Kazakhstan, Azerbaijan sign deal to send crude via BTC

Kazakhstan, Azerbaijan sign deal to send crude via BTC

Moscow (Platts)--16Jun2006

Kazakhstan and Azerbaijan have signed an agreement to supply Kazakh crude
to western markets via the newly-built Baku-Tbilisi-Ceyhan pipeline, Kazakh
media reported Friday.

The document was signed during Azerbaijan's president Ilham Aliyev visit
to Kazakhstan and his Kazakh counterpart Nursultan Nazarbayev highlighted the
importance of the deal, which the two parties "had worked on for a very long
period of time."

"In addition to the Russian and Chinese routes, Kazakhstan now has a
third option for transporting oil," Nazarbayev was reported as saying by the
Interfax-Kazakhstan news agency after the signing ceremony.

"It is difficult to overestimate the significance of this agreement.
Namely, Kazakhstan and Azerbaijan are considered to be a main link for trade
between the Caucasus region and Central Asia," he said.

Nazarbayev said that Kazakhstan needed a new export route to support its
plans to raise crude output in the coming years.

The agreement provides for some 25 million mt/year (500,000 b/d) of
Kazakhstan's crude to be transported to Azerbaijan. During the first stage,
7.5 million mt/year (150,000 b/d) will be shipped from the port of Aktau
across the Caspian Sea to Baku in Azerbaijan.

The 1,774-kilometer BTC pipeline has the capacity to ship up to 1 million
b/d of oil from the BP-operated Azeri Chirag Guneshli project in the Caspian
Sea to western markets via the Turkish Mediterranean port of Ceyhan.

Current input into the line is running at around 150,000 b/d, and the
first Azerbaijani crude arrived at Turkey's Mediterranean terminal at Ceyhan
in late May.

EXPECTED TO CARRY KASHAGAN OIL

The pipeline has also been built in anticipation that it will eventually
carry substantial volumes of Kazakh crude, notably from the giant Kashagan
field in the Caspian Sea.

The first oil from the Eni-operated field is expected to come in 2008.
The output is expected to grow from initial 75,000 b/d to 450,000 b/d in 2010,
and to rise further to 1.2 million b/d by 2016.

The partners in Kashagan have long seen the BTC pipeline as one route to
get their oil to markets, and are planning to link the field with the port of
Kuryk on the Caspian Sea at a cost of around $3 billion to $4 billion,
France's Total said last week.

State-owned KazMunaiGaz, which represents Kazakhstan in the project, said
it was too premature to speak about the cost of the project. "Kashagan is
being developed under a production-sharing agreement and the government is yet
to approve the cost of the planned transportation project," a KazMunaiGaz
representative said.

The government is expected to consider the issue later this year, he
said, with a final investment decision possible in 2008.

The project includes building a 800-kilometer pipeline to ship some
500,000 b/d of crude from the Kashagan field to Kuryk, and to use a dedicated
fleet of shuttle tankers to ship it from there to the start of the BTC
pipeline in Azerbaijan.

Kazakhstan expects the oil terminal at Kuryk, some 76 kilometers to the
southeast of Aktau, to be constructed in 2010, the representative said.

The transportation system's capacity may be further expanded from 500,000
b/d up to 1.2 million b/d at a later date, he added.

Royal Dutch Shell, ExxonMobil, ConocoPhillips, France's Total, Japan's
Inpex and the government of Kazakhstan hold stakes in Kashagan, which has
estimated oil in place of some 38 billion barrels. Proven recoverable reserves
are conservatively estimated at 9 billion barrels.

--Nadia Rodova, nadia_rodova@platts.com

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