AZERBAIJAN - The Turkish Market & Transit Facilities - Oil Pipe Lifeline To India.

Socar is investing considerably in the Turkish oil and gas markets, where it is having refining and fuel marketing ventures. The majors in the BP-led AIOC are also investing in this market and using Turkey as a transit route for downstream investments in the EU (see the survey of Turkey in omt19TurkTradeMay5-08 and gmt19TurkPipelinesMay5-08).

During a visit to Delhi in February 2008, Turkish Foreign Minister Ali Babacan offered to facilitate the supply of crude oil to India from Azerbaijan and other parts of Central Asia via Israel through a combination of overland pipelines and VLCCs. Under the plan, crude oil transported through Turkey's extensive pipeline infrastructure from Central Asia to Ceyhan would be sent across the Mediterranean Sea by tanker to Israel's port of Ashkelon. There it would be fed into Israel's 254-km Ashkelon-Eilat pipeline. From Eilat port, again by tanker, the crude oil would be sent through the Gulf of Aqaba and the Red Sea via the Gulf of Aden and the Arabian Sea to India.

Babacan says the Turkish offer - conceived by the US and Israeli National Infrastructure Minister Benjamin Ben-Eliezer - holds out the promise of a well-established route by which energy-hungry India could access Central Asian reserves, in contrast to "less-practical alternatives". India imports about 70% of its oil needs, a dependence which may increase to over 91% by 2020. About 45% of present needs comes from the GCC states - Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE - according to Indian Planning Commission (IPC) figures; and if one includes oil imports from other parts of the Middle East, the region accounts for about 67% of India's oil imports.

Babacan has also offered a natural gas lifeline to India, through a complex system (see below). India, anxious to reduce this dependence on the Middle East for its fuel, given the political volatility of the region, is looking to Myanmar and Vietnam in its more immediate neighbourhood, Sudan and Nigeria in Africa, and Turkmenistan in Central Asia to secure oil and gas supplies.

India's success of those efforts has been mixed. It won significant stakes in Russia's Sakhalin-I oilfields, but lost out - often to China - in bids for assets in Nigeria, Kazakhstan, Myanmar and Canada over the past two years. No less easy have been India's efforts to clinch oil pipeline deals. A plan to bring gas from Myanmar, to the east, by pipeline through Bangladesh fell apart when Dhaka wanted India in return to agree to a free-trade corridor to Nepal and to remove existing trade barriers between India and Bangladesh. It also demanded what India saw as exorbitant transit fees. India now hopes to route a pipeline from Myanmar which bypasses Bangladesh, running through India's north-eastern states before reaching Kolkata.

If the pipeline project to India's east has been a non-starter, a plan for one to its west - the Iran-Pakistan-India (IPI) gas pipeline - is looking more tenuous. Strongly opposed by the US because of Washington's conflict with Tehran over the latter's nuclear and regional ambitions, the IPI pipeline also faces difficulties over Iran's pricing of the gas and transit fees demanded by Pakistan. The prospects of a $4 bn Turkmenistan-Afghanistan-Pakistan (TAP) project are slightly brighter, if only because it is backed by the US and international financial houses. India was invited to join the TAP in 2007. On the down side, Turkmenistan, whose total gas output is about 60 BCM/y, recently agreed to increase gas deliveries to Russia's Gazprom to about 50 BCM/y. That would leave little gas for transport through the TAP pipeline, making it an unviable proposition.

In this context, Turkey's offer to India has considerable potential - at least the pipelines which might bring Azeri oil and gas to India already exist, with the BTC and SCP in operation. The Ashkelon-Eilat pipeline, also known as the Trans-Israel pipeline or Tipline, has been functioning for several years. Built in 1968 to transport oil from Iran - then under the Shah - to Israel, Tipline was largely unused except to carry trans-shipments of Egyptian crude oil. It carried oil from the Red Sea to the Mediterranean. The direction of the flow was reversed a few years ago when Russia began transporting crude oil through Israel's overland pipeline. It was then picked up by tankers which sailed through the Gulf of Aqaba and the Red Sea to Asian markets. Using Tipline and the Gulf of Aqaba would let India's supplies skip the Suez route, with several advantages.

Israeli ports, supplied by VLCCs, accommodate larger vessels than those which can pass through the Suez Canal, and tariffs for Tipline are lower than those charged by Egypt for shipping through its waterway, itself a more congested route than the Gulf of Aqaba.

Costs could fall further if a proposed marine pipeline system connecting Ceyhan with Israel for oil and gas goes ahead. Babacan in Delhi said a feasibility report on the project was to be done. Making Ankara's offer even more attractive to India is that the proposed pipelines will not run through Pakistan and will not be at risk of being disrupted in the event of a souring of India-Pakistan relations. A supply deal with Turkey would extend India's links with that country and Israel.

The state-owned refiner Indian Oil Corp (IOC) has taken 12.5% in a pipeline from Turkey's Black Sea port of Samsun to the Ceyhan pipeline, and India's ties with Israel have already deepened dramatically over the past decade or so. Securing crude oil and gas for the pipelines is another matter. India's ambitions to win stakes in the oilfields of Central Asia have outpaced its achievements. OMEL, an Indian JV of state-run ONGC-Videsh Ltd, the overseas arm of Oil and Natural Gas Corp (ONGC) and Mittal Energy, has been looking for stakes in Kazakhstan, Turkmenistan and Azerbaijan. These are at different stages of progress and a finalisation of any deals remains elusive.