Analysis: South Balkan oil transit-I

By CHRISTOPHER DELISO, UPI Business Correspondent   |   Dec. 30, 2002 at 2:47 PM   |   0 comments

WASHINGTON, Dec. 30 (UPI) -- In today's post-conflict Balkans, integration is the keyword for Western policymakers. The region's less attractive qualities -- smuggling, corruption, war and economic sluggishness -- will significantly diminish when it is brought into the fold. Political, and especially economic integration are the priorities. So says the West.

That said, why haven't the South Balkan oil pipelines conceived almost a decade ago been built? What has caused this holdup, and will the situation change?

Several problems -- some financial, most not -- have stymied two apparently competing pipelines, the Albania-Macedonia-Bulgaria, or AMBO, route connecting the Black and Adriatic seas, and the Bourgas-Alexandroupolis line between the Black and Aegean seas.

The latter, a joint project of the Russian, Bulgarian and Greek governments, has a target capacity of 40 million tons per year. The 175-mile project would cost from $630 million to $700 million, and would involve Russian oil interests. LUKoil owns Bourgas' Neftochim refinery, and Yukos has recently weighed in with a $200,000 investment. According to project chief Christos Dimas, "Yukos is considered one of the supporting oil companies -- they have participated from the beginning."

Despite environmental concerns, Dimas is optimistic about Bourgas-Alexandroupolis: "Without any question at all it can handle all types of tankers, including VLCC's," he told United Press International. "The problem is not unique to the Aegean, but to the whole Mediterranean. The increased use of double-hulled tankers will help, but having both our pipeline and the Bosphorus route is the most advantageous solution for getting Black Sea oil to Western markets."

AMBO backers, however, claim that Greece's Alexandroupolis port isn't deep enough to handle VLCC supertankers, and not large enough to comply with international turning radius requirements -- whereas Vlore (in Albania) is. The 560-mile AMBO pipeline would cost $1.2 billion and have a target capacity of 35 million tons/year.

According to Gligor Tashkovich, executive vice president for government and media relations, AMBO's great advantage is that it crosses the entire Balkan peninsula, thus eliminating completely the danger of an oil spill in the Aegean. This threat was driven home on Dec. 13, when a tanker off the coast of Attica caught fire. The blaze was extinguished by firefighters after three hours, and no environmental damage was reported. Yet with an economy dependent on tourism and the 2004 Athens Olympics fast approaching, can Greece continue to afford the risk to its environment (and image) that accompany tanker traffic?

At some point, arguing between the two is futile. The projects have such widely differing lengths and purposes that it's not really possible to compare them by citing affordability. At the end of the day, the interests of private corporations and those with a personal stake in the countries involved will decide whether these pipelines get built, not the desire to cut costs.

The first and most fundamental problem both face is the question of how future Caspian oil will reach Bourgas. Both projects would run a tanker shuttle service from eastern Black Sea ports to fill their tank farms, and ultimately their pipelines. But until this delivery problem is solved, downstream solutions remain hypothetical.

Yet even assuming that Caspian outlets will be found, hypothetical problems still arise. John Roberts, chief editor with the Platt Energy Group, speculates that Balkan export routes may not even be needed. Citing expected capacities of the BTC (1 million barrels/day), CPC (700,000 barrels/day), and potential Caspian-Russia pipelines (400,000-500,000 barrels/day), Roberts raises a provocative question:

"Without any other pipelines, these can in principle handle at least 2.2 million barrels/day -- and so probably cover all the exports of the Caspian/Azeri region. This doesn't leave much room for other export lines ... and, there may be lesser volume going to the Black Sea than we expected -- so is it going to be worth building Balkan transit pipelines, considering the region's low local consumption?"

The second major reason for the holdup has been the Baku-Tbilisi-Ceyhan, or BTC, pipeline connecting the Caspian and Mediterranean Seas. Conceived almost simultaneously with the two Balkan routes, BTC was also tortured by speculations until relatively recently, due to its own drawbacks. But for mostly political reasons, the U.S. government prioritized it. The Balkans were conveniently forgotten, and the BTC's construction began on Sept. 18. Ironically, it was current AMBO President Ted Ferguson who provided the initial impetus for BTC, when he was with Halliburton subsidiary Brown & Root in 1994.

Now that the Turks (the major beneficiaries of BTC) are no longer anxious about competitors, Balkan supporters hope for a fair hearing. Yet the strategic importance of the region has declined for the United States, which now has military outposts throughout Central Asia -- where other pipelines may someday be built. And, Russia has started direct tanker shipments to America. The only producer capable of defying OPEC has big plans here. On Oct. 19 former Prime Minister Yevgenii Primakov announced that Russia hoped to export 50 million tons of oil to the United States in 2003 alone. Remarkably, LUKoil has even bought up all the Getty Oil gas stations in America. The once-feared Russian invasion has turned out to be economic, not military.

In the Balkans, the United State's final strategic goal was achieved in 1999, with the forcible acquisition of a permanent military presence -- Kosovo's enormous Camp Bondsteel. After the terrorist attacks of Sept. 11, 2001, already downsized peacekeeping forces were depleted even further. American offensives in Afghanistan and (soon) in Iraq have meant a massive redeployment of forces. At the same time, the logistics crews that accompany them have been shifted. In Macedonia, NATO's 700-strong force has dwindled to about 450 soldiers. Logistics and civil engineering crews for KFOR and Bondsteel have seen large staff cuts of late. The foreign media have all but deserted the place.

The current low visibility of the South Balkan region has made it necessary for pipeline backers to work even harder on project promotion. As will be seen in part two Tuesday, their hunt for investors must first address the questions of infrastructure, political stability and the business climate of host countries.

© 2002 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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