"I believe there will be a major route to the South. I think Iran is a major player in this area and we need to find a way...to begin involving them in this game. Because if we don't I believe we've got a problem," he said.

The United States opposes construction of a Caspian pipeline routed through Iran and supports, among other options, a much longer pipeline running from the Azeri capital of Baku to Ceyhan on Turkey's Mediterranean coast.

Hayward said it was important that investment in an infrastructure to transport Caspian oil should keep pace with the development of the region's hydrocarbon reserves.

Despite great expectations international oil companies had achieved only modest success since arriving in theregion in the early 1990s, he said.Chevron and its partners were currently producing about 2,00,000 BPD of oil in Kazakhstan, he said, while BP Amoco and its partners were producing about 1,00,000 BPD in Azerbaijan.

"The net result after almost 10 years of hard work is a fairly modest couple of hundred thousand barrels a day of production," he said.

Most of the industry believed the Caspian would turn out to be a major oil province, he said, but proven reserves found so far did not justify massive outlays on pipeline projects.

"We're not yet in a position to go and invest many billions of dollars for a pipeline where we have yet to prove the resource base," he said.

Hayward said pipeline construction in the region should be gradual, keeping pace with the development of reserves.

"One of the challenges, amongst many others with the Baku to Ceyhan route is that it is one big bang. It goes from nothing to a million barrels a day," he said.

Hayward said that to be competitive in world markets, Caspianoil projects would have to be viable at a price of $10 a barrel.

This would ensure that neither development costs nor transportation costs should exceed $2 a barrel.

"If we can't achieve those (cost levels) then I don't think the Caspian region is going to compete in a worldwide portfolio," he said.