RUSSIAN ENERGY MAJORS EYE DIRECT OUTLET TO MEDITERRANEAN

Russia’s ambitious attempts to cast itself as the principal energy supplier to world markets explain the new deal on an oil pipeline linking the Black Sea with the Aegean. During his September 4 visit to Greece, Russian President Vladimir Putin made a seemingly attractive offer to the Greek and Bulgarian leadership to turn their countries into energy transit hubs for Russia’s oil exports. The main result of the negotiations in Athens between Putin, Greek Prime Minister Costas Karamanlis, and Bulgarian President Georgy Parvanov was the decision to revive a long-stalled project aimed at carrying Russian crude from Bulgaria to Greece.

Following the talks, the leaders of the three countries told journalists that the final deal on the 280-kilometer $900 million pipeline linking Burgas on the Black Sea coast and Alexandroupolis on the Aegean is to be signed by the end of this year. Although no concrete dates were given as to the beginning of construction work on the pipeline, the Russian side believes that oil could start flowing by 2009. Plans call for the pipeline to initially transport 15 million tons of crude per year and increase to its full capacity, 35 million tons, by 2012. “I don’t think anybody can stop [the pipeline] now,” Karamanlis asserted.

First advanced some 12 years ago as a way to reduce tanker traffic through the overcrowded Turkish Straits, the project was abandoned over disputes related to transit tariffs, ownership, and construction contracts. Furthermore, in the 1990s Russian oil companies were reluctant to make a firm commitment to supply 35-50 million tons of oil yearly to fill the pipeline: in 1996-98, oil prices on the world market went down to $8-12 dollars per barrel, and under these conditions it did not make much sense to spend additional costs on increasing supplies and conquering new markets.

Nowadays the situation has changed; there are several reasons that make Russia particularly interested in the realization of the trans-Balkan pipeline project.

First, the current sky-high oil prices, in the range of $70 dollars per barrel, have significantly boosted the financial attractiveness of the Burgas-Alexandroupolis route.

Second, the U.S.-backed Tbilisi-Baku-Ceyhan (BTC) oil pipeline, which began operating this summer after four years of construction, likely acted as a catalyst for the revival of the trans-Balkan project. When the BTC came on stream, some Russian analysts say, Moscow started worrying that it might lose the strategic competition over exports to the Balkans and Southern Europe.

Third, the congestion in the Bosporus is being exacerbated by the growing rivalry between Russia and Kazakhstan and the problems related to the throughput capacity of the pipeline operated by the Caspian Pipeline Consortium (CPC) that transports the Kazakh crude from the Caspian oilfields to the Black Sea port of Novorossiysk. The Kazakhs have long pushed Moscow to double the capacity of the CPC pipeline to 67 million tons per year. Kazakhstan has said it plans to triple its crude exports within a decade, most of which travel through Russia via the Caspian pipeline. If Russia eventually agrees to expand the CPC pipeline, the pressure on the Bosporus will rise dramatically as a further 700,000 to 1 million barrels per day will be shipped through the Straits.

Finally, Moscow is keen to open new energy export routes to reach the lucrative European markets and reduce dependence on such “unreliable” transit countries as Ukraine.

But despite the tripartite agreement reached in Athens, there is a significant amount of uncertainty and hidden tension that might eventually derail the Burgas-Alexandroupolis project.

Energy analysts note that the shareholdings in Trans-Balkan Pipeline, the project developer, are still being negotiated. The Russian side, represented by GazpromNeft, Rosneft, and TNK-BP, is pushing for the controlling stake as the oil supplier. But other participants — Bulgaria’s state-controlled Bulgargaz and Greece’s oil refiner Hellenic Petroleum, and pipeline constructor Prometheus — appear to be in favor of all partners having equal stakes.

Furthermore, Bulgaria is reportedly interested in expanding the number of project participants. “We are talking about an inclusive project, not an exclusive one,” Bulgarian leader Parvanov was quoted as saying. A well-informed source close to the Athens talks told the Moscow-based daily Vremya novostei that the Bulgarian team had suggested inviting the Kazakh energy company KazMunayGaz and U.S. Chevron into the Trans-Balkan consortium. Their reasoning appears to be quite simple: as a transit country, Bulgaria is interested in guarantees to fill the pipe, and having the Kazakh and U.S. oil majors participate in the project seems to provide such guarantees, as these companies would get transit privileges for transporting their crude through the pipeline. Indeed, some energy experts suggest that Chevron could be looking to access new European pipelines to move its Kazakh crude.

The idea of Kazakh oil competing with Russian fuel on the European markets cannot look very attractive to Russia’s oil majors. “An alternative to the Bosporus needs to be found, of course without leaving the competition from Kazakhstan the chance to take the place,” a TNK-BP spokesperson told the Moscow Times on September 5.

(Krasnaya zvezda, September 7; Vedomosti, Vremya novostei, Izvestiya, Moscow Times, September 5; Strana.ru, Gazeta.ru, September 4)