Sun, Mar 28, 2004 page10

• Kazakh oil giant favors pipeline through Russia rather than a US-backed facility

  ON THRESHOLD The giant Tengix oil field in western Kazakhstan is key to this country's hopes to become a major oil exporter and production is set to double soon

  • AP
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  The head of the company running Kazakhstan's giant Tengiz oil field said on Friday he hopes to rely on a pipeline through Russia as output nearly doubles in the next two years -- spurning advances to use a pipeline from the Caucasus to Turkey that has been heavily backed by the US.

  Alexander Cornelius, general director of Tengizchevroil, also cautioned in an interview with The Associated Press that the Kazakh government must realize the risks businessmen have taken by pouring billions of dollars into this former Soviet republic -- and that attempts to renegotiate past contracts to keep more oil profits at home could scare away future investors.

  "You're in a competitive landscape -- if you want to be a world oil power, you need to behave like a world oil power,'' Cornelius said is his standard refrain to Kazakh officials.

  Tengizchevroil -- 50 percent owned by ChevronTexaco, along with ExxonMobil, KazMunaiGas and LukArco -- halted a US$4.5 billion expansion project in late 2002 after a dispute with the government over funding.

  The resulting three-month interruption means the nearly doubling of production at Tengiz -- from 13 million tonnes a year to 25 million tonnes -- has been delayed by eight months to a year and won't happen before the third quarter of 2006, Cornelius said.

  The Tengiz field in desolate western Kazakhstan is key to this country's hopes to become a major oil exporter, and also the Caspian Sea's aspirations to be a major oil-producing region competing with the Middle East.

  Kazakhstan is the Caspian's richest country in energy wealth, and has attracted the most foreign investment from all corners of the world of all the former Soviet republics.

  Right now, 96 percent of Tengiz oil is shipped through the Caspian Pipeline Consortium, or CPC, Cornelius said, which runs to Russia's Black Sea port of Novorossisk. CPC operators are expanding capacity as Tengiz also seeks to increase output.

  "We're hopeful they can get it done in time to coincide with our production," Cornelius said from his office at Tengizchevroil headquarters in Atyrau, Kazakhstan's oil capital. "If not, we have contingency plans, but they're not quite as economic."

  The backers of a pipeline from Baku, Azerbaijan through Tbilisi, Georgia to the Turkish port of Ceyhan -- strongly supported by Washington so Central Asia's resources can avoid Russia -- have sought to woo Kazakh oil as hopes for finding oil in Azerbaijan's sector of the Caspian have fizzled.

  Cornelius said companies are exploring transporting oil by rail to a new terminal at the Kazakh port of Aktau to ship oil across the Caspian to Baku, and then through the Baku-Ceyhan pipeline. Still, he said, "all of that is early work, and will depend on CPC."

  Kazakhstan's oil hopes are also resting on the Kashagan field off the coast from Atyrau under the Caspian Sea bed that could dwarf Tengiz. Cornelius acknowledged that when Kashagan comes online, "even an expanded CPC won't be able to take it all."

  Other options are also enticing for Kazakhstan's energy. Energy-hungry China lies to the east -- and the Kazakh government has backed plans for a 3,200km pipeline from across the vast Kazakh steppes to western China. Cornelius said Tengizchevroil was viewing such plans "with interest."

  Much closer lies Iran, and Kazakh officials have also expressed interest in a pipeline through Turkmenistan to Iran as another alternative to Russian pipelines. However, current US trade restrictions on Iran mean the American companies involved in Tengiz can't do business there.

  If the political situation changes, however, Tengizchevroil would be interested in Iran as a market for its oil.

  "There's no doubt, if that were a possible political outlet then there's good business sense in having oil go that way," Cornelius said.
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