AZERBAIJAN - Moscow Attack.

A day after the Feb. 3 ceremony, however, Moscow attacked the BTC pipeline, once again saying the project was not economically viable. But fears in Baku and in Western capitals that Russia could eventually undermine the project were subsequently dismissed by US experts.

Russia's special Caspian envoy, Deputy Foreign Minister Viktor Kalyuzhny, told reporters in Moscow that the BTC project was "excessively politicised" and economically "problematic". (Moscow opposes this project because it will bypass Russia, thus denying it transit tariffs).

Kalyuzhny raised the specter of Kazakhstan - whose crude oil the BTC project expects to carry - not using the new pipeline. He warned that the BTC project would be in serious difficulty without Kazakh crude.

Russia has built its own, alternative transit route - a 1,500 km-long pipeline from Kazakhstan's oilfields to the Russian Black Sea port of Novorossiisk. The alternative pipeline, the Caspian Pipeline Consortium (CPC), crosses Russian territory, and Moscow earns transit fees.

Indeed, if Russia can persuade Kazakhstan not to use the BTC line, the project could be in trouble. The BTC's 1m b/d capacity was designed largely on the premise that Kazakh oil would be part of the flow stream.

Back in 1999, Kazakh President Nursultan Nazarbayev signed a protocol pledging that his country would use the BTC pipeline, although he said subsequently the protocol merely signified intention, since new oil deposits in Kazakhstan had not yet been confirmed.

In 2000, the giant Kashagan axis of oilfields was discovered off Kazakhstan's Caspian Sea coast. In March 2001 Nazarbayev, reportedly under acting on US urging, confirmed Kazakhstan's intention to join the BTC venture. But since then Kazakh officials have spoken about their country possibly using multiple routes, perhaps including a southward passage to the Persian Gulf, via Turkmenistan and Iran.

As the tussle for oil revenues and influence in the strategic region drags on, Russia continues to press Kazakhstan to sign a long-term agreement to transport its oil through Russian territory, along the CPC pipeline.

Agip, operator of Kashagan, joined the BTC venture in 2001. Total joined the venture in early June 2002. Both got their 5% equity from Socar. Both had in mind the prospect of getting Kashagan oil exports to be routed through the BTC pipeline.

The same was the expectation of ConocoPhillips, another shareholder in Kashagan, with in October 2002 bought a 2.5% stake in the BTC venture from BP. It was speculated that Inpex of Japan, which in 2003 bought LUKoil's 10% equity in AIOC (see Part 2) and which also was a shareholder in Kashagan, intended to buy 2.5% into the BTC venture. (LUKoil declined to join the BTC venture when it was still a 10% partner in AIOC, in view of Moscow's opposition to the pipeline project).

BTC Pipeline Co. will also act as a "shipper" of crude oil for those AIOC partners that have not joined this venture - ExxonMobil and Pennzoil. Negotiations with the companies are expected.

Agip and its partners have confirmed that Kashagan contained at least 1.7 bn barrels of recoverable oil reserves. With US backing, the international consortium for Kashagan are investing heavily in development of this structure. Soon after the BTC pipeline's start up, the Agip-operated Kashagan will begin oil production at the proposed initial rate of 100,000 b/d. Within a few years later the output would exceed 400,000 b/d. Eventually this field could produce over 1.5m b/d.

The BTC pipeline will have the spare capacity to carry 400,000 b/d of the Kashagan output. The Kashagan consortium and the Kazakh government are yet to decide whether they would have a marine pipeline built to link up with the BTC system or, as another alternative to what Russia is proposing, would have a fleet of tug-pushed, double-hulled barges to ply across the Caspian to Baku as Amoco Eurasia once suggested.