World
Institutional
links
Welcome back on
26 -29 August,
ONS 2008
Bridging
the energy gap
is ONS 2006 theme,
from 22-25 August,
in Stavanger, Norway
Petroleumworld
Business
Partners:
Centre for
Global Energy
Studies
  |
Andrew Neff/ Global Insight :War leaves Russia
with veto power ovr Georgian energy
Global Insight Perspective
Oil loading resumed yesterday at the Baku-Tbilisi-Ceyhan (BTC) oil pipeline following a three-week outage, but the result of the Georgian-Russian war, together with the continued presence of Russian troops in Georgian territory, has effectively given Russia veto power—if not de facto control—over regional oil and gas pipelines transiting Georgia.
Significance
U.K. supermajor BP confirmed yesterday that the 1-million-b/d-capacity BTC pipeline had resumed operations, three weeks after a fire in eastern Turkey knocked Azerbaijan's main oil export outlet offline.
Implications
Although the BTC was apparently hit by Kurdish rebels, Russia's lightning military rout of Georgia this month—and the slow withdrawal of Russian troops from Georgian territory—means that the pipeline's ability to operate successfully in the future is now effectively contingent on Russia agreeing not to meddle.Outlook
Although it is true that Russia did not destroy or specifically target any of the oil and gas pipelines that transit Georgia during the war, the war has heightened the risk—or at least the perception of the risk—of increased reliance on energy supplies from the Caucasus and Caspian regions, which in itself could have major impacts on foreign investors and European importers.Returning to "Normalcy"?
Three weeks after a fire knocked the 1-million-b/d-capacity Baku-Tbilisi-Ceyhan (BTC) oil pipeline offline, U.K. supermajor BP said yesterday that oil loading had resumed at the 1,770-km, US$4-billion pipeline. BP officials said that the company was increasing production at its Caspian Sea project offshore Azerbaijan, the Azeri-Chirag-Guneshli (ACG) group of fields, in line with the resumption of operations at BTC, which was exporting approximately 850,000 b/d of oil before the 5 August blaze—for which Kurdish rebels have claimed responsibility, even though Turkish officials refuse to confirm this—forced the line to shut down for repairs.
In the intervening three weeks, of course, the world around BTC has changed, perhaps irrevocably so, with Azerbaijan's main oil export route now essentially at the mercy of the Russian military. The intense but brief Russian-Georgian war erupted just after the BTC was knocked offline, and although the BTC itself was spared from the conflict, the fighting in Georgia and its separatist region of South Ossetia forced BP to take the precautionary step of halting the Baku-Supsa oil pipeline, as well as the South Caucasus Pipeline (SCP), the newly built Azerbaijan-Georgia section of the Baku-Tbilisi-Erzurum (BTE) gas pipeline. Although the BTC has now resumed operations, the 150,000-b/d-capacity Baku-Supsa pipeline—which had only just reopened after a 20-month shutdown for repairs—remains shuttered, while gas exports from Azerbaijan via the SCP remain on hold.
Moreover, despite the signing of a ceasefire, Russian troops have been slow to withdraw from Georgian territory—indeed, it is unclear whether Russia has any intention of withdrawing what it calls its "peacekeeping" troops at all. Russia continues to defy the West with its actions in Georgia, and yesterday Anatoly Nogovitsyn, the deputy chief of the Russian military's general staff, told Reuters that Russian forces plan to carry out regular cargo inspections at Poti, a vitally important Georgian Black Sea port. Nogovitsyn said that Russia's patrols at Poti, Georgia's busiest port and the terminus of a railway from Azerbaijan with the capacity to load up to 100,000 b/d of oil products, were part of Russia's rights under the ceasefire to keep the peace.
Chokehold on Oil and Gas Exports
The idea that Russia can still play ”peacemaker” between Georgia and South Ossetia after Russia's aggressive actions this month in invading Georgian territory is laughable, but the continued presence of the Russian military in Georgia has significant ramifications for the flow of oil and gas supplies from Azerbaijan and Kazakhstan to Western markets. The trans-Caucasus, East-West corridor promoted by the West to reduce the dependence of these ex-Soviet states on Russia (as both market and transit partner) has now effectively been subjected to Russian control. At the very least, the Russian-Georgian war and its aftermath has given Russia veto power (de facto if not de jure) over the secure and stable flow of oil and gas via Georgian territory.
Conversely, the fact that none of these major oil and gas pipelines via Georgia was damaged during the war could signal to European importers and current and potential foreign investors in the region that fears over the stability and security of energy transit routes via Georgia are overblown. After all, the BTC was knocked offline in Turkey, not Georgia (although this raises the interesting question of whether Russian forces would have targeted BTC were the pipeline not already out of commission). U.S. Assistant Secretary of State Matthew Bryza, in a radio interview with Ekho Moskvy, noted that, "If Russia wanted to destroy the pipeline, it would have done it".
Outlook and Implications
The fact that Russia did not destroy BTC when it had the chance will be cold comfort for officials in Turkey, Georgia, and Azerbaijan, not to mention European importers and existing and potential foreign investors in the Caucasus. Georgia's energy infrastructure remained largely intact despite its military's rout by Russian forces, although Georgian railways that carry Azeri and Kazakh crude oil and petroleum product exports did suffer some damage. Nevertheless, the war still disrupted oil and gas exports from Azerbaijan and the Caspian region with BP's decision to halt supplies via Baku-Supsa and SCP in the midst of the conflict.
Thus, even without specifically targeting and/or damaging the key oil and gas arteries crisscrossing Georgia, the Russian military has managed to secure veto power over the flow of oil and gas via Georgian territory. Hence, the psychological effects of the war—Russia could have destroyed the pipeline but chose not to—could, in the long run, be even more damaging to the idea of the East-West energy supply corridor via the Caucasus than the war itself. The risk of instability in the Caucasus has long threatened the development of the transit corridor, but now that risk has become real. Ironically, even though the infrastructure survived, the perception of risk in the region has increased, particularly with Russian ”peacekeepers” continuing to occupy Georgian territory.
Construction of the BTC and SCP went forward despite the risk of instability in the Caucasus, but the Georgian-Russian war could change the equation for the next generation of oil and gas pipelines in the region. In particular, Western-supported project proposals such as the trans-Caspian gas pipeline (linking Turkmenistan to Azerbaijan) and the Nabucco pipeline (from Turkey to Austria, which would see Turkey become an ”energy bridge” for Caspian, Central Asian, and Middle Eastern gas imports to Europe) will surely now face an even greater struggle as they face questions over security and stability of supplies. These hurdles, together with Russia's opposition to these projects, were already in place before the Russian-Georgian war, so the conflict—and the physical presence of Russian forces in Georgia, threatening to exercise Russia's veto power over the transit of oil and gas via Georgia—could well force European importers and foreign investors to rethink plans to increase reliance on energy supplies from the region.
Andrew Neff is Global Insight's a Middle East Energy analyst. Petroleumworld does not necessarily share these view.
Editor's Note: For more information on Global Insigth, contact: Catarina Feria-Walsh Global Insight, catarina.walsh@globalinsight.com. www.globalinsight.com.All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld. All comments expressed are private comments and do not necessary reflect the view of this website.
All comments are posted and published without liability to Petroleumworld. Fair use Notice: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner.
We are making such material available in our efforts to advance understanding of issues of environmental and humanitarian significance. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107.
For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml.
All works published by Petroleumworld are in accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.
Petroleumworld has no affiliation whatsoever with the originator of this article nor is Petroleumworld endorsed or sponsored by the originator.
Petroleumworld encourages persons to reproduce, reprint, or broadcast Petroleumworld articles provided that any such reproduction identify the original source, http://www.petroleumworld.com or else and it is done within the fair use as provided for in section 107 of the US Copyright Law.
If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.Internet web links to http://www.petroleumworld.com are appreciatedPetroleumworld welcomes your feedback and comments: editor@petroleumworld.com.
By using this link, you agree to allow E&P to publish your comments on our letters page.
Petroleumworld News 08/28/08
Copyright© 2008 respective author or news agency. All rights reserved.
We welcome the use of Petroleumworld™ stories by anyone provided it mentions Petroleumworld.com as the source. Other stories you have to get authorization by its authors.Send this story to a friendYour feedback is important to us!
We invite all our readers to share with us
their views and comments about this article. Write to editor@petroleumworld.comAny question or suggestions, please write to:
editor@petroleumworld.com
Best Viewed with IE 5.01+
Windows NT 4.0, '95, '98 and ME +/ 800x600 pixels