The Russian Industry and Energy Ministry said that Russia, Greece and Bulgaria would sign the oil-pipeline agreement before the year is out. It appears, however, that Putin will not ink this document in Athens because the three partners remain divided on some issues. A number of domestic problems must also be solved.
For instance, Greece and Bulgaria have so far failed to allocate any land for the projected pipeline. It should be noted here that Turkish authorities set aside over $20 million for buying land from local farmers for the 1,200 km Baku-Tbilisi-Ceyhan pipeline. The Trans-Balkan pipeline consortium, however, would not have to pay nearly as much.
Putin is expected to confirm the involvement of Russia's oil majors, i.e. Gazpromneft, Rosneft, TNK-BP, Transneft and others, in this pipeline project. The Trans-Balkan pipeline would therefore attain the required capacity of 35 million metric tons.
LUKoil, Russia's main oil exporter, which is also interested in the Burgas-Alexandrupolis pipeline, has adopted a wait-and-see attitude. Its officials declined to comment on the company's involvement in the project until the end of Putin's visit. LUKoil, which is owned by Vagit Alekperov, coordinated this project for a long time but was replaced by TNK-BP.
What is the purpose of this $700 million project?
Talks began on the Burgas-Alexandrupolis oil pipeline 13 years ago. At that time, the concerned countries signed the relevant agreements on delivering oil by tanker to Burgas from Novorossiisk and other Black Sea ports. The Trans-Balkan pipeline was then to have pumped all the oil to the Greek port of Alexandrupolis. However, the project did not take off the ground back then because of plunging Russian oil output.
The Russian oil industry has long since expanded production and exports to Europe. The project received a new lease on life when the officials involved recalled the Balkan alternative to the Bosporus and the Dardanelles. Moscow, Athens and Sofia hosted several rounds of top-level talks. The partners agreed to assume equal stakes in the project. Oil company guarantees and pipeline rates were the only unsettled issues until now. Moscow insisted that such rates should not exceed marine transport fees. Although low rates would reduce the pipeline's economic significance, Athens apparently agrees with this. But geo-strategic interests are more important in this context.
The Trans-Balkan project was revived because of skyrocketing oil prices and a different global market situation. Russia's expanded oil exports relied even more heavily than before on the transport infrastructure. Nearly one third of Russia's exports of oil and petroleum derivatives (which total over 70 million metric tons) pass through the Bosporus and the Dardanelles, which also handle millions of metric tons of Kazakh oil, and the "traffic jams" in the Turkish straits could be tolerated no longer.
Ankara is introducing additional restrictions and has banned night-time tanker traffic. Only one oil tanker can navigate the straits at a time. Bad weather also entails tough restrictions. Tanker displacement is severely limited. Due to the construction of a transport tunnel under the straits, their throughput capacity has now been reduced. Fully loaded tankers therefore spend a lot of time waiting for permission to navigate the straits. One tanker had to wait a record 30 days in 2004.
The owners of "river-sea" class tankers, which displace up to 5,000 metric tons, lose up to $3,000-$4,000 a day through demurrage, whereas large tankers lose $20,000-$25,000 a day. Such demurrage is making oil more expensive and inflicting losses on sellers and buyers alike. The unscheduled expenses of Russian ship owners and consignors totaled $400 million in 2004.
Oil exporters were really worried about Turkey's intention to allow only one tanker a day; this would mean just 365 tankers per year. A total of 52,000 ships, including 9,500 oil tankers, passed through the Turkish straits in 2004. Black Sea ports exported 27.103 million metric tons of oil aboard over 1,000 tankers in the first five months of this year.
One can understand Ankara's position because it would be dangerous to increase tanker traffic in the congested Turkish straits; the sprawling megalopolis of Istanbul would suffer grievously in the event of a major tanker disaster. Consequently, the Turkish side plans to stop all oil-tanker traffic in the future after the construction of bypass routes, preferably in Turkey. The Baku-Tbilisi-Ceyhan oil pipeline has already begun operation, and the construction of another Black Sea-Ceyhan pipeline is now being discussed.
Putin's Greek visit could provide the required impulse for making the Burgas-Alexandrupolis project a reality. Now is the time to act because the European Union is also interested. European Energy Commissioner Andris Piebalgs said the EU is ready to finance part of the pipeline's construction.
