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Caspian Pipeline Opens Market, Questions

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Caspian Pipeline Opens Market, Questions

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Caspian Pipeline Opens Market, Questions

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NEAL CONAN, host:

This is TALK OF THE NATION. I'm Neal Conan in Washington.

And here are the headlines from some of the stories we're following here today at NPR News. The Republican chairman of the House Armed Services Committee has given up on an effort to limit the role of women in combat. His proposal met with sharp resistance from the Pentagon and from many in Congress.

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Tomorrow on TALK OF THE NATION, Palestinian leader Mahmoud Abbas and Israeli Prime Minister Ariel Sharon face deep challenges on the road to peace, both from each other and from their own peoples. With Abbas in Washington to ask President Bush for aid, we look at the US role in expanding this window of opportunity in the Middle East. That's tomorrow on TALK OF THE NATION.

Right now if champagne is called for whenever you christen a ship, what do you break over a new oil pipeline? Whatever beverage one might pick, the opening of the new trans-Caspian pipeline today was certainly a cause for celebration in the countries along its route, and an interesting group of countries it is. Joining us now to talk about the political and economic issues surrounding this new pipeline is Frank Verrastro, the director of the Energy Program at The Center for Strategic and International Studies here in Washington, DC.

Thanks very much for being with us.

Mr. FRANK VERRASTRO (Energy Program Director, The Center for Strategic and International Studies): Sure. Thank you, Neal.

CONAN: The route of this pipeline is part of what makes it so interesting. What can you tell us about it?

Mr. VERRASTRO: Well, the route actually covers a thousand miles. It goes from Baku in Azerbaijan, across Georgia up to Tbilisi, and then down through Turkey and exits at the port of Ceyhan on the Mediterranean coast.

CONAN: So tankers would pick up crude oil from the end of the pipeline in Turkey.

Mr. VERRASTRO: Exactly.

CONAN: Now prominently not on that list is Russia.

Mr. VERRASTRO: And that's one of the, I think, big successes of the Baku-Ceyhan pipeline. It brings a relatively new and maybe substantial producing region and gives it access to Western markets, but the pipeline isn't through the Persian Gulf or through Russia.

CONAN: Now at one point, many people believe that this Caspian region around Azerbaijan, Baku, was going to be a major source of new oil for the world. How is that panning out so far?

Mr. VERRASTRO: It's--there's been about--oh, God--12 years of experience in drilling. Part of the problem was lack of infrastructure. But you're right. You know, in the early days, I think with the dissolution of the Soviet Union, the Western oil companies in particular flocked to the Caspian, and the estimates were up to 200 billion barrels of recoverable reserves. The experience has been somewhat less, but it's kind of a mixed bag. I would say there's been, you know, certainly some uncommercial finds, but there's been some successes, too. The ACG project, which is what--the oil that's coming going through the Baku-Ceyhan pipeline now is coming out of ACG, Kashagan and Kazakhstan, the Shakh-Deniz gas project. So there's been a couple of big successes, but it's been a mixed result.

CONAN: And would those fields funnel their oil to Baku and then on the pipeline?

Mr. VERRASTRO: Well, the ACG project clearly is going through Baku-Ceyhan. And I believe since the pipeline's undersubscribed, there's discussions with the Kazakhs to move some of the Kashagan oil through Baku-Ceyhan, as well.

CONAN: But instead of something that might rival OPEC, you're looking at something that might rival, oh, a major member of OPEC, Iran, say.

Mr. VERRASTRO: Yeah, exactly. In terms of total production by 2012 or 2015, it'll be about four million barrels a day. So it's not insignificant, exactly.

CONAN: And this is not OPEC oil.

Mr. VERRASTRO: No. No. Although I guess it always leaves the option open for producer countries to join OPEC down the road.

CONAN: You mentioned how long these projects have been in development--I guess basically since the fall of the Soviet Union. And I guess in the interest of full disclosure, we should say that you worked with Pennzoil very early in the development of this pipeline. One of the major concerns, though, has to be stability, both geologic stability and political stability.

Mr. VERRASTRO: No, that's absolutely true. I mean, if you look at the Caspian today, I would argue that it's probably a more sensitive time than it was even when we went in in the early 1990s. You've got a new transition of leadership, you've got a number of different political conflicts going on in the region, in Georgia and Chechnya, in Armenia on the border of Azerbaijan. Then you've got the situation with Iraq just to the south. So, yeah, it's a tough neighborhood, to be sure.

CONAN: The countries involved all would collect transit fees for the oil. I guess this would be very good news for Azerbaijan and Georgia in particular.

Mr. VERRASTRO: Yes. Well, Georgia would prosper both as a transit country and probably gain some energy supply as a result. Turkey's in the same boat. Azerbaijan has a dual role. They're also a participant in the project as well as a shipper. So...

CONAN: Mm-hmm. Now the United States has been heavily involved in the development of this project, no?

Mr. VERRASTRO: Absolutely.

CONAN: And for the particular reason that this was--well, I guess, a way to get out of that Russian nexus.

Mr. VERRASTRO: Yeah. If you look at the Caspian, it's landlocked. So when the oil and gas were discovered in the Caspian, the real issue was: How do you get it to hard-currency markets? And of the choices--if you went north, you were going through Russia; the China market wasn't developed yet if you could go back, you know, 10 or 15 years; couldn't go south because of Iran's sanctions or southeast because of turmoil in Afghanistan and Pakistan. So really, you are kind of left with either going through Russia on a changed route or looking west to go through Georgia and Turkey.

CONAN: Hmm. Now Russia has not necessarily been very happy with US involvement in certain situations in Ukraine and various other former Soviet republics. How is Russia responding to this more economic threat?

Mr. VERRASTRO: I think they are concerned about the US presence in the region. I mean, I don't think there's any question about that. And the same for Iran. You know, the Iranians--the Azeris, when this project first got off the ground, wanted to introduce an Iranian company into the consortium, and the US government objected to that, said that no US companies could participate if Iran was a member. So the Iranians were left out of ACG, and they got a piece of the next project, the Shakh-Deniz project.

CONAN: So when it comes down to it, what do you think this project is going to amount to?

Mr. VERRASTRO: In terms of global supply, I mean, it's clear that it would be helping on the margin. I mean, four million barrels a day of new production from a non-Middle East source has to be good news for global markets. But you're right. I mean, it's not another Saudi Arabia, it's not another Middle East. What we've learned about the Caspian is that it's hydrocarbon-rich, but there's large gas-prone areas. And that, at the end of the day, may be a bigger contributor than the oil. Infrastructure is still a limiting factor, but the big issue is managing the geopolitics.

CONAN: Frank Verrastro, thanks very much for being with us today.

Mr. VERRASTRO: Absolutely. Thank you, Neal.

CONAN: Frank Verrastro is director of the Energy Program at The Center for Strategic and International Studies, and joined us from his offices in Washington, DC.

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