Burgas-Alexandroupolis - death of a great pipeline project?

Chancers are that the Burgas-Alexandroupolis oil pipeline project, intended to give Russia a new outlet for its oil exports, avoiding the busy Bosporus Strait, will be scrapped. The main reason is procrastination from the new Bulgarian government. The Russian partners have now given the Bulgarian government until 20 March to pay their dues, which are in arrears. Theodoros Tsakiris, the Director of EKEM’s Observatory for European Energy Policy in Athens, explains what is behind the bickering around the Trans Balkan Pipeline.

Will the Trans Balkan Pipeline dream be shattered?
Ever since the dynamic return of Russia’s oil production in the early 2000s and the systematic expansion of Kazakh and Azeri oil exports over the last 20 years, every major oil company and western government has been searching for ways to alleviate the pressure of crude oil transportation on the Bosporus Straits. They did this not just for reasons of avoiding a devastating environmental accident in the Pronotis, but also to diversify European and US import routes away from Russia. The culmination point of this policy was the commissioning in June 2006 of the Baku-Tbilisi-Ceyhan oil pipeline (BTC), from Azerbaijan through Georgia to Turkey, which serves both of these two purposes, while committing the near totality of Azeri crude oil exports through the volatile Georgian Transport Corridor.

For its part, Russia has long been looking for a possibility to find a new outlet for its oil exports in South Eastern Europe that would avoid the Bosporus bypass. Already in 1993, Russian and Greek companies discussed a pipeline through Bulgaria, and the next year Bulgaria and Greece signed a cooperation agreement. An inter-governmental agreement on the project was finally signed on 15 March 2007 in Athens by the three ministers involved, in the presence of their countries’ leaders ,including Russian president Vladimir Putin. In December 2007, an international project company, Trans-Balkan Pipeline (TBL), was established by Transneft, Rosneft, Gazpromneft, Technoexportstroy, Hellenic Petroleum, Prometheus Gas, Latsis Group and the government of Greece. If built, the pipeline would transport some 670,000 barrels a day of Russian and Kazakhi crude oil away from the Turkish Straits.

Frustrated

As these facts indicate, the project moved along quite well until a new government – under the rightist politician Boyko Borisov – came to power in Bulgaria in July 2009. Borisov started to procrastinate the development of the project, citing environmental reasons, much to the chagrin of the Greeks, who became increasingly frustrated at the Bulgarian lack of cooperation. On 13 December 2010, Theodoros Pangalos, Greece’s Deputy Prime Minister, speaking at a conference organized in Athens by the Greek-Russian Society, openly accused the Bulgarian government of deliberately ‘stalling the development of the Burgas-Alexandroupolis oil pipeline’. Pangalos brushed aside Borisov’s environmental reservations noting that ‘Every time political forces which are under strong Western influence win in Bulgaria, Burgas-Alexandroupolis reaches a dead end’, referring to the earlier obstruction of the project during 1997-2001 when Bulgaria was ruled by the right-wing Kostov government.

This was the first time since Borisov came to power in July 2009 that any senior Greek official openly criticized, in such undiplomatic language, what many senior decision-makers in Greece and Russia perceive as deliberate procrastination on the part of the Bulgarians. According to Russia’s RBK daily, Pangalos said that ‘multinational oil companies connected with the American government use all means to prevent the realization of the Burgas-Alexandroupolis oil pipeline’.

Greek Junior Energy Minister, Yannis Maniatis, said that ‘the reservations of the Bulgarian government on the environmental impact of the project are known. Nevertheless, we stress at any given opportunity

'The pipeline constitutes the best means available to the international community to reduce the dangers of a tanker accident in the Dardanelles and the Bosporus'
that the pipeline constitutes the best means available to the international community to reduce the dangers of a tanker accident in the Dardanelles and the Bosporus, which would be catastrophic for the environment and for tourism throughout the great Northern Aegean’. Maniatis also noted that it ‘would indeed be a paradox’ for Bulgaria to turn down the Environmental Impact Assessment Study (EIAS) of the project, as Borisov has repeatedly announced that he would do, ‘given the fact that both countries use the same [E.U. defined] rules [for evaluating an EIAS]’.

On 10 November 2010, Bulgaria’s Ministry for Environment & Water returned the EIAS of the Burgas-Alexandroupolis oil pipeline to the Trans-Balkan Pipeline Consortium (TBL) for a series of corrections, the Ministry said in a press release. Bulgaria’s Environmental authorities found the study “inadequate” and said that it “features may unclarities and omissions”.

Plamen Rusev, ex-director of the Bulgarian branch of the project company, told Sofia News Agency recently that the decision of the Ministry was ‘politically motivated’. ‘All environmental standards have been observed in the Burgas-Alexandroupolis project, including with respect to the European network of protected areas NATURA 2000’ he noted. Rusev believed that the government is trying to buy time in order to repel the pressure Vladimir Putin was expected to apply to the Bulgarian leadership when he visited Moscow on 13 November 2010. The Environment Ministry gave TBL sixty days to correct the study’s ‘deficiencies’ and resubmit it.

Frozen

If anyone expected to hear any major news on Burgas-Alexandroupolis from Sofia following Putin’s visit on 13 November 2010, he must have been greatly disappointed. The oil pipeline project was completely overshadowed by the Russian-Bulgarian celebrations on the finalization of a Road Map agreement that evidently secured the participation of Bulgaria in the 63 bcm/y capacity South Stream gas pipeline project. If Mr. Putin decided to keep his silence, Mikhail Barkov, Vice-President of Transneft and the representative of the Russian state company in the Board of Directors of TBL, was quite vociferous. He condemned Bulgaria’s refusal, on 15 December 2010, to pay the nearly 8 milkon euros it still owes its Greek and Russian partners since the fourth quarter of 2008.

‘They did not keep their word, and they are jeopardizing the entire project. This is a fact’, he told RIA Novosti, noting that as a consequence of the Bulgarian position the Greek partners of the project have

‘They did not keep their word, and they are jeopardizing the entire project. This is a fact'
decided to stop paying their share until the Bulgarian government pays what is said to have been due for almost 15 months now. Barkov all but said that the project is effectively frozen ‘We are now discussing what we should do. It seems that the project will be frozen’, the Transneft VP told RIA Novosti while clarifying that Russia has other options on the table in order to by-pass the Bosporus Straits.

With these other options, Barkov evidently referred to the Samsun-Ceyhan pipeline, a 1.5 million barrel-a-day project owned and operated by the Trans-Anatolian Pipeline Company (TAPCO), a joint venture of Italian Eni and Turkish Çalýk Enerji, which is currently being built and will become operational in 2012. The two Russian state oil companies Rosneft and Transneft have been discussing their participation in this project for some time. A few hours before Barkov’s statements, Igor Sechin, Russia’s Deputy Prime Minister and Chairman of Rosneft, following a meeting in Constantinople with Turkish Energy Minister Taner Yildiz, announced that talks on the participation of Rosneft and Transneft in TAPCO were ‘at an advanced stage’ and were ‘nearing completion’. Sechin said that Rosneft and Transneft will each get 25% of the TAPCO joint-venture.

The following day Çalik announced that the company has signed an agreement with Rosneft to re-export the company’s crude oil to Mediterranean states, which will run through TAPCO. The company did not disclose the volume of any Rosneft commitment to TAPCO but the agreement, which was also greeted by Sechin ‘as a deal in line with our strategic partnership’, will bring Rosneft one step closer to abandoning Burgas-Alexandroupolis.

The Kazakhstan factor

Apart from Bulgarian intransigence, Russia is also pushed to make up it mind on choosing between the two projects by another even more important factor, namely the role of Kazakhstan. This country is developing the giant Kashagan oil field in the Caspian Sea. A large part of the oil from Kashagan will go to China, but Kazakhstan is also looking for western transport routes. One option is the CPC (Caspian Pipeline Consortium) pipeline, which goes through Russian territory, and is the great rival of the western-controlled BTC pipeline. CPC is a joint-venture of Russian, Kazakh and western partners, including Transneft, Rosneft, KazMunaiGas (KMG), the government of Kazakhstan, Chevron, ENI and Shell.

The planned Burgas-Alexandroupolis pipeline (Illustration: Neftegaz) 
On 9 December 2010, Kairgeldy Kabyldin, the President of KazMunaiGas (KMG), told a press conference following a ceremony marking the beginning of the work on the expansion of CPC’s capacity to 1.35 mn barrels/day (67 mn tons/year) that the bulk of Kashagan’s Phase 1 will be exported via the CPC. The CPC consortium, led by Transneft, finalised that same day its decision to expand the pipeline’s throughput capacity from its current 560,000 b/d to around 1.35 mn b/d by 2015 at a cost of almost $5.4 billion. The CPC line, which currently connects Tengiz to the Russian oil port of Novorossisk, could eventually carry up to 1.5 million barrels per day. Kazakhstan is expected to supply some 400,000 barrels a day for the expected capacity increase from Kashagan Phase 1. The expected production date of Kashagan Phase I has recently been pulled forward to the end of 2012 from an initial deadline of October 2013. Kabylding did not say which would be the main export pipeline option for Kashagan Phase 2 and 3, that are expected to come on stream, respectively, on 2018 (750,000 b/d) and 2020 (1.2 mn b/d).

This decision of Kazakhstan, which has signed MoU’s both for the export of its crude oil through Burgas-Alexandroupolis (The Trans Balkan) pipeline and through the Samsun –Ceyhan (Trans-Anatolian) pipeline, will put more pressure on Moscow to decide which of the two projects it will finally support. In any case one should also note that for Russia there is always the option, although not a very likely one, to redirect its entire Black Sea transited oil production via Phase-2 of the Baltic Pipeline System, thereby leaving Kazakhstan as the sole ‘decision-maker’ on the construction of a second Bosporus by-pass after the BTC.

Where does all this leave Greece? It is clear that there is very little time left for Athens to maneuver its way out of this predicament. One way out might be to include US and EU oil companies into the shareholders structure of TBL, an option which has so far been blocked by Russia. As the Russians cooperating with western companies in the CPC, there is no reason why they shouldn’t do this also in the Burgas-Alexandroupolis project. It might persuade Bulgaria to reconsider its position. If this does not happen, Burgas-Alexandroupolis is dead.

 

About the author

Dr. Theodore Tsakiris is the Director of EKEM’s Observatory for European Energy Policy (www.ekemeuroenergy.org/en). The Hellenic Centre for European Studies (EKEM) is a think-tank supervised by and attached to the Minister of Foreign Affairs who is responsible for EU policy.
Dr. Tsakiris acquired his doctoral degree (Summa Cum Laude) from Panteion University of Athens in the field of International Energy Politics & Geoeconomics under an European Commission Scholarship in March 2008. He has an M.A. in International Security Studies from Georgetown University where he completed his studies under a Fulbright/Texaco Scholarship.

From January to June 2010, he worked with the Office of the Deputy Minister for Energy of Greece as a special scientific advisor focusing on international oil & gas interconnections. In 2008-2009 he served as the Head of the Policy Making Unit at the Special Secretariat for International Energy Policy of the Hellenic Ministry of Development. Since 2002 he has worked as a Research Fellow on issues of US and EU Foreign and Security Policy, Post-Soviet Studies, and Energy Security Policy in the Greek Foreign Ministry.

He is the author of 3 books and dozens of articles in journals such as Agora Xoris Synora, Geostratigiki, Comparative Strategy, Perceptions, World Pipelines, Global Pipelines Monthly, and Oil & Gas Journal. He also works as the Caspian, Iran and South East European editor of the Middle East Economic Survey (MEES), the oldest and most respected oil & gas journal in the Greater Middle East.