Publication: Eurasia Daily Monitor Volume: 3 Issue: 150

Armenia targeted by Kremlin gas diplomacy

The Romanian government has initiated a five-country project for transporting oil from Kazakhstan via the Black Sea to European consumer markets. The project envisages construction of a pipeline from the Black Sea port of Constanta, passing through the territories of Romania, Serbia, Croatia, and Slovenia and terminating at Trieste in Italy. The five countries have formed an Interstate Committee at deputy ministers’ level to promote this project.

Kazakhstan anticipates an output of 100 to 110 million tons of oil annually by 2010 and 150 to 160 million tons annually by 2015 and thereafter. Such volumes necessitate multiple export outlets, of which the route via Constanta to Italy can be an attractive one. Italy has the largest refining capacities of any European country. From Trieste, moreover, the proposed pipeline can be connected with the Trans-Alpine Pipeline Network, which links Italy with Austria and southern Germany.

A technical and economic feasibility study for the project was completed in 2005 by a consortium of European consultancies, led by Hill International of Britain and funded through the European Union’s Phare program. The proposed pipeline would run 1,360 kilometers (including 650 kilometers in Romania) overland through easy terrain from Constanta to Trieste.

Two options are proposed for this pipeline’s capacity: 40 million tons or 60 million tons of oil annually (higher figures are also being suggested but seem unrealistic). The estimated construction costs are $2.27 billion for the first-named version or $2.81 billion for the second version.

In addition, the project envisages expanding Constanta’s oil-handling maritime terminal far beyond the existing annual capacity of 21 million tons. Expansion costs are estimated at $206 million for a handling capacity of 40 million tons or $263 million for a capacity of 60 million tons of oil annually. Constanta has a competitive advantage over other Black Sea ports in that it can accommodate supertankers of 150,000-ton capacity.

Constanta-Trieste is one of several competing pipeline proposals for transporting Caspian oil through the Black Sea region to international markets. Other pipeline projects include: Burgas-Alexandropolis, linking Bulgaria’s Black Sea coast with the Greek Aegean coast; Samsun-Ceyhan, crossing Turkey’s Anatolia from the Black Sea to the Mediterranean; and Burgas (Bulgaria)-Skopje (Macedonia)-Vlore (Albania) terminating on the Adriatic. In each case, the oil would be shipped farther by sea tankers from the terminal point of the pipeline. These projects rely largely on Kazakhstani oil arriving from Novorossiysk and other Russian Black Sea ports and heading for the open seas. These competing projects have one main rationale in common: bypassing the Bosporus in order to relieve tanker traffic through that over congested strait.

For its part, the Constanta-Trieste project could become viable by demonstrating that it can serve the larger purpose of providing direct access for Kazakhstani oil to Europe along the shortest route: South Caucasus-Black Sea-Constanta-Trieste. While the other proposed pipelines are Bosporus-bypass projects, Constanta-Trieste makes eminent sense as a Russia-bypass project, in addition to being a Bosporus-bypass project as well.

The other projects are more advanced in terms of negotiation and organization, and have more powerful sponsors, compared to Constanta-Trieste. The latter therefore seems almost redundant if viewed solely as a Bosporus-bypass project. However, Constanta-Trieste can bring the added value of its location on the most direct route from the Caspian basin to Europe and the prospect to link up with the South Caucasus transit corridor for Caspian oil.

At present, Russia almost monopolizes the transit of Kazakhstani oil to international markets, with the lion’s share going through the Caspian Pipeline Consortium’s (CPC) line to Novorossiysk and farther by sea. The decision to route Kazakhstan’s oil exports via Russia, made in 1990s, has proven to be a strategic blunder. This can be offset at least in part by opening a transit corridor for Kazakhstani oil via the Caspian Sea, South Caucasus, and the Black Sea. Within the next few years Kashagan and other oilfields in Kazakhstan will be able to support a major Russia-bypass project.

This must involve routing part of Kazakhstan’s growing export volumes to Georgia’s Black Sea ports, expanding the existing Georgian terminals as well as building new terminal capacities, and linking up with the proposed Constanta-Trieste pipeline. Romania recently proposed to Kazakhstan to participate in the Constanta-Trieste project as the supplier country. Coordination among the countries along the entire route, as well as a joint approach to the European Union for support, must become the next steps in this project, in line with the EU’s supply diversification goals.