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Amb. Wolf's Last Speech as Special Advisor on Caspian Energy

Amb. Wolf's Last Speech as Special Advisor on Caspian Energy

Remarks by U.S. Ambassador John S. Wolf, special advisor to the President and Secretary of State for Caspian energy diplomacy. Source: Washington File: U.S. Department of State. November 17, 2000. EUR510.

U.S. Ambassador John S. Wolf spoke at the Turkey International Oil and Gas Congress and Exhibition November 16 in Istanbul, his last speech as special advisor to the president and secretary of state for Caspian energy diplomacy.

Wolf recounted some of the obstacles to developing the Baku-Tbilisi-Ceyhan (BTC) oil pipeline, and the spirit of cooperation that triumphed over these difficulties.

"With time and effort, we overcame negative inertia, and developed trust and confidence among the relevant countries and companies, and cooperation and their common interest now are powerful drivers of BTC's progress," he said.

He cited the most recent signs of progress -- a sponsors group of project investors formed by a group of eight oil companies, and the start of a six-month, $26 million process of basic engineering studies -- made possible by the "sustained political support for the project" demonstrated by Turkey, Georgia and Azerbaijan.

Wolf said the United States will remain active in moving the BTC pipeline project ahead, because its underlying objective is to empower the people and governments of the Caspian region to have choices, to foster sustainable and balanced economic growth, and to develop efficient and transparent government structures based on the rule-of-law.

When Wolf steps down as special advisor on Caspian energy issues, his successor will be Elizabeth Jones, who attended the event in Istanbul. Her appointment, he said, "demonstrates the continuity and commitment that the United States has to supporting the efforts of Turkey and its neighbors to the East to realize their vision of peace, security, and stability, built around the East-West Energy Corridor."

Following is a transcript of Wolf's remarks: (begin transcript)

Turkey International Oil and Gas Congress and Exhibition, Istanbul, Turkey, November 16, 2000.

I am pleased to have an opportunity to speak to you today here in Istanbul, one of the world's most beautiful and historic cities, and truly one of my absolute favorites. But it is with great nostalgia that I begin this speech, my last as Special Adviser to President Clinton. I will miss the partnerships, and true friendships, I have enjoyed with many very special people. We have established a level of teamwork with our Turkish friends unprecedented in my diplomatic career. As I leave this assignment, I am delighted to introduce Ambassador Elizabeth Jones -- who will, next week, assume the post of Special Adviser to the President and Secretary of State for Caspian Basin Energy Diplomacy and continue this teamwork. She's a true star of U.S. diplomacy. Her appointment demonstrates the continuity and commitment that the United States has to supporting the efforts of Turkey and its neighbors to the East to realize their vision of peace, security, and stability, built around the East-West Energy Corridor.

When I started 17 months ago, conventional wisdom held that the Baku-Tbilisi-Ceyhan main export pipeline, or BTC, would not happen. Dubious observers argued that the countries of the region lacked the political will to remain focused on a single pipeline or pipeline corridor; that no private investors would be interested in the project; and that they rejected BTC as commercially unattractive.

The voices of gloom were wrong then; and facts speak for themselves now. Those who claim BTC is not moving forward are simply unaware of or chose to ignore the facts. Turkey, Georgia and Azerbaijan have demonstrated sustained political support for the project, culminating in conclusion of the project's framework agreements last November here in Istanbul and last April in Washington. A group of eight oil companies has now formed a sponsors group of project investors after signing those framework documents five weeks ago. The six-month, $26 million process of basic engineering is underway; it will be followed by a 12-month, $100 million process of detailed engineering, as well as a sustained effort to arrange financing. Additional companies want to enter that sponsors group. In short, Baku-Tbilisi-Ceyhan is making visible, and concrete progress.

This could not have been accomplished absent a true spirit of cooperation. BTC is a complicated and very unusual project. With time and effort, we overcame negative inertia, and developed trust and confidence among the relevant countries and companies, and cooperation and their common interest now are powerful drivers of BTC's progress. Encouraging such cooperation was one of the primary rationales behind U.S. support for the East-West corridor. Indeed, as President Clinton articulated with many of you present in Istanbul last November, "Wise energy development can strengthen the independence of the newly independent states around the Caspian, helping them to stand on their feet and shape their own destiny, and it can open a commercial and political bridge between Central Asia and the West." Achieving this vision has been an objective of the Clinton Administration right from the start, and will be a strategic constant in the years ahead. But yesterday's successes must not blind us to the difficult work yet ahead. Maintaining the spirit of partnership among governments and investors will be essential to resolving the problems which inevitably will arise as the project moves toward construction in about 19 months. Too often heretofore companies and governments have allowed mistrust and miscalculation to stymie progress. As they move ahead, all parties need to remember that they are in this project together.

The United States will remain active, and we will continue to extend full support to the efforts of the companies and countries to move the project ahead. Senior OPIC [U.S. Overseas Private Investment Corporation] and EXIM Bank [Export Import Bank of the U.S.] executives will be meeting with representatives of the sponsors group in Washington in early December. This discussion will mark the first step in the process of making an application for OPIC finance and/or insurance and for EXIM Bank credits. OPIC stands by the commitment it first made 18 months ago to consider raising its per-project limits for this important undertaking and to provide political risk insurance directly to the U.S. investors, and to the U.S. financial institutions that will lend to project investors. EXIM Bank similarly stands ready to provide support for U.S. exporters in the project.

Looking ahead, it remains important to ensure that companies producing oil beyond Azerbaijan, in Kazakhstan and Georgia, for example, have fair opportunity to join BTC as equal partners. Arguments that sufficient oil may exist in Azerbaijan to fill Baku-Tbilisi-Ceyhan miss the point; but also off the mark are assertions that BTC cannot succeed without Kazakhstan's oil. The real issue is whether interested parties operating on both sides of the Caspian Sea can work together to generate win-win commercial benefits for companies and shared political and economic benefits for the countries. Broadening this effort into an Aktau-Baku-Tbilisi-Ceyhan project through the barging of oil across the Caspian would improve the project's economics while extending its strategic benefits of strengthened independence, stability, and regional integration to an emerging giant of Central Asia.

Cooperation also is needed to safeguard the Caspian Sea's fragile environment. We can all agree that environmental conditions in the Caspian are abysmal. Unfortunately, this has been the case since long before international oil companies began drilling the Caspian's offshore fields in the mid-1990's. The source of this environmental degradation reflects 70 years of industrial pollution that has flowed downstream from the Soviet heartland, and over 100 years of environmentally unsound production technologies resulting in untold volumes of oil leaking from wells in and around the Caspian.

The good news is that the international oil companies now at work are bringing world-class exploration and production technologies to the Caspian. These companies' internal standards, the concerns of their stockholders, and the covenants applied by lenders will ensure companies maintain the highest possible environmental standards while developing offshore fields. It makes no sense to suggest that international oil companies should cease their activities in the Caspian to allow the governments of the littoral states to catch up on environmental issues. It does make sense, though, for the companies and governments of the region to work together to develop a meaningful regulatory regime, strict enforcement mechanisms, and a more concerted effort to redress old problems.

Environmental concerns are also at the heart of our support for Baku-Tbilisi-Ceyhan. Absent BTC, there could be, by 2010, an average of four transits of 150,000-ton tankers through the Bosporus every day. A single accident during any of these passages could lead to an environmental disaster of epic proportions here, in the midst of one of world's largest and most historic cities.

Already, for environmental and safety reasons, Turkey closes the waterway to two-way traffic when ships longer than 200 meters seek to transit. Even under the best operating circumstances, and even with a sophisticated vessel tracking system, catastrophic risks will increase as the number of transits and tanker sizes increase. It is neither reasonable nor realistic to expect that a few oil tankers will displace the increasing numbers of freight, commuter, fishing, and other vessels that also must compete for space in the Bosporus.

Given these self-evident concerns about the Turkish Straits, we see development of an Aktau-Baku-Tbilisi-Ceyhan export route to be in the interests not only of Turkey, Azerbaijan, Georgia and Kazakhstan, but of Russia as well. The United States has strongly supported the CPC Pipeline throughout its lifetime, and is pleased that the project remains on schedule for commissioning next June. We would similarly welcome closer cooperation with Russia on ABTC to ensure that expanding oil shipments through the CPC pipeline do not end up jockeying dangerously for position with other oil exports from Azerbaijan and Kazakhstan for export capacity through the Turkish Straits. All politics aside, it is simply a fact that the Bosporus cannot and will not become the main export route for Caspian oil. We know, as do many of the oil companies operating in the Caspian, that Aktau-Baku-Tbilisi-Ceyhan offers the most commercially attractive, reliable, and environmentally sound export route for oil produced in Azerbaijan and Kazakhstan to European markets.

Let me be clear. Our Caspian policy builds on the interests of the countries in the region. Our conception of multiple pipelines includes Russian pipelines, as evidenced by our enduring and steadfast support for the CPC pipeline. We also agree that it makes good sense to utilize existing Russian infrastructure, such as the Baku-Novorossiysk and Atyrau-Samara pipelines, in a commercially rational way as part of a regional system of multiple pipelines. That said, we support multiple export pipelines because we believe monopolies make neither commercial nor political sense. Our objective is not to exclude Russia from Caspian pipeline initiatives, but rather, to introduce a healthy dose of commercial competition into the export equation. Competition helps investors spread risk, and helps ensure that the market rather than monopolistic rent seekers set transportation costs. Already, simultaneous with our efforts to develop Baku-Supsa and ABTC, exporters of oil from Azerbaijan and Kazakhstan have begun enjoying greater access to preexisting infrastructure at lower tariffs. This is no coincidence.

Our desire to encourage commercial competition also includes gas pipelines in the Caspian region. The United States strongly supports the efforts of Turkey and Georgia to diversify their suppliers of natural gas. We also fully support the development of a Caspian gas pipeline to Georgia and Turkey from Azerbaijan. We expect Turkey and Azerbaijan to conclude a gas sales agreement in coming weeks, leading to construction of a pipeline from Azerbaijan's prolific Shah Deniz field that could ensure gas deliveries to Georgia and Turkey during the 2002/2003 heating season.

It is crucial that Turkey and Azerbaijan conclude this agreement as quickly as possible, given the tremendously important strategic interests at stake for both countries, as well as for Georgia and the United States. Once completed, the Shah Deniz pipeline will add a major new gas component to the East-West Energy Corridor. This can lead to future gas shipments through Turkey to Greece and the rest of Europe, thereby strengthening Europe's diversity and security of supply, improving relations between Turkey and Greece, and boosting Turkey's integration into the European Union. We look forward to expanding cooperation with the European Union on the Shah Deniz pipeline, as well as on other pipeline projects that will help Europe secure reliable sources of energy.

It has made sense for Turkmenistan to be a part of an energy corridor to Turkey. Unfortunately, a conflicted and clouded decision-making process in Ashgabat over the past year has made realization of this project much more problematic on the basis of realistic commercial terms.

Our underlying objective was and will remain to empower the people and governments of the Caspian region to have choices, to foster sustainable and balanced economic growth, and to develop efficient and transparent government structures based on the rule-of-law. We are working to help them acquire world-class technologies that will safeguard the Caspian Sea's fragile and long-suffering environment. These factors are prerequisites for establishing the stable and attractive investment climate required for these pipeline projects to progress, and these factors are necessary too for the people within the region to develop the sense of shared destiny that will help secure these investments for decades to come.

Our objectives match those of the region's governments. They also serve the commercial interests of the private investors who will develop the region's oil and gas fields, build its pipelines, and provide the basis for wider economic prosperity. Thank you for your friendship, animated though sometimes it has been. I'll hope to be there when that first tanker loads in four years in Ceyhan. This is not farewell; it just "see you again soon."

(end transcript)

 

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Directeur de la publication : Joël-François Dumont
Comité de rédaction : Jacques de Lestapis, Hugues Dumont, François de Vries (Bruxelles), Hans-Ulrich Helfer (Suisse), Michael Hellerforth (Allemagne).
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