ALMATY, Kazakstan -- For years, Chevron Corp. was an emblem of how hard it is to turn the Caspian Sea region's potential as a global oil power into reality. Today, the company is a symbol of the inland sea's having turned a corner.
Next month, Chevron is to open the spigot on the Caspian's first major dedicated pipeline -- a 990-mile line from the company's single biggest oil field, Kazakstan's giant Tengiz field.
Meanwhile, on the opposite side of the sea, the San Francisco, Calif., company is a key to a shift in thinking about a much-maligned, U.S.-backed pipeline from the Azerbaijani capital of Baku to the Mediterranean port of Ceyhan. Chevron says it will join a group led by Britain's BP Amoco PLC that is studying the line, which BP predicts outright will be built.
"They've done it," says Laurent Ruseckas, an analyst for Boston-based Cambridge Energy Resources Associates, of the launching of the Tengiz line. "The whole story of Tengiz has been one of struggling, struggling."
That struggle, which for Chevron began 12 years ago, parallels that of the Caspian region as a whole. In 1988, Chevron began seriously examining the Caspian. A grueling undertaking followed, including several years when, although it signed a contract in 1993, Chevron was unsure it would ever ship large volumes of crude from Tengiz. The oil field is the world's sixth-largest, with a conservatively estimated nine billion barrels or so of recoverable reserves.
The main problem was chaotic, post-Soviet Russia. Competing Russian factions, trying to assert influence in Moscow's former colonial south, choked off the flow of oil and natural gas from the entire Caspian region, including Azerbaijan, Kazakstan and Turkmenistan. In Kazakstan, Chevron also confronted the obstacle of a world-class oil trader, a Dutchman named John Deuss, who had negotiated his way into contractual control over the pipeline route from Tengiz to the Black Sea.
In 1995, a Chevron executive named Ed Chow received a call from a boss with an assignment. He was to be part of an unusual three-man mission: to save Tengiz by overcoming these obstacles. Mr. Chow, now retired and working as a consultant, says the phone call itself was his darkest moment of recent years.
"I thought it was a suicide mission," says Mr. Chow. "The chances of success were so low. I put them at 15%."
In 1996, however, Mr. Deuss was pushed out of the deal. By 1998, a shift occurred in Russia, too, and work on the $2.4 billion pipeline accelerated.
After that spigot is turned next month, it will take until summer until the oil actually reaches the Black Sea port of Novorossisk and is loaded onto the first tanker. The line will have an initial capacity to ship about 550,000 barrels of oil a day, and eventually some 1.5 million barrels a day. Tengiz production is to be ramped up to about 230,000 barrels a day this year. Chevron owns 50% of the field, Exxon Mobil Corp. has 25%, Kazakstan 20% and Russia's biggest oil company, OAO Lukoil, 5%.
There are 12 partners in the pipeline consortium itself. Chevron is the largest private shareholder, with 15%. Russia has 24%, Kazakstan 19% and LukArco, a joint venture of Lukoil and BP, 12.5%. Among the others are Rosneft/Shell Caspian Ventures, a joint venture of Royal Dutch/Shell Group and Russia's Rosneft, which holds 7.5%, Exxon Mobil with 7.5% and the Oman government with 7%.
In a way, although it is only in the planning stages, the proposed Baku pipeline has been a more arduous project than the Tengiz line. The idea for the line came from some of the companies that arrived in Baku in 1990, but many analysts today grumble that the estimated $2.7 billion pipeline is a boondoggle devised in Washington, since the U.S. has since become its strongest advocate.
Until about 18 months ago, BP was one of the most vigorous industry critics of the Baku-Ceyhan pipeline. Instead, executives of BP and other companies talked up the construction of a line through Iran. The criticism of Baku-Ceyhan coincided with the digging of dry holes by some oil companies offshore of Baku. Abruptly a region that had been pushed as an alternative to the Persian Gulf was dismissed as a product of propaganda.
Last year, partly due to the region's complex geopolitics, some of the companies began slowly turning around. The three transit countries -- Azerbaijan, Georgia and Turkey -- signed legal frameworks for the line, and BP Amoco became one of eight companies that agreed to pay $26 million for a first engineering study. When Chevron announced this month that it would participate in the study, it became a critical part of an apparent reversal in the proposal's fortunes.
Chevron will buy a share, not yet determined, from the Azerbaijan state oil company, which owns 50% of the Baku-Ceyhan consortium. BP Amoco is the largest private shareholder, with 25.41%, Unocal Corp. has 7.48%, Norway's Statoil 6.37% and Turkish Petroleum 5.02%.
One of Chevron's motivations is a promising offshore Azerbaijani oil field called Absheron, in which it holds a 30% interest. (Azerbaijan's state oil company has 50%, and France's TotalFinaElf SA has 20%.) The company has already begun drilling, and if there is a commercial volume of oil, as it believes, "we've got to have some way of getting the crude out of the south Caspian," says Guy Hollingsworth, who directs Chevron's operations in the former Soviet Union.
If the results of the engineering study are positive, the group is to carry out a more detailed, $100 million examination of the line, then a 32-month period of land acquisition and construction. For months, BP Amoco has released increasingly positive statements until, asked in an interview last week whether the pipeline would be built, spokesman Ian Stewart said flatly: "Yes." He estimates that oil will begin flowing in 2005.
Some companies still hope President George W. Bush will lift sanctions on Iran this summer, theoretically allowing a pipeline from the Caspian to be built there, but Mr. Stewart says the companies must contend with the political wishes of the Caspian nations.
"If Azerbaijan wants it to go through Turkey, let's make it happen," he says. "There's a commercial head of steam [behind Baku-Ceyhan]. There's an inevitability surrounding it."
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