Talk to Abdolbari Goozal about transporting oil out of the Caspian region. You will not find the happiest of men. Head of family-owned Middle East Petrol Farm (MEPF), and with routes emanating from Turkey throughout the Persian region, the family has a wealth of local knowledge. Back in 2000, Goozal made the family's first foray into the hydrocarbon field with the acquisition of the Port of Dubendi in Azerbaijan on the Caspian Sea. "Once I purchased the port, I invested approximately $30 million in upgrading and expanding the capability of the facilities in line with the standards demanded by the likes of BP and ChevronTexaco," explains Goozal. "[However,] although the current capacity at Dubendi is 10 million tons per annum, I have problems with regards to the transportation link between Dubendi and the Black Sea coast, at Batumi. "Not only are the roads in a bad state, but much of the road in Georgia is single-lane making congestion a problem. This is further exacerbated by the fact that the rail network is in need of renovation. Dubendi is therefore only at 35% capacity at this in time." Goozal's predicament is a clear example of the sort of challenges that producers face once they have extracted their crude in such an isolated part of the world. The Caspian region may contain some of the world's most exciting reserves, but getting the product to market is a major concern to all involved. Conversely, it must also be pointed out that as difficult as it is to get oil out of an inland sea, it is even more of a challenge moving the giant rigs and other support equipment into the region. Especially when you consider the water routes into the area are closed for approximately six months a year due to ice. The transportation of oil and gas has and will continue to be a major point of discussion in the region and will be a major target for investment for the foreseeable future. In Goozal's case, having invested in the port facilities, he is now looking for somebody else to take on the role of improving the transportation link. MEPF is not alone in its desire to improve the link between the two coasts; privately owned Azerpetrol is in a similar situation. Together both operations have a combined annual capacity of 20 million tons, however, due to the above-mentioned problems and the limited capacity at the Black Sea ports of Poti and Batumi, they can only realize 12 million tons per annum. Today, there are four other major transport routes for exporting oil and gas to Western markets. The largest and longest of routes is the Caspian Pipeline Consortium (CPC) pipeline from Tengiz Field in Kazakhstan through to the Black Sea port of Novorossiysk. Utilizing a mix of Soviet-era pipes and green-field lines, this route was opened in 1999 by CPC whose shareholders include the major foreign companies in Kazakhstan. Capacity has grown from just shy of 1.2 million tons in 2001 to an estimated 17 million tons this year. The eventual aim is that this figure will rise to well over 40 million tons by 2015, a sum that will represent 35% of Kazakhstan's envisaged exports for the year. Kazakhstan's only other alternative export route of note is Kaztransoil's pipeline from Atyrau up to Samara which then connects into the Russian network. Askar Smankulov, general director of the government-owned Kaztransoil, says of his plans for the Samara route, "We envisage increasing the capacity of the Samara route to between 25- and 30 million tons per annum. Completion is intended for 2007 at a cost of $200 million. This investment in an export line will be second only to our intended Chinese export route which will cost between $750- and $800 million." The challenge for Kaztransoil is immense, not only is the company managing a network of 6,400 kilometers of pipelines, but it has also had to upgrade an infrastructure that is more than 20 years old. Although, the system has been stabilized, the company is making total investments in excess of $1.5 billion during the next few years to not only increase capacity, but also, and more importantly, increase the connectivity to oil-hungry China. However, even with these investments, they will not come close to being able to handle the kinds of tonnage that the country is hoping to extract and export by 2015. The third major route for Caspian oil is again up through to Novorossiysk. It is Azerbaijan's so called Northern Export Route. Again, using a mix of Soviet-era pipelines and newly laid infrastructure, the route has a capacity of 100,000 barrels per day, although it has had it share of problems in the past due to disagreements over transit fees and the conflict in Chechnya, which forced Russian company Transneft to circumvent the area with a new bypass pipeline. The majority of Azeri oil, however, is transported through the Baku-to-Supsa pipeline, which links the coasts of the Caspian and Black seas. With operations starting in 1999, the pipeline currently handles approximately 145,000 barrels per day, although plans to increase capacity substantially have been shelved by the operator AIOC, in favor of another option. Optimists will see this as all being an incredible opportunity to provide extra capacity to one of the world's most burgeoning oil-producing regions. As the world looks to secure ever more diverse and freely available oil, the Caspian region is working hard to ensure that its oil is effectively and efficiently transported to market. One hurdle, however, which no amount of extra capacity can overcome is the width of the Bosphorus Straits in Turkey. Although technically an international waterway, Turkey is responsible for managing the safe flow of traffic through the straits and does so effectively with nearly 10% of the world's sea cargo flowing through this route. However, there is a limit to the amount of tanker traffic the Turks are willing to stomach. Previous accidents have made the authorities increasingly wary about allowing increasing tonnage to pass through. Today, with approximately 2 million barrels per day passing through the straits, locals are not keen to see this figure increase much further. Aside from the Samara route through Russia, there is no other practical means of transporting large quantities of Caspian crude to Western markets without relying on the Bosphorus. This is something that has not been lost on the Azeris and for years alternative plans have been tossed about and dropped for one reason or another. Finally, the long-mooted Baku-Tblisi-Ceyhan (BTC) pipeline was given the go-ahead in 2002. Heavily backed by the U.S., the route was not initially favored by the majors, which saw more economic alternatives. As Michael Barnes, resident manager and president of Unocal (the largest American shareholder of AIOC), puts it, "The shareholders were not favorable towards the BTC option, however it was the Turkish government's commitment to guarantee to cover a certain percentage of any cost overruns. This element completely altered our perception of the deal." BP led the charge. "It was really BP's decision that was the catalyst that won the rest of us over." Given the commitment of the governments involved and the environmental benefits gained, the BTC option was certainly the best on offer. According to figures provided by the BTC operator, BP, the pipeline, which will measure 1,765 kilometers (1,100 miles), should come online at the end of 2004, with the first oil flowing in January 2005. The projected total cost will be $2.95 billion, which is significantly higher than the original forecast of $2.4 billion. Once operational, the pipeline will transport 1 million barrels per day, which, according to BP, represents 365 tankers per annum. These tankers will not have to pass through the Bosphorus straits, a factor that put the Turkish government firmly behind the project from the start. The pipeline has a number of important consequences that all interested parties are keen to promote. From a financial aspect, the initial investment has been made by international institutions such as the World Bank, the International Finance Corp. and the European Bank for Reconstruction and Development (EBRD). EBRD's man on the ground, Thomas Moser, sees their involvement in such hydrocarbon projects as a way to ensure best practices are employed. "The oil companies are better able to ensure best technical practices, however, I see our role as also ensuring best environmental and social practices are employed." A number of people involved in the BTC project suggest one will not find a pipeline anywhere in the world that is being laid with higher regard for the environment. Laying the pipe two meters below ground has added a significant cost to the project. Although the economic argument behind the BTC is to transport oil primarily from the Azeri-Chirag-Gunesli Field, the pipeline is also seen as an important export route for other producers. A case in point: Goozal sees the potential of overcoming his transportation problems by linking his Dubendi port to the pipeline, a distance of no more than 10 kilometers. Furthermore, during this past summer, the Kazakh government has been blowing hot and cold as to whether they wish to take a stake in the BTC. Certainly, the consortium would wish for the participation of such an important potential client, however, the last indication is that the Kazakhs will come back to the table this fall. While much of the attention has been focused on the BTC pipeline, there is another significantly important line being laid in parallel. The South Caucasus Pipeline (SCP) will transport gas from the Shah-Deniz Field to the Turkish border and then eventually on to Erzurum in the east of the country. Turkey is seen as a major export market for Azeri gas and such a pipeline, which will start operating towards the end of 2006, will enable Shah-Deniz gas to compete more effectively with Russian gas which will be carried to Turkey through the Blue Stream pipeline. In many ways the Caspian Sea is one of the most challenging environments to operate in. Now that major projects such as the construction of the BTC, the expansion of the CPC and the new link to China are under way, in question is the infrastructure within the region. While nobody doubts that the Kazakhs will use the BTC export route, the debate surrounds whether Kazakh oil should be transported by tanker or pipeline to the terminal at Sangachal. Previous examples show the region is capable of addressing such issues.