### CPC: Tengiz-Novorossiysk

TengizChevroil is currently shipping crude to Novorossiysk through the Russian pipeline system, but the construction of a dedicated pipeline would avoid blending with lower-quality Russian oil and dealing with Transneft over quotas. The route from Tengiz to Novorossiysk was chosen to secure Russian support for the project, known as the Caspian Pipeline Consortium (CPC). The CPC has undergone two iterations and numerous cost overruns, leaving the project well behind schedule and over budget . The first stage of the CPC is to construct a 560,000-b/d, 930-mile line for completion in September 2001 (pushed back from 2000), with a cost of approximately US $700 million. Delays over rights-of-way with various Russian political units and environment issues have hindered construction. A second stage would increase capacity to 1.3 million b/d by 2010 at an estimated additional cost of $2.0 billion dollars.

The total costs of the two stages are now closer to $2.5-$2.7 billion. One of the major difficulties with the CPC line has been the decision to build along a new route and the need to secure new rights of way. When construction of new offshore mooring facilities in Novorossiysk to avoid closure due to weather is included, costs may soar to $4.5 billion .

Although lifting costs at Tengiz are very cheap (about $2 a barrel, comparable to costs in Saudi Arabia), the costs of getting the oil to Novorossiysk are currently about $5 per barrel, including transit fees and construction costs. With pipeline costs currently running $2.11 / b , this would imply a Russian transit fee of $3 / b.

CPC First Phase | Cost / b | CPC Final Phase | Cost / b
Lifting costs at Tengiz | $2.00 | Lifting costs at Tengiz | $2.00
Pipeline to Novorossiysk | $2.11 | Pipeline to Novorossiysk | $1.42
Russian Transit Fee | $3.00 | Russian Transit Fee | $3.00
Shipping to Rotterdam, LR-2 | $1.23 | Shipping to Rotterdam, LR-2 | $1.23
Subtotal | $8.34 | Subtotal | $7.65

By building its own line, the CPC has avoided the primary ethnic conflicts in Chechnya and Dagestan that had repeatedly caused problems for early exports from Tengiz through the Russian pipeline system. However, building a new line has required that the CPC obtain rights-of-way from other political and ethnic entities, the difficulty of which has delayed construction. Currently all rights-of-way have been secured, but at a high cost.

The major complication experienced by the CPC thus far has been dealing with the Russia perspective on Kazakhstan. Russia views Kazakhstan as its own backyard, and reinforces this through its exensive military presence in the area. Kazakhstan is completely dependent on Russia for transit routes — both land and water. Russia has repeatedly demanded a share of revenue from the Tengiz field, resulting in the inclusion of LukArco, a Russia oil company, in the consortium. So far Russia has succeeded in its goals on maintaining Kazakh dependency, and securing the inclusion of Russia commercial groups in Kazakh energy development. Due to this, the likelihood of non-Russian routes to export Tengiz oil is low.

CPC Links