AZERBAIJAN - June 20 - BP Backs Baku-Ceyhan Oil P/L Project.

Visiting Istanbul, BP's CEO Sir John Browne says the Baku-Ceyhan crude oil pipeline will be built and operating by the end of 2004. He says a detailed engineering study begun last month is not a further evaluation of the pipeline's economic viability, but a determination of which line could be built within the project's budget, which he says is about $3 bn. He adds: "You know where you've got to aim on price, and now we are thinking about what can be built for this amount. We are proceeding with this project. It's commercial. It's environmentally sound". (The much-debated pipeline was backed by the Clinton administration and adopted by the Bush administration as a way to diversify the transportation routes for the vast amounts of oil that have been discovered in the Caspian Sea region, and to avoid having to transport all of it through Russia or Iran. But sceptics have said the route is too expensive and can never be built. In May BP and seven other oil companies involved in the project approved spending $150m on a detailed study of the pipeline route and its engineering requirements. The study is expected to take about a year, with construction starting in mid-2002). Sir John says oilfields being developed around Baku contain 5 bn barrels of high-quality crude oil, enough to make economic sense of the pipeline, which will pass through Georgia on its way to Turkey.

(Talks are under way to use the line to carry oil shipped down the Caspian Sea from the Tengiz and Kashagan fields in Kazakhstan, although that remains an uncertain prospect. Initial estimates put the cost of the Baku-Ceyhan line at $2.4 bn, but Sir John confirms the design study completed last month came up with a price tag of about $3 bn. The project remains economically viable at the higher figure, he says. Other oil companies are expected to join the pipeline consortium soon. BP has discovered a huge amount of natural gas in the Shah Deniz field, and it plans to build a gas pipeline that will parallel the oil line for most of its route to bring that gas to market in Turkey. BP and Turkish government officials have also pushed the Baku-Ceyhan pipeline as an alternative to increasing the amount of oil-tanker traffic passing through the Bosporus, the 18-mile strait that divides Istanbul, a city of 12m people. Turkish maritime officials and environmental organisations are concerned the crowded waterway will become more dangerous later this year, when more tankers are expected to come down from the Black Sea carrying oil originating in the Tengiz fields in Kazakhstan. Sir John and other BP executives on June 20 took a cruise on the Bosporus, taking along representatives of several environmental organisations to highlight what the chief executive said was the company's commitment to be as environmentally friendly as possible.

The Shah Deniz gas field in Azerbaijan promises to be almost as important as the oil reserves in the development of Caspian-basin energy. Worldwide demand for gas is growing rapidly, especially as a relatively clean fuel for generating electricity. A study by Cambridge Energy Research Associates predicted that demand for LNG would triple in the next 20 years. The report, released as part of an international energy conference sponsored by the American research company, said the LNG market would expand because prices were falling and environmental concerns were making gas more attractive. Most gas is delivered through pipelines but LNG generally is transported on special tankers, offering greater flexibility to shift supplies among markets, the report said. Turkey, which imports about 98% of its energy, could become an important transit point for gas if supplies from a nearly completed Russian pipeline, the planned BP pipeline and other projects resulted in a gas surplus in the country).