New era as Caspian pipeline opens

The Georgian port of Supsa is key to the region's oil production

MOSCOW, Russia -- A new pipeline which will pump around 600,000 barrels of oil to the west from Central Asia each day was officially opened on Tuesday.

The $2.6 billion Caspian Pipeline Consortium (CPC) project runs from the Tengiz oilfield in western Kazakhstan to Russia.

U.S. companies have invested around $700 million in the pipeline, and U.S. Energy Secretary Spencer Abraham has travelled to Russia for the official opening in the southern region of Novorossiisk -- though he was unable to take part in the opening ceremony due to bad weather.

The CPC was established in 1992 by Russia, the Republic of Kazakhstan and the Sultanate of Oman to run a 1,580 kilometre crude oil pipeline to a Black Sea terminal near Novorossiisk.

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The pipeline has an initial capacity of around 600,000 barrels per day and has a projected life of 40 years. Construction began in 1999 and full completion is expected early next year.

The project promises estimates of around $20 billion in tax revenues for Russia and $8.2 billion for Kazakhstan.

Abraham told CNN the project was significant in that underlined a U.S. energy policy aimed at investing in more projects around the world.

He said Russia was an important trade partner in terms of energy, adding: "One of the reasons I am here in Russia at this time is to strengthen the relationships betwen our energy ministries as well as to try to expand the opportunities for investiment."

David O'Reilly, chairman and CEO of Chevron/Texaco, which has a 15 percent interest in the project, said it was "world class."

He told CNN: "The first capacity of this pipeline is about 600,000 barrels a day.

"It will take a number of years to ramp up production from the area to fill that capacity, but ultimately this pipeline will be closer to 1.4 million barrels a day, maybe a decade from now or fifteen years from now.

"This pipeline is magnificent. It's world-class, state-of-the-art technology, environmentally sound and connecting a world-class field to the marketplace.

"It's one of the first major investments in the former Soviet Union by Western companies, led by Chevron/Texaco.

"It's a tremendous example of what can be accomplished in this part of the world and I think it's a sign that the former Soviet Union is now developing as part of the world economy and should be treated as such."

Analyst Stephen O'Sullivan of the United Financial Group told CNN the opening of the project was a highly significant development.

He said: "It's the first major field out of Central Asia, it's a dedicated pipeline that will allow them to increase production quite substantially.

"It's taken a very long time to get on stream. It's cost a very large amount of money but it's finally on stream. All the difficulties: political, economic, oil price, security, strategic, have all been overcome, and finally oil is leaving the port of Novorossiisk."

He said non-Middle East oil was likely to become more attractive to global oil consumers, particularly major consumers such as the U.S.

He said: "An oil region like the Caspian, that can deliver oil to the Black Sea at Novorossiisk, the Georgian port of Supsa, or to the Mediterranean, potentially with a second line from Azerbaijan ... is an interesting and potentially attractive alternative because it doesn't suffer from the problems of the Middle East.

"It is the most cost-effective route to take oil from Tengiz to Western markets, to deliver it to a port at Novorossiisk.

"There are potentially other alternatives, they are more expensive, they do involve going through other third party countries."

He said Russian involvement in the project was crucial, but he adds that the pipeline is not likely to rival the Middle East in terms of oil production.

"I heard an interesting comment that if you thought the Caspian was going to be the new Middle East, then you should buy a smaller car," he said.

"It's not a new Middle East. Probably, it could be a whole new Kuwait. So it's potentially a medium-sized Middle Eastern country, but it's not going to be an entire Middle Eastern region.

"It will not displace the Middle East as a major oil source for the world. It will provide an alternative supply source in this part of the world for consumers."

The ceremony to inaugurate the dlrs 2.65 billion pipeline, the largest foreign investment in Russia to date, came amid a slump in world oil prices and demands by the Organization of Petroleum Exporting Countries that producers cut back.

Russia, the world's second largest petroleum producer, announced last week that it would cut production by just 50,0000 barrels a day this year -- less than one percent.

OPEC had asked Russia to join other nonmember nations such as Mexico and Norway in making larger cuts to help shore up prices, which have plummeted nearly 30 percent over the past two months.

-- CNN Moscow Bureau Chief Jill Dougherty contributed to this report.