Explosion along the BTC Pipeline confirms civil society concerns
7 August 2008
A fire on the Turkish segment of the Baku-Tbilisi-Ceyhan (BTC) pipeline has led to declined oil production, pipeline closure, and security fears.
Botas, the state-owned operator of Baku-Tbilisi-Ceyhan (BTC) pipeline's Turkish segment, suspended oil flows through the BTC pipeline after a fire erupted at one of the pipe gate valves near Yurtbashi village and Refahiye town in the eastern Erzincan province of Turkey. The explosion, which took place during the night of August 5, has burned 12,000 barrels of crude oil and led to a fire reaching 50 metres in height.
After initially holding production steady, the Azerbaijan International Operating Company (AIOC), led by BP, reduced production at the Azeri-Chirag-Gunashli (ACG) fields as a precautionary measure. Oil is being exported through the Baku-Supsa and Baku-Novorossiysk pipelines and by rail to the Batumi port in Georgia. However, these alternative routes cannot absorb BTC’s regular capacity, and tanks are overflowing at the Sangachal oil terminal.
Estimates for reopening have ranged from one to five weeks. As a result, the BTC partners declared force majeure on exports, allowing the group to renege on contractual obligations. BP is set to be most affected by the closure. The pipeline transports approximately one percent of the world’s oil supply, pumping an average 850,000 barrels of Azerbaijani oil and condensates a day. A five week suspension would require 30 million barrels to be rerouted or stored.
Turkish officials initially claimed the explosion resulted from technical failure. Although the cause of the blast is under investigation, the Kurdistan Workers Party (PKK) appears to be behind it. The group’s militant arm, the People’s Defense Force, claimed responsibility on its website, and a Force leader threatened to sabotage BTC last year. The group has also claimed to be behind an attack in March on an Iranian-Turkish gas pipeline.
The BTC agreement stipulates damage unrelated to pipeline operations is the responsibility of the country, giving the Turkish government incentive to prefer a technical problem. However, if PKK reports are true, the pipeline stands in a precarious position. Approximately 1,076 km of the 1,768 km pipeline runs through Turkey, some of it along Kurdish territory. Another 249 km passes through Georgia, where conflicts with Abkhazia and South Ossetia have escalated in recent months. Just a day before the BTC explosion, Georgian separatists threatened to sabotage the pipeline if hostilities continued. Rising tensions between Georgia and its breakaway regions could easily spur attacks on Georgia’s segment of the pipeline as well.
Completed in 2005, BTC cost over $4 billion to construct. The International Finance Corporation (IFC) and the European Bank for Reconstruction and Development (EBRD) provided funding, despite civil society concerns. Pipeline construction had adverse effects on minorities, likely escalating existing grievances. The August explosion confirms initial civil society fears and highlights the controversy around BTC. The South Caucasus gas pipeline, which also received EBRD financing, runs through the same route and faces similar risks for sabotage as the BTC pipeline.
Sources
Light Oil Production in Azerbaijan Drops due to BTC Operation Break, by S. Aliyev, Trend News Agency (Azerbaijan), August 7, 2008 (Trend website)
Oil up after Kurdish rebels claim pipeline fire, Associated Press, August 7, 2008 (Yahoo News website)
Oil transportation via Baku-Tbilisi-Ceyhan pipeline halted and AIOC uses Baku-Supsa and Baku-Novorossiysk pipelines, Fineko/abc.az (Azerbaijan), August 7, 2008 (abc.az website)
Oil rises towards $121, supply concerns re-emerge, by Santosh Menon, Reuters, August 7, 2008 (Reuters website)
UPDATE 4-Turkish oil link burns, may take 1-2 weeks to open, by Orhan Coskun and Lada Yevgrashina, Reuters, August 7, 2008 (Reuters website)
12,000 Barrels of Crude Oil Burn in BTC Explosion, by S.Ilhamgizi, Trend News Agency (Azerbaijan), August 6, 2008 (Trend website)
Explosion on BTC Does Not Affect Oil Production in Azerbaijan, by S. Aliyev, Trend News Agency (Azerbaijan), August 6, 2008 (Trend website)
Separatists in Georgia promise to explode Baku-Tbilisi-Ceyhan pipeline if military actions against them are initiated, Fineko/abc.az (Azerbaijan), August 5, 2008 (abc.az website)
- Blast on Turkish part of oil pipeline due to system failure, BBC Monitoring European, August 6, 2008 (BBC Monitoring/Factiva)
- Fire on Baku-Tbilisi-Ceyhan oil pipeline extinguished, Turan Information Agency (Azerbaijan), August 6, 2008 (Turan/Factiva)
- Kurdish Rebel Grp PKK Claims Attack On Baku-Ceyhan Pipeline, by Benoit Faucon, Dow Jones News Service, August 7, 2008 (Dow Jones Newswires/Factiva)
- UPDATE 1-Turkey oil pipeline fire blazing after sabotage, by Daren Butler, AFX Asia, August 7, 2008 (AFX Asia/Factiva)
- Baku-Ceyhan Pipe Shut Dn Could Last 5 weeks-Botas Spokesman, by Benoit Faucon, Dow Jones International News, August 7, 2008 (Dow Jones Newswires/Factiva)
Resources
Baku-Tbilisi-Ceyhan (BTC) Pipeline Project (BIC website)
Lukoil Overseas – South Caucasus Pipeline (BIC website)