Samsun-Ceyhan, Burgas-Alexandroupolis: Russian Options to Absorb Kazakhstan’s Oil Production

If implemented, the Burgas-Alexandroupolis and/or Samsun-Ceyhan projects would reinforce Russia’s quasi-monopoly on oil transportation from Kazakhstan to international maritime ports. Approximately one half of Western companies’ production from Kazakhstan is already being delivered through the Caspian Pipeline Consortium’s (CPC) existing pipeline, via the North Caucasus, to Russia’s Black Sea port of Novorossiysk.

At the concluding news conference in Ankara, Putin said that the implementation of Samsun-Ceyhan would have to be correlated with the planned capacity expansion of the CPC pipeline, which would make deliveries by tanker to Samsun possible (Interfax, Anatolia news agency, August 6).

The CPC line already has by far the largest capacity among several oil transport routes from Kazakhstan to various parts of Russia’s territory. The oil arriving at Novorossiysk (along with volumes originating in Russia) is then carried by tankers through the congested Bosporus Strait to the Mediterranean.

Moscow plans to direct growing volumes of oil from Western companies’ future production in Kazakhstan into the CPC pipeline to the Russian Black Sea. Several Western-operated giant fields in Kazakhstan are scheduled to ramp up their production further in the years ahead. Moreover, the world-class Kashagan field is expected to come on stream in 2013, dramatically increasing production in Kazakhstan.

In order to maintain its control over that growing oil flow, Moscow must meet at least three prerequisites: first, enlarging the CPC pipeline’s transport capacity to Novorossiysk; second, bypass the overcrowded Bosporus through a pipeline outlet from the Black Sea to the Mediterranean; and third, prevail on the Kashagan consortium to choose a Russian export route, instead of a trans-Caspian route, for Kashagan’s future output. Moscow is already engaged in this three-pronged effort to maximize its intake of oil from Kazakhstan. This contravenes Western interests in supply security through diversification. It would also maintain and increase Kazakhstan’s already heavy dependence on Russia for access to international oil markets.

The CPC pipeline is already being used at a rate of 30 million tons annually, fully taking up its first-stage capacity. Moscow proposes to expand the CPC’s second-stage capacity to a staggering 67 million tons annually. It also wants the consortium’s American and European companies to bear most of the costs, directly or indirectly.

Russia leads the Burgas (Bulgaria)-Alexandropolis (Greece) pipeline project for a Bosporus-bypassing solution, and is now also considering the proposal for a Samsun-Ceyhan pipeline through Turkey’s Anatolia (see above). Both of these pipelines are planned to carry Western companies’ future production from Kazakhstan, out of the Black Sea to the Mediterranean. Additional, small amounts of Kazakhstani and Russian oil could also be delivered via other Black Sea ports into Burgas-Alexandroupolis and/or Samsun-Ceyhan, if these pipelines materialize.

The bypass pipelines are only being promoted because Moscow insists on directing the lion’s share of Kazakhstani oil into Russian territory on the Black Sea. In the knowledge that the Bosporus could hardly accommodate additional tanker traffic, Russia prefers to invest in bypass pipelines (or pressure some Western oil companies into financing a Russian bypass project) for the sake of Russian control of the oil flow. Moscow opposes a trans-Caspian transport route, which could in turn open several export solutions for oil from Kazakhstan directly to international markets.

Russia signed agreements in 2007 (after several years of negotiations) to build a pipeline from Burgas on the Bulgarian Black Sea coast to Alexandropoulos on the Greek Aegean coast, avoiding the Bosporus. Under this plan, Western producers’ oil from Kazakhstan (and some Russian oil) arriving through the CPC pipeline in Russia to Novorossiysk would be shipped by tankers across the Black Sea to Burgas and pumped through the pipeline to Alexandropoulos, a deep-water port for large-capacity tankers.

Burgas-Alexandroupolis and Samsun-Ceyhan are rival projects: both are considering the same upstream source and offering the same type of transportation solution, through different routes and different sets of operators. Burgas-Alexandroupolis is running far ahead of Samsun-Ceyhan in terms of agreements signed, feasibility studies commissioned, and project consortium created. Neither project has secured the financing, however.

Russia’s state companies Transneft (project leader), Rosneft, and GazpromNeft together hold a 51 percent stake in the Burgas-Alexandroupolis project. A Bulgarian state holding has 24.5 percent and Greek interests another 24.5 percent. The project envisages a throughput of 35 million tons of oil annually for the first stage and 50 million tons for the second stage. The planned pipeline, 280 kilometers in length, is shorter than Samsun-Ceyhan’s 555 kilometers; and the terrain is considerably easier on the Burgas-Alexandroupolis route, compared with the challenging trans-Anatolian route of Samsun-Ceyhan. Moscow, however, has not thus far persuaded Western oil companies to share in this project’s financing. Meanwhile, the Bulgarian government is re-examining the terms of its participation and may ask for changes to the project.

During the Ankara signing event, Putin and Transneft president Nikolai Tokarev claimed that Burgas-Alexandroupolis and Samsun-Ceyhan are not rivals, but simply different, and potentially complementary projects (Interfax, August 6). This contention seems to signal that Moscow could leverage the Samsun-Ceyhan option against the Bulgarian government; and a possible partnership with Italy’s ENI in Samsun-Ceyhan against some Western oil companies regarding the terms of the Burgas-Alexandroupolis project (Vedomosti, August 7). ENI CEO Paolo Scaroni (attending the Ankara event alongside Italian Prime Minister Silvio Berlusconi) optimistically predicted that certain Western companies in Kazakhstan could become "the first customers [shippers]" for a Samsun-Ceyhan pipeline (Interfax, August 7).

If built, Burgas-Alexandroupolis would become (unlike Samsun-Ceyhan) the first-ever major oil pipeline controlled by the Russian state on the European Union’s territory. This prospect need not materialize, however, if the E.U. uses its legal and regulatory powers.