SOFIA, Bulgaria, Dec. 2 (UPI) -- The recent sinking of the Prestige oil tanker came only 2 months after construction began on the Baku-Tbilisi-Ceyhan pipeline, which will connect the Caspian and Mediterranean Seas. In regards to the future of oil transit and supply in Eastern Europe and the Balkans, the symbolic relationship here is telling indeed.
At bottom, the issue linking the two events is how the black stuff should flow. It raises significant questions, regarding use of pipelines versus tankers, interconnection and environmental safety. Questions of geographical strategy -- the future role of Russia, the BTC project and the Balkans -- have also become very pertinent.
These topics were debated at a conference held last week in Sofia. The conference brought together leading figures in the European oil and gas industries.
Big producers Russia and the Caspian states are seeking new energy outlets to Europe and the United States. Increased cost and risk are making corporations more keen on linking existing pipelines -- besides building new ones -- and less enthusiastic about tanker transport.
Thus renewed attention to as-yet-unrealized Balkan oil pipeline projects. First is the $1.3 billion AMBO pipeline, which would connect Bourgas, Bulgaria with Vlore, Albania, by way of Macedonia. A second is the much shorter, $600 million Bourgas-Alexandroupolis (Greece) pipeline, backed by the Russian government. A third, still hypothetical route, would extend the existing Thessaloniki-Skopje pipeline to Central Europe, through Yugoslavia.
The Bulgarian government is quite sensibly supporting both. The Bourgas-Alexandroupolis pipeline would start at 15 million tons per annum, and eventually reach 40 MTAs. The AMBO project could, after a similar ramp-up period, reach its target capacity of 750,000 barrels/day, or 35 MTAs.
Critics of the former say VLCC supertankers at the small port of Alexandroupolis couldn't comply with international turning radius regulations. The Aegean is also filled with submerged rocks and island populations that, like the Spaniards ruined by the Prestige spill, depend on fishing and tourism for their livelihood.
So AMBO supporters say their route is safer, as it begins and terminates in deep-water ports. Bulgaria likes the fact that AMBO crosses all of its east-west territory -- meaning higher transit fees. In total, Bulgaria hosts 51 percent of this 560-mile pipeline. However, given the shorter distance (187 miles) and Russian support (Yukos recently broke a funding deadlock with a $200 million investment), Bourgas-Alexandroupolis may receive more attention for now.
Of course, should both come into existence, the Bulgarians won't complain. Minister of Economy Nikolai Vassilev would only state -- rather diplomatically -- "we cannot say which will come first or be more successful."
These projects are only now emerging from the shadow of BTC. Until fairly recently, critics believed that this colossal, $2.9 billion project wouldn't be realized. However, BTC always enjoyed U.S. government backing -- mainly, for political rather than economic reasons. Removing future Central Asian exports from both Russian and Iranian hands, and rewarding Turkey (a key American ally) accounted largely for BTC. Indeed, its route is less direct and more expensive than either the Russian or Iranian options.
Due to this priority, Balkan projects were deliberately slowed. The U.S. government has pressured its own oil companies not to publicly discuss projects west of the Black Sea.
Until now, this had marginalized Balkan pipeline ideas. Now that BTC will happen, the Turks are less anxious about "competition" and the Balkans can be reconsidered.
The Prestige disaster has redoubled attention to the dangers of Bosphorus transit. Turkey is increasingly wary of allowing supertankers through the heavily trafficked, narrow straits separating Europe and Asia. An oil spill here would be catastrophic. Tighter Turkish regulations are discouraging shippers. Yet although Bosphorus shipping is becoming more expensive and everyone agrees on the environmental risk, there's been little action on alternatives.
Russia is growing tremendously as an oil exporter to Europe and the United States. The Russian government announced 6 weeks ago it could supply the latter with 50 MTAs in 2003. Russian oil accounts for 15 percent of European consumption, and 22 percent of total European oil imports. This amounted to 2.7 million barrels/day in 2001.
The top three Russian companies are therefore showing large export increases. Yukos claims a 27 percent increase over 2001, while LUKOIL and TNK registered 15 percent gains.
"In years to come, we'll see continually huge increases in exports," stated Davor Stern, the adviser to the president of Tyumen. " So if you can transport it, we can supply it."
According to Transneft Vice President Igor Solyarskiy, "integration of Russian and European pipelines is key."
Most significant is the 2,982-mile Druzhba pipeline, which carries Russian oil to Hungary through Ukraine, Belarus and Slovakia. An agreement to link this with a northern branch of JANAF's Adria pipeline (terminating in Croatia's Omisalj port) is near completion. According to Solyarskiy, the signing will be conducted soon (Dec. 16).
Adria's proposed eastern branch will connect the Black Sea port of Constanta with Omisalj, by way of Serbia. The 746-mile pipeline would have an initial output of 660,000 barrels/day, and a capacity of 10 MTAs. However, Croatia's two Omisalj refineries still require investment -- reckoned before as $360 million.
Besides, the Constanta pipeline is estimated to cost $1 billion -- almost one-third of the $2.7 billion required for the much bigger and more popular BTC project. At the end of the day, the fundamental challenge remains that of selling the Balkans to investors. Ironically, the chief selling point of Druzhba-Adria is its connection with Central Europe.
A big factor in the emerging trends in pipeline construction is the relationship between corporations and governments. Differing laws, languages and interests mean brokering transnational agreements requires patience and tact.
All sorts of roadblocks arise. AMBO suffered a one-year delay in its route agreement signing in 1998-99, when the four parties involved did not recognize the Republic of Macedonia by the same name. According to Solyarskiy, Ukrainian government haggling over tariffs endangered the Druzhba accord. The BTC project has been shackled by Georgian concerns over environmental impact.
Funding for new pipeline projects depends largely on whether the host governments can minimize bureaucracy and expedite construction. No wonder the delegates in Sofia sought to assure that their countries were "business friendly." Given the still blemished view of the Balkans and Eastern Europe as regions of conflict, corruption and economic torpor, corporate decision-makers need reassurance their investments will flourish. Coaxing the cash out of them is the goal for today's pipeline backers. Convincing would-be funders that the projects are viable remains the challenge.
