OIL-HANDLING CAPACITIES GROWING AND AVAILABLE ON GEORGIA’S BLACK SEA COAST

Continuing development of oil terminals on Georgia’s Black Sea coast opens real possibilities for exporting oil from Kazakhstan on the shortest route, directly to European Union territory by sea tankers. The long-planned, EU-supported Odessa (Ukraine)-Brody-Plock-Gdansk (Poland) or Constanta (Romania)-Trieste (Italy) pipeline projects are natural continuation options from Georgia’s Black Sea terminals Batumi, Kulevi, or Supsa. This transit corridor opens direct access from Central Asia to Europe on the shortest route, bypassing Russia.

On February 9 in Astana, Rompetrol CEO Dinu Patriciu described the Batumi-Constanta route as a bridge between Kazakhstan and Europe for the transport of oil. Given the urgent need for alternatives to Russian transit routes, any company providing such an alternative would perform a great service for European energy security, Patriciu is cited as saying (Trend Capital, February 9).

Kazakhstan’s KazMunayGaz is completing its recent acquisition of 75% of the Romanian company Rompetrol for $2.7 billion, with Patriciu retaining a 20% stake along with executive authority. KazMunayGaz plans to invest additional funds into Rompetrol’s choice asset, the Petromedia refinery on the Black Sea coast near Constanta. That refinery’s capacity of 5 million tons per year can largely be dedicated to Kazakhstani oil, tanker-delivered from Georgia. A maritime oil terminal is due for completion this year at the port of Media to supply the Petromedia refinery (Business Review [Bucharest], February 12). Deliveries via Georgia to Odessa in the context of the Odessa-Brody project is another option for Kazakhstan to consider.

Those synergies are becoming possible following KazMunayGaz’s February 5 purchase of the Batumi oil terminal. The Kazakh state company acquired 100% ownership of that terminal and 100% management rights to the Batumi Sea Port for an undisclosed sum from the Danish-led Greenoak Group and its partners. Greenoak shall continue to manage both the oil terminal and the port of Batumi for KazMunayGaz. The Greenoak Group had acquired control of the oil terminal and the port from the Georgian state in 1999 and 2006, respectively. Greenoak successfully modernized and expanded the terminal to a capacity of at least 15 million tons per year for crude oil and refined products. It also launched the modernization of the Batumi Sea Port, which KazMunayGaz intends to see carried forward (Georgian Business Week, February 11).

This acquisition grows out of a Greenoak-KazMunayGaz parity joint venture, created in March 2007 for the Batumi oil terminal. That agreement also envisages construction of an oil refinery at Batumi with a capacity of 5 million tons annually. From this point on, full ownership by KazMunayGaz should guarantee a growing oil flow to Batumi from Kazakhstan. The Batumi terminal has become Kazakhstan’s first international oil transport asset with direct access to the open sea. In parallel, Petromedia has become Kazakhstan’s first refinery on EU territory.

Oil reaches Batumi by railroad from Azerbaijan and by trans-Caspian tanker from Kazakhstan, continuing on the Azerbaijan-Georgia railroad. However, the Batumi terminal is being under-utilized at this time (as is Georgia’s overall transit potential). Batumi shipped 666,000 tons of crude oil and refined products in January 2008, down from 733,000 in January 2007 and from 924,000 tons in December 2007. The terminal shipped 9.5 million tons of crude oil and refined products in 2007, down from 11.7 million tons in 2006.

The decline in shipments from Batumi had been expected since 2006. It is mainly attributable to the planned switch of some Azerbaijani oil volumes away from the Batumi route, in preference to the Baku-Tbilisi-Ceyhan pipeline. In addition, oil handlers cite an increase in Azerbaijan’s railroad tariffs for oil cargos en route to Batumi. Among the major companies active in Azerbaijan, ExxonMobil remains the main user of the Batumi terminal.

The Batumi terminal’s growth potential rests primarily with Kazakhstan’s rapidly growing oil production. KazMunayGaz is ranked as the third-largest oil producer in that country, after Chevroil and ExxonMobil. This entails ample potential for exports via Batumi and the Black Sea to Europe.

Meanwhile, Azerbaijan’s State Oil Company is expanding the Kulevi oil terminal, which is Georgia’s second largest on the Black Sea coast. The Azerbaijani company acquired Kulevi in 2006 for an undisclosed sum from Georgian billionaire Badri Patarkatsishvili. Located near the port of Poti, the Kulevi terminal is also supplied with oil via Azerbaijan by railroad. Azerbaijan’s state company has rapidly expanded the terminal and plans to inaugurate it officially this month, at a capacity of 10 million tons of crude oil and refined products annually. It envisages a further increase to 15 million tons per year and it also plans to build a refinery at Kulevi with a processing capacity of up to 10 million tons of crude annually, as announced last November when Presidents Ilham Aliyev and Mikheil Saakashvili opened the expanded terminal (see (EDM, November 28, 2007).

The oil export terminal at Supsa on the Black Sea and the pipeline leading there from Azerbaijan, with a capacity of 8 million tons annually, are not being used since 2007. Repair work on the pipeline is the primary reason cited for the temporary closure. The BP-led Azerbaijan International Operating Company (AIOC, the main oil-extracting consortium in Azerbaijan) owns and operates the terminal as well as the pipeline, which spans the distance from the Caspian Sea at Sangachal to the Black Sea at Supsa. This capacity remains available as an outlet for growing oil production originating on either shore of the Caspian basin.

With their recent acquisitions and ongoing projects, Azerbaijan and Kazakhstan are advancing to the role of exporting of refined products in addition to the role of crude oil exporters. Both of these roles involve further development of transit and shipment capacities in Georgia, en route to Europe directly. Coordination among the countries along the entire route, as well as a joint approach from them to the European Union for incentives to invest, should become the next steps in this project, in line with the EU’s goals of energy supply diversification.

(www.gewwnoak-group.com, accessed February 12; Trend Capital, Civil Georgia, Reuters, February 5-9)