Getting oil to the world market is vital to economic aspirations. But landlocked, and surrounded by mountains and politically unstable countries, this is easier said than done.
Azerbaijan originally meant 'land of fire'. Today 'land of pipes' would be more appropriate. Pipes are everywhere. And the country's future depends on the construction of another pipeline.
Azerbaijan has yet to reap the full benefits of its oil resources because it has no effective and economic export network. The refurbished Soviet pipeline that started carrying Azeri oil to the Russian Black Sea port of Novorossiysk in March can carry only 100,000 barrels a day - 5M tonnes a year.
The Azerbaijan International Operating Company, which is owned by a consortium of 11 western oil companies including BP, Amoco and Exxon, is developing a new pipeline to the Georgian port of Supsa. This pipeline is the country's biggest current civil engineering project. The contract, which started at the end of 1996, includes 850km of 500mm diameter pipeline and five pumping stations. It is due to finish in March 1999, but the pipeline has been beset with difficulties and initial costs of pounds120M have spiralled to around pounds350M.
AIOC vice president Stephen Back says that on the basis of a survey of the pipeline, it was decided that refurbishment was cheaper than replacement. But the condition of the pipeline turned out to be much worse than the survey showed.
'We took the decision in November 1997 that it would be cheaper to replace the route,' says Back, who adds that the extra cost will be borne by AIOC's shareholders. The problems serve to highlight the difficulties involved in refurbishing ageing Soviet-built facilities.
'Our contract was to provide the AIOC with some construction management for the upgrading of the western route,' says Kvaerner's Azerbaijan engineering manager John Kates. 'We expected to add some new lengths and refurbish and clean up the old pipeline. But when we tested the pipe it was in worse condition than expected. It is now essentially a completely new pipeline.'
When the route comes on line in December it will be able to carry 10Mt of crude oil a year. But even with two routes on stream, pipeline capacity will be unable to cope with the expected oil production volumes. To handle these, a new, high capacity main export pipeline is being planned.
A route has yet to be agreed. Like everything in the highly politicised world of oil, nothing is simple. The existing pipeline to the Black Sea goes via the highly unstable Chechenya region of Russia. The most likely route through Georgia and Turkey to the Mediterranean port of Ceyhan will be hugely expensive because of the distance and mountainous terrain.
Turkish environmentalists are also against expansion of the two existing routes. They say the increased volume of tanker traffic through the busy Bosporus Straits increases the risk of an environmentally catastrophic oil spill.
The most practical route is south through Iran, but the Iranian government's poor relationship with the
US has virtually ruled the route out for the time being.
'A decision on a route will be made in October,' says Back. Then the AIOC will make detailed financial and engineering preparations. 'We expect to sanction it in 1999,' says Back. 'It will take a further three years to construct and will be on stream in 2003.
Capacity will be between 500,000 and 1M barrels a day.'