to pay for the higher cost associated with Baku-Ceyhan, which
it views as basically political.

The U.S. has tried to save the project by offering some financial help,
though the amount is likely to be modest in comparison with the total
cost.

The continuing insistence on Baku-Ceyhan by the U.S. seems to stem from a
desire to strengthen close NATO ally Ankara, suffering from the loss of
Iraqi crude exports pumped through its territory, as well as its
pro-Western regional friends, Azerbaijan and Georgia.

Azerbaijan would gain by closer links to its ethnic brethren in Turkey,
thereby lessening dependence on Russia, and neighbor Iran, with which it
has strained ties, to the south.

A buttressed Azeri-Turkish relationship might also lead to more active
support for Baku from Ankara in Azerbaijan's long conflict with Armenia
over the mountainous Karabakh region.

Aliyev has long tried to use the oil card to bring Western pressure to
bear on Armenia, so far without significant success.

Azerbaijan would also gain from exports of Kazakh and other Caspian oil
through a Baku-Ceyhan pipeline.

Turkey is against a pipeline to Supsa, arguing it would increase tanker
traffic through the Bosporus straits.

Industry officials say AIOC is in little hurry to start building a new
pipeline at all. It has years before its peak production of an estimated
700,000-800,000 barrels per day (bpd) will be reached in 2007-2010.

Two smaller pipelines, one to Supsa under renovation and to be completed
in 1999, and one already in operation to Russia's port of Novorossisk,
are adequate to handle near-term output.

Others say the slow pace also stems from the possibility that improved
ties between Iran and the West will later make shipments of oil through
it a cheaper alternative.


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End of DNI-NEWS Digest - 13 Nov 1998 to 16 Nov 1998
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