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Analysis: A pipeline against Russia?

By STEFAN NICOLA, UPI Energy Correspondent

BERLIN, Oct. 12 (UPI) -- Five Eastern European states have agreed to build a new oil pipeline, in a move they say increases their energy security by reducing dependency on Russia.

Azerbaijan, Poland, Lithuania, Georgia and Ukraine on Oct. 10 signed a deal that could provide Eastern (and ultimately Western) Europe with an alternative to Russian oil imports.

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The treaty, signed by the five countries’ presidents in the course of the energy summit in Vilnius, Lithuania, forms a consortium to build a $700 million pipeline to pump Azerbaijani oil to Poland and the Baltic Sea.

The new pipeline, to be completed in 2011, is a 310-mile extension to an existing one in western Ukraine. It bypasses Russian territory northwestward and links the existing pipeline to the Polish Baltic Sea port of Gdansk.

The presidents of the five countries involved praised the deal, arguing it would improve energy security and help diversify Eastern Europe’s oil imports.

Georgian President Mikhail Saakashvili said the deal sprung from the "most successful summit" in which he has "ever participated."

"This deal will have great impact not only for signatory countries, but for all of Europe," Polish President Lech Kaczynski said in Vilnius. Kaczynski, known for his critical position toward Russia, said the deal was not aimed against another country (an apparent reference to Moscow), a statement few can believe.

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"It's a symbolic move by these countries to show to Russia that it is to be isolated," Alexander Rahr, Russia expert at the German Council on Foreign Relations, a Berlin-based think tank, told United Press International Friday in a telephone interview.

Europe gets nearly a third of its gas and a third of its oil from Russia, a country that has become an energy superpower, and also acted accordingly.

Russia in the past two years repeatedly flexed its energy muscles in several oil and gas price rows. Russia has stopped delivering crude to Lithuania and Latvia, and temporarily cut off gas supplies to Ukraine and Belarus.

Critics accuse Moscow of using its energy assets as a foreign-policy weapon against former Soviet republics that turn toward the West. Russia, however, contends that it is merely asking these states to forgo preferential rates on energy and pay what the rest of Europe does.

As some countries in Eastern Europe, namely the Baltics, are virtually completely dependent on Russian energy imports, they are scrambling for possibilities to diversify. Lithuania is in an especially troubled position given that Russia in July 2006 stopped delivering crude to Mazeikiu Nafta, the only refinery in the Baltics, because of alleged necessary pipeline repairs.

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But whether the new pipeline extension would be a viable alternative remains unclear: A key country to get on board would be Kazakhstan, the largest oil producer in the region, but while it was present in Vilnius, it so far has resisted joining the project.

The only country that could fill the pipeline with crude is Azerbaijan, but experts doubt that it will use up all its production capacity (which will reach some 55 million tons a year) for the new project, especially given other commitments.

"This project doesn’t make sense given the existence of the Baku-Tbilisi-Ceyhan," Rahr said.

The BTC pipeline links the Azerbaijani capital of Baku with Tbilisi, the capital of Georgia; and Ceyhan, a port on the southeastern Mediterranean coast of Turkey. It is not only a new oil pipeline (in use since May 2005), but also the second longest in the world, and one that is supplied with nearly all of Azerbaijan’s oil.

"This new pipeline will end like all the others before: It won’t be built," Rahr said.

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(e-mail: energy@upi.com)

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