Turkmenbashi - Kharg Island
A pipeline through Iran might be the most logical
and cost effective route, if US sanctions were not
in place against Iran. The proposed route would run from Turkmenbashi in
Turkmenistan,
connected to Kazakh oil by Chinese-funded pipeline,
to the Iranian export terminal of Kharg Island in the Persian Gulf. This
930 mile line would cost $1.5 billion. This cheaper route also avoids the
Bosporus
problem and allows shipment via VLCC. The major disadvantage is that
more oil would be flowing out through the Persian Gulf, with all the political
risks that it implies, and transport to Europe would be much longer. On
the other hand, if the oil were destined for Asia, transport rates would
be considerably cheaper.
There is also a concern that a major pipeline through
Iran
would increase the already high level of world oil that is shipped through
the Persian Gulf. Lack of diversity of supply routes could be troublesome
if there is a disturbance in the Persian Gulf. A pipeline through
Iran would also give Iran a large influence over the other states in the
region, who depend on the pipeline to export their oil and gas. The newly
independent states of the region are already unstable and many are besieged
with internal conflict. Should Iran gain greater leverage in the region,
there is a fear that Iran will try to influence the nature of the regimes
in the region and encourage indigenous Islamic groups.
Turkmenbashi-Kharg (900 kb/d) | Cost / b |
Lifting costs at Tengiz | $2.00 |
Pipeline to Kharg Island | $1.57 |
Iranian Transit Fee | $3.00 |
Shipping via VLCC | $0.93 |
Subtotal | $7.50 |
Iran is by far one of the most stable nations in the region, rivaled only by Turkey. However, the United States seeks to prevent investment in Iran; because Iran is a leading sponsor of international terrorism, violently opposes the Middle East peace process, and is developing weapons of mass destruction. President Clinton passed two Executive Orders that prohibit investment by American companies in 1995. In 1996, Congress passed the Iran-Libya Sanctions Act, which penalizes foreign companies who invest in Iran.
Swaps with Iran
There is another possibility for Caspian exports
to the south. Iran’s industrial infrastructure and population are located
primarily in the northern part of the country, while nearly all its oil
and gas reserves are in the south. Due to the poor condition of the Iranian
oilfields and pipeline network, northern Iranian refineries have considerable
excess capacity. There is also a high demand for cheap oil in Iran that
could be fulfilled by the Caspian without hard currency expenditures, which
Iran cannot afford . Kazakh and Azerbaijani
oil would be shipped via rail or barge to Iranian ports in the north
of the country and then sent to Iranian refineries by rail or a new pipeline.
Iran would than export an equivalent amount of oil from its southern oilfields
out of Kharg Island. Caspian oil would then be sold at world prices, with
Iran charging a swap fee for the service. Currently one UK company, Monument
Oil, is engaged in this venture, barging oil from Aktau in Kazakhstan to
Neka in Iran. The volume is about 250,000 b/d and Iran is reportedly charging
a fee of $2-3 per barrel . The Azerbaijani owned Caspian Steamship Line
is also reportedly charging $1.90 per barrel delivered between Aktau
and Neka.
Swaps with Iran | Cost / b |
Lifting costs at Tengiz | $2.00 |
Barge to Neka | $1.90 |
Iranian Swap Fee | $3.00 |
Shipping via VLCC | $0.93 |
Subtotal | $7.83 |
Although drastically underutilized, Iranian refineries would require significant investment before they could handle large volumes of oil. Iran’s four major refineries could handle 300,000 to 400,000 b/d with $500 million in investments and up to 750,000 to 810,000 with an additional $450 million . Besides refinery capacity, port facilities pose a significant limitation. The port at Neka only has one berth with a maximum draft of 4 meters and is capable of handling tankers up to 4,200 deadweight tons with onshore storage tanks for 45,000 barrels. Bandar Anzali also only has one berth and a draft of 5 meters and no storage facilities. Iranian ports would require significant investment to handle increased volumes. Future swaps with Iran seem highly likely and beneficial, even considering ILSA, as current oil volumes are under the $20 million limit. If volumes were drastically increased, oil companies would be over the limit and ILSA would exceed another limiting factor.