The Oil Road

by James Marriott

  BTC KP 1 – 188 KM – SANGACHAL, AZERBAIJAN

  Sangachal is a gathering point for oil and gas from all over the Caspian, both pumped from BP’s offshore wells in Azeri waters and shipped in from Kazakhstan and Turkmenistan, beyond the horizon to the east and the north. Crude is brought across the sea on tankers, then siphoned onto railcars. An engine shunts the load slowly up the line to the Sangachal Terminal, where the oil is moved into storage tanks to await passage to the BTC pipeline. It is a slow, cumbersome and costly process of transhipment, so there have been various proposals to build a pipeline under the Caspian – effectively an extension of the BTC pipeline to the east.

  Fifty kilometres to the south is the sister of the Azeri–Chirag–Gunashli oilfield, the Shah Deniz gas field. In 1992 BP began negotiating for a contract to explore the seabed off the southern coast of Azerbaijan. Four years later, in June 1996, the Shah Deniz production-sharing agreement was signed. It gave a consortium of companies led by BP access to a sea area of 860 square kilometres – two and a half times the area of the ACG licence. Three years on the drilling rigs discovered a massive gas field. The consortium, uninterested in the sale of the gas to the domestic markets of the Caucasus states, began to plan the construction of an export pipeline, a twin to BTC, which was by then inching towards legal reality. Eventually, in May 2006, gas was pumped from the Shah Deniz platform, to Sangachal, and then on through the South Caucasus Pipeline, across Azerbaijan and Georgia, to Erzurum in eastern Turkey.

  By the time of this first delivery, the Shah Deniz field was a significant pawn in the political game of Western European energy supplies. And Sangachal had become the largest oil and gas terminal in the world outside the Middle East, a place of immense strategic importance.

  We wait in the wind while we are checked and the guards make tea in their gatehouse. Inside the high security fence lie stocky flare towers, processing compounds and fat yellow storage tanks like upside-down buckets. Everything here is either yellow or white. Low-rise Sangachal stretches out in all directions across the desert. More construction is planned to process the growing output of Shah Deniz. Soon the terminal will cover 800 hectares.

  After a brief exploratory detour around the site, we pull up at the visitor centre – the Caspian Energy Centre – for our appointment. Under a sign announcing that ‘Pipelines awaken ancient history’, we are welcomed by Ismayil Miriyev, the centre’s manager. On our way to the kitchen in search of tea, we pass photographs of past visitors to Sangachal: President Erdogan of Turkey, President Toomas Ilves of Estonia, Swiss President Pascal Couchepin and Senator (as of 2005) Barack Obama. ‘He was friendly’, says Ismayil. ‘He came with a group of senators visiting Central Asia and Azerbaijan. It was a geopolitical thing. Politicians like this frequently visit us. If they’re in Baku, they’ll probably visit our centre. We don’t display photographs of all of them. But when Obama became president, we remembered that he had visited and we dug the photograph out of our archives.’

  Next we are shown the handprints in clay of John Browne, Prince Andrew, US Secretary of Energy Samuel Bodman, Turkish President Sezer, Georgian President Saakashvili, and of course Ilham Aliyev himself. ‘They were all here for the big launch event.’ This was the official opening ceremony of the BTC pipeline on 25 May 2005. As we look at the accompanying images we think of the demonstration that had taken place outside the Oil Academy four days before, brutally put down by the police because it ‘would interfere with preparations for the official opening’.6

  Clearly proud of the centre, Ismayil explains its genesis. ‘We wanted to have a special place for visitors. That way they wouldn’t interrupt normal work, but we could still explain how everything functions.’ The Caspian Energy Centre is a perfect emblem for a particular phase in the life of BP. Nine months after the signing of the ‘Contract of the Century’, Browne advanced to the pinnacle of his career, the post of chief executive of BP. He approached his new role with whirlwind energy, determined – as the youngest ever CEO of BP – to leave his mark. Within a year and a half two events had modified the tone of his tenure.

  On 10 November 1995 the writer and activist Ken Saro-Wiwa and eight of his Ogoni comrades were hanged by the Nigerian government. Saro-Wiwa had been a figurehead of a movement demanding justice for the suffering and exploitation caused by Shell and other oil companies during their half-century in the region. The impact on Shell – which was partly responsible for Saro-Wiwa’s judicial murder – was dramatic. Its petrol stations and offices were blockaded, there was widespread public scrutiny, and staff morale was badly affected. Although not in the firing line at the time, BP looked on anxiously. As a staff member based in Nigeria in 1995 later said, ‘Corporate social responsibility in BP was born the morning after Ken Saro-Wiwa was hanged.’7

  In October 1996, the BBC’s investigative programme, Panorama, broadcast stories on BP’s role in assisting and financing paramilitary ‘death squads’ in Colombia. It looked as though the company was about to suffer its own Ken Saro-Wiwa moment. But the BP management acted fast. Political staff were rushed from BP’s offices in Washington to Bogotá. The head of BP Colombia appeared on UK TV to defend the company’s practices, and mainstream NGOs were quickly drawn into a ‘stakeholder dialogue’. The tactics worked, the storm passed: the value of aggressive corporate social responsibility was proved, and the tone of the Browne era set.

  BP then announced that its BTC pipeline, planned to run between the Caspian and the Mediterranean, would meet the highest standards of corporate social responsibility. The promise was that this project would be different, would show that the oil industry could act with social and environmental sensitivity, and would herald a new era. The promise was central to the selling of the project in distant cities such as London, Washington and Brussels, and to groups such as BP staff, investors and the media. As we shall see, this promise had multiple impacts along the 1,750-kilometre route. Here in Sangachal it manifested itself in the saplings that line the entrance road of the terminal, in the Caspian Energy Centre, and in the tale of the ‘tortoises of Sangachal’.

  Spur-thighed tortoises are one of Azerbaijan’s endangered species, vulnerable because they hibernate underground in winter and can be injured during earthworks. A BP survey revealed that the tortoises were to be found on this stretch of the Caspian coast and that care would be needed to ensure their breeding grounds were not disturbed during the construction of the terminal, this ‘new town’ in the desert.

  BP’s efforts for the tortoises received considerable publicity. Photos of the creatures sheltering in the gloved hand of a BP community liaison officer were to be seen in numerous internal and external company publications. The eight tortoises found during construction work were moved to a special enclosure. To be sure, the tortoises benefited – in that they survived; but so too did the company’s reputation, staff morale, and ultimately BP’s ability to do business in Azerbaijan. It was a perfect illustration of the corporate mantra about the ‘Triple Bottom Line – People, Planet, Profit’.

  Key to corporate social responsibility is the corporation’s presentation of itself as open and transparent – hence the Caspian Energy Centre. As Ismayil explains, ‘We realised that we could bring children here to educate them about the role of oil and BP in Azerbaijan.’

  In the presentation room, we are introduced to our presenter, Orxan Abasov, an Azeri in his mid-twenties. He had been sent to train at the Natural History Museum in London, and is keen to return for further studies. There are seats for more than thirty, but there are only the two of us. Orxan, though, happily runs through his PowerPoint presentation, picking out the issues he finds most interesting with a laser pointer.

  The construction of Sangachal began in 1996: land was levelled, ditches dug, walls built and fences erected. At its opening in 1997 it was already a large terminal, receiving 150,000 barrels every day. When the new ACG platforms were built offshore, there was a parallel expansion on shore: more processing compounds, mor
e and larger storage tanks. Stage by stage, Sangachal spread across the desert until it was capable of processing 1.2 million barrels a day.

  The quantity of oil arriving from the subsea pipeline running under the muddy beach varies heavily from day to day, depending on the geological pressure in the oil reservoirs deep under the sea. One day it can fall as low as 500,000 barrels, on another it might be as high as 900,000. By the summer of 2008, it hit record production of 1 million barrels a day on five consecutive days.

  The crude that Chevron sends from Kazakhstan, Orxan explains, is of significantly lower quality and has higher sulphur levels than ‘Azeri Light’ – the oil extracted by BP. When the two are blended together in the BTC pipeline, Chevron covers the value lost to the other BTC Co. shareholders – as the eleven partners in the pipeline are known – according to a complex algorithm. Orxan is happy to tell this tale. He is visibly proud of ‘our Azeri Light’. Interestingly, despite his clear loyalty to BP, another identity creeps into Orxan’s speech. At various points during the presentation he uses ‘we’ to refer to BP, or Azeris, or even SOCAR. So when he describes the shareholding of the contracts for the Inam and Alov fields, Orxan explains that, as a result of its later negotiations, ‘we managed to get a larger stake’. The ‘we’ here is SOCAR, the Azeri state company, which took a 50 per cent holding in the licence, compared to only 10 per cent in ACG.

  Despite its great yellow storage tanks, Sangachal can only hold two and a half days’ worth of maximum production: 2.5 million barrels. ‘If we can’t export for longer than this, we have to shut down the offshore platforms. This means losing a lot of money. Furthermore, when we shut down production, the wells can’t always be restarted identically, so we can lose pressure. So platform shutdown is our absolute last option.’

  This last option was taken during summer 2008, when the Russia–Georgia war led to a shut-in of BP’s major fields after pipelines were bombed and threatened. Unlike his more senior colleague Aydin Gasimov in Villa Petrolea, Orxan is more forthcoming, explaining that eventually they were forced to use trains to carry crude over the Caucasus to the Black Sea, until the railway was blown up by a mine. The last remaining export route to the West was the Baku–Novorrosisk pipeline through Russia, which BP does not generally use. But oil prices were still at near-record highs, so BP used its pre-emptive rights to prioritise its exports over SOCAR’s.

  Orxan seems pleased with the changes the revenues have brought to his city. ‘We’ve built six new bridges. Lots of roads and tower blocks. If the oil prices stay low like now, then the construction projects slow down, waiting until it rises again before resuming.’ Apparently the ACG platforms are not profitable if the global price of oil drops to below $40 or $45 per barrel – a figure that is significantly higher than the point at which fields in the Middle East cease to make a profit. This high cost is partly due to the expense of piping the oil to Ceyhan. ‘If the price falls below this for a period of time, production isn’t worthwhile, so the platforms might shut down.’

  Among Orxan’s slides there is one particularly striking image: a graph of the history of oil production in Azerbaijan. It shows four peaks: in 1904, 1941, 1968 and 2010. The history of Azerbaijan is generally described as having two or three ‘Oil Booms’: the first in the ‘Age of the Oil Barons’, the second in the build-up to the ‘Great Patriotic War’, and the third in the ‘Post-Soviet Renaissance’.8 The successes of the post-war Soviet oil industry in the 1960s do not quite fit this narrative, and are rarely described as a boom.

  The slide also shows that after the peak of 2010 comes a predicted rapid decline. This graph, in fact, illustrates exactly what we have heard many times in Baku from concerned critics: that despite government and corporate claims, Azerbaijan is reaching ‘peak production’. Emil Omarov of the National Budget Group had told us, ‘But now, when people hear that the oil production will peak next year, they ask where the benefits have gone.’

  The prospect of rapidly declining revenues is not new in Azerbaijan. There were ‘Oil Slumps’ in the 1910s, the 1940s and then in the 1970s. Each time, these have been accompanied by moves to diversify the economy away from the simple extraction and export of crude. The oil baron Taghiyev sold out his holdings to the British financier James Viashnau at the turn of the century, and invested in cotton mills, a caviar farm, and agricultural projects. Sumqayit represents Orjonikizde’s 1930s drive to create petrochemicals and industrial products from the raw materials that flowed from the Absheron Peninsula. Soviet Azerbaijan in the 1970s and 1980s under Heydar Aliyev increased investment in the production of vegetables and cotton.

  The question arising from Orxan’s data is: How will Azerbaijan navigate the coming ‘Oil Slump’? This is precisely the challenge that SOFAZ is supposed to address, but the ‘six new bridges, lots of roads and tower blocks’ that Orxan celebrates cannot solve this problem. As Zardusht asked, ‘What will be left behind? Lots of empty skyscrapers that we can’t keep clean.’

  We would like to quiz Orxan, but the presentation is over and it is time to leave Sangachal, and we do so having been unable to see the place we would dearly love to visit. The control room is far beyond the reach of the visitors invited to the Centre; it lies in the ‘forbidden zone’ of Sangachal. We have seen a photograph of it in a BP report: two men in black overalls stare intently at a computer screen; one points at line of data while the other works a mouse. The caption reads: ‘Firdovsi Isayev, control room technician and Ibragim Teregulov, production superintendent at combined control room at Sangachal terminal.’9 Somewhere further in, beyond the wire fences that mark the sections of this installation not open to the public, must be the room in which BP staff monitor the pumping of oil and gas from the offshore rigs into the terminal, and out into the BTC pipeline, through Georgia and Turkey, to the depot at Ceyhan. Orxan had explained that the flow rate from ACG varies by the day, even by the hour, and that the value of the crude also fluctuates in accordance with the global oil price.

  In July 2008, BP was extracting close to 1 million barrels of crude most days. On the eleventh day of that month the oil price hit a historic $147 a barrel, giving the throughput a potential value of around $147 million a day. Two months later the gas blowout on Central Azeri forced the company to shut down its wells, reducing extraction by two-thirds. A combination of the Credit Crunch and a rapid decline in petrol demand due to record prices had already brought the oil price down to $60 a barrel. This meant that, by September 2008, the output of the fields was generating a potential value of only $21 million a day. In seventy days the value of the output of oil from ACG had fallen by over 85 per cent.

  On the face of it, production superintendents in the monitoring room simply watch the movement of raw geology through the system. But they are in effect working in an almighty counting-house in the desert.

  BTC KP 25 – 212 KM – QOBUSTAN, AZERBAIJAN

  Leaving Sangachal behind, we continue south on the coastal highway, the grey expanse of the Caspian a constant on our left; to our right, the land rises into the desert hills of Qobustan. Seated in the front are Mayis and Mehdi, ubiquitous Azeri black flat caps on their heads.

  Just four generations of a family might have lived through the maelstrom of the 140 years since the industrial exploitation of oil began. Most industry and government literature describes a first oil boom in the late nineteenth century, and the period after the mid-1990s as the second oil boom. Each time, however, the boom has given rise to radical social upheavals – or perhaps the other way round. Calling these periods of concentrated change ‘oil booms’ focuses attention on the geology, technology and capital, as though the changes were almost inevitable and inherently positive.

  According to this story, the Tsar removed the dead hand of state ownership from the land in 1872 – and the oil-driven world blossomed. The collapse of the Soviet Union removed the nonsense of a corrupt and backward nationalised industry – and the oil-driven world blossomed again.

  But, in re
ality, the transformation of Baku from a walled city with Zoroastrian temples, Shia mosques and camel trains to a city of grid streets and mansions, the squalor of Balakhani and Bibi Heybat – this transformation was a social upheaval, guided largely from St Petersburg, Paris and London. It gave birth not only to the oil barons, but also to the ecological and social hell of the oilfields and the pogroms of 1905 and 1918.

  The next transition – omitted from the more neoliberal accounts – from a Baku dominated by oil barons and foreign corporations like Royal Dutch Shell into the socialist city of Avraamov’s Symphony of Factory Sirens, the Oil Academy, and the technological brilliance of Neft Dashlari – this too was a social upheaval, directed from Moscow. And it too was accompanied by the Stalinist incarcerations at Bayil, and the hell of Sumqayit.

  Finally, Baku’s metamorphosis from a dusty Soviet metropolis dominated by the Aliyev clan to a city of glass-and-steel tower blocks, fashion stores and the ‘Billion Dollar Bridge’ dominated by the Aliyev clan – this too is a social upheaval, influenced from offices in London, Washington and Brussels. It was also accompanied by the poverty of Binәgәdi and more prisoners in Bayil.

  The constant drilling of holes in the desert and the seabed was celebrated by those who directed it, both capitalist and state socialist. And all – Ludvig Nobel, Stalin, John Browne, Ilham Aliyev – all have sung of these wells as engines of human advancement, and wrapped the gigantic enterprise in a heavy cloak of positivity, with no space for doubt. In just this manner the company celebrates the care lavished on the eight Sangachal tortoises while remaining silent over the imprisonment of journalists and the slums of Binәgәdi.

  A policeman flags down our car, and we stop on the hard shoulder as Mehdi accompanies the officer back down the road to pay the statutory bribe for a ‘speeding offence’. While we wait, we consult our map and trace the route of the pipeline that we will be following – west across the open desert, before it rises to climb into the far Caucasus mountains.