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Subject: Fw: Eurasia Daily Monitor -- Volume 3, Issue
150
Eurasia Daily Monitor
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Thursday, August 3, 2006 -- Volume 3, Issue
150
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IN
THIS ISSUE:
*Bucharest suggest new route for oil
exports to Europe
*Druzhba pipeline spills oil near
Dnieper River
*
prompting Moscow to cut off oil
supplies to Lithuania
CONSTANTA-TRIESTE
PIPELINE PROPOSAL FOR KAZAKHSTANS OIL
The Romanian government has initiated
a five-country project for transporting oil from Kazakhstan via the Black
Sea to European consumer markets. The project envisages construction of a
pipeline from the Black Sea port of Constanta, passing through the
territories of Romania, Serbia, Croatia, and Slovenia and terminating at
Trieste in Italy. The five countries have formed an Interstate Committee
at deputy ministers level to promote this project.
Kazakhstan anticipates an output of
100 to 110 million tons of oil annually by 2010 and 150 to 160 million
tons annually by 2015 and thereafter. Such volumes necessitate multiple
export outlets, of which the route via Constanta to Italy can be an
attractive one. Italy has the largest refining capacities of any European
country. From Trieste, moreover, the proposed pipeline can be connected
with the Trans-Alpine Pipeline Network, which links Italy with Austria and
southern Germany.
A technical and economic feasibility
study for the project was completed in 2005 by a consortium of European
consultancies, led by Hill International of Britain and funded through the
European Unions Phare program. The proposed pipeline would run 1,360
kilometers (including 650 kilometers in Romania) overland through easy
terrain from Constanta to Trieste.
Two options are proposed for this
pipelines capacity: 40 million tons or 60 million tons of oil annually
(higher figures are also being suggested but seem unrealistic). The
estimated construction costs are $2.27 billion for the first-named version
or $2.81 billion for the second version.
In addition, the project envisages
expanding Constantas oil-handling maritime terminal far beyond the
existing annual capacity of 21 million tons. Expansion costs are estimated
at $206 million for a handling capacity of 40 million tons or $263 million
for a capacity of 60 million tons of oil annually. Constanta has a
competitive advantage over other Black Sea ports in that it can
accommodate supertankers of 150,000-ton capacity.
Constanta-Trieste is one of several
competing pipeline proposals for transporting Caspian oil through the
Black Sea region to international markets. Other pipeline projects
include: Burgas-Alexandropolis, linking Bulgarias Black Sea coast with
the Greek Aegean coast; Samsun-Ceyhan, crossing Turkeys Anatolia from the
Black Sea to the Mediterranean; and Burgas (Bulgaria)-Skopje
(Macedonia)-Vlore (Albania) terminating on the Adriatic. In each case, the
oil would be shipped farther by sea tankers from the terminal point of the
pipeline. These projects rely largely on Kazakhstani oil arriving from
Novorossiysk and other Russian Black Sea ports and heading for the open
seas. These competing projects have one main rationale in common:
bypassing the Bosporus in order to relieve tanker traffic through that
over congested strait.
For its part, the Constanta-Trieste
project could become viable by demonstrating that it can serve the larger
purpose of providing direct access for Kazakhstani oil to Europe along the
shortest route: South Caucasus-Black Sea-Constanta-Trieste. While the
other proposed pipelines are Bosporus-bypass projects, Constanta-Trieste
makes eminent sense as a Russia-bypass project, in addition to being a
Bosporus-bypass project as well.
The other projects are more advanced
in terms of negotiation and organization, and have more powerful sponsors,
compared to Constanta-Trieste. The latter therefore seems almost redundant
if viewed solely as a Bosporus-bypass project. However, Constanta-Trieste
can bring the added value of its location on the most direct route from
the Caspian basin to Europe and the prospect to link up with the South
Caucasus transit corridor for Caspian oil.
At present, Russia almost monopolizes
the transit of Kazakhstani oil to international markets, with the lions
share going through the Caspian Pipeline Consortiums (CPC) line to
Novorossiysk and farther by sea. The decision to route Kazakhstans oil
exports via Russia, made in 1990s, has proven to be a strategic blunder.
This can be offset at least in part by opening a transit corridor for
Kazakhstani oil via the Caspian Sea, South Caucasus, and the Black Sea.
Within the next few years Kashagan and other oilfields in Kazakhstan will
be able to support a major Russia-bypass project.
This must involve routing part of
Kazakhstans growing export volumes to Georgias Black Sea ports,
expanding the existing Georgian terminals as well as building new terminal
capacities, and linking up with the proposed Constanta-Trieste pipeline.
Romania recently proposed to Kazakhstan to participate in the
Constanta-Trieste project as the supplier country. Coordination among the
countries along the entire route, as well as a joint approach to the
European Union for support, must become the next steps in this project, in
line with the EUs supply diversification goals.
--Vladimir
Socor
RUSSIA'S OIL
PIPELINE LEAK SPARKS ENVIRONMENTAL CONCERNS
A leak in one segment of Russia's
Druzhba (Friendship) pipeline has not only affected international prices,
but the incident has also reignited debates regarding the safety record of
the country's aging pipeline system.
The leak occurred July 29 on the
Russian border with Ukraine and Belarus and spilled some 50 tons of oil
from Druzhba-1, the country's key oil-export pipeline system in Surazh
district, Bryansk region. Officially reports said that only 340 square
meters of land had been contaminated by the leak. Emergency teams pumped
out most of the leaked oil and removed soil to prevent the crude from
spreading.
The leak caused a temporary shutdown
of Druzhba's Unecha-Polotsk branch, where the spill took place. Transneft,
Russia's oil pipeline monopoly, said the pipeline had stopped pumping oil
over the weekend, but that the flow resumed on July 31.
Although the official investigation
is yet to be finalized, the pipeline's poor condition and advanced age are
being blamed as the main causes of the accident. The 4,000-kilometer
Druzhba-1 pipeline was built nearly four decades ago. It funnels some 1.2
million barrels per day.
Although the volume of oil spilled
would fill only one railway tanker, the spill still affected international
oil prices. However, Transneft said in a statement that the oil spill
would not affect Russian oil export volume. "The recent accident will not
influence oil exports, as the company has taken all necessary measures to
maintain the volume of crude oil transportation," it said (Interfax,
August 2).
Other Russian officials also appeared
keen to downplay the incident. An oil leak from a pipeline near the
Belarusian border poses no threat to the environment, Viktor Beltsov,
spokesman for the Russian Emergency Situations Ministry, declared on July
31. "The oil spill was insignificant and posed no threat to the
environment." He added, "The polluted layer of soil has been removed." He
denied media reports about serious soil contamination.
The Russian Natural Resources
Ministry initially said the leak affected a 10-square-kilometer area and
had contaminated water sources. However, later that same day, July 31, the
ministry downplayed its earlier statement and said its experts were "not
inclined to call the accident an environmental disaster" (RIA-Novosti,
July 31).
However, the incident prompted some
Russian officials to offer strong criticism of Russia's oil pipeline
monopoly. Oleg Mitvol, deputy head of the country's environmental watchdog
Rosprirodnadzor, argued that Transneft is unable to guarantee the safety
of its pipelines. He lashed out at Transneft for its perceived failure to
maintain its pipelines properly. According to Mitvol, who visited Bryansk
region, 487 defects have been found in branches of the Unecha-Polotsk
pipeline in recent months.
"According to the technical
documentation we have received, in the current state, these pipelines can
not be used," Mitvol said (Interfax, July 31).
Mitvol argued that about 100 tons of
oil had leaked from the pipeline, twice the amount estimated by Transneft
itself. "Approximately 1,000 square meters were polluted," he said. Mitvol
said Transneft "did everything it should have done," adding that the
company would be expected to pay compensation to the local authorities in
the area of the spill. "Only by a miracle did oil not leak into the
Dnieper River," he added (Vedomosti, August 1).
Subsequently, Mitvol sent an official
letter to the office of the Russian Prosecutor General, requesting a
criminal probe into the spill. Mitvol argued that the leak should be
investigated according to Article 254 of the Russian Criminal Code, which
deals with "destruction of land" (Interfax, August 2). However, it is
still far from certain whether the leak could become the subject of a
criminal investigation.
The spill caused oil shipping delays
and interruptions. Lithuania's Mazeikiu Nafta reportedly indicated that
the refinery did not receive some 50,000 tons of crude as a result of the
accident. Furthermore, oil supplies to Mazeikiu could be halted or reduced
through August in the wake of the spill.
The accident also served to renew the
debate over the safety of Russia's pipeline system. Some Russian media
outlets questioned Transneft's safety record. When Transneft lobbied in
favor of its East Siberia-Pacific pipeline project, it hailed its safety
record and claimed it had only 0.04 leaks per 1,000 kilometers of
pipelines per year. However, Regnum news commented, that is not exactly
the case, because there were 11 leaks in 2004 and 12 last year.
As Transneft operates some 50,000
kilometers of pipeline, that would mean it actually suffered 0.22-0.24
leaks per 1,000 kilometers of pipelines per year, Regnum wrote. In other
words, the pipeline monopoly actually records five-to-six times more leaks
than it publicly admits, it calculated. Therefore, Russian President
Vladimir Putin had good reason to order Transneft to move its planned East
Siberia-Pacific pipeline away from Lake Baikal, it commented (Regnum,
August 1).
--Sergei
Blagov
RUSSIAN OIL
SUPPLIES TO LITHUANIA CUT OFF
Since July 29, Russias oil pipeline
monopoly Transneft has stopped deliveries to Lithuanias Mazeikiai
refinery, the largest economic entity in that country and sole refinery in
the Baltic states. Transnefts move seems designed to block the
consummation of the three-way deal whereby Polands PKN Orlen company is
acquiring the majority stake in Mazeikiai from Yukos International and a
minority stake from the Lithuanian government.
Russian companies -- first Lukoil,
and ultimately the state-owned Rosneft -- had sought to take over
Mazeikiai from Yukos and Lithuania. But that intention was thwarted on May
26 when Yukos sold its stake to PKN Orlen with Lithuanias approval,
opening the way for the Lithuanian government to follow suit. However,
Mazeikiai is fully dependent on Russian oil supplies.
Russian authorities are citing
technical reasons for the stoppage of deliveries. On July 29, an oil spill
occurred in Russias Bryansk oblast on the Druzhba pipeline system. The
accident occurred near the point where a line to Belarus and Lithuania
branches off the main export pipeline that continues westward to Europe.
The scare on European markets subsided on July 31 when Transneft announced
that the accident would not affect exports to Europe; only Lithuania
would be affected.
The Russian government is using its
environmental and conservation agency, Rosprirodnadzor [Natural Resources
Oversight Agency], as the main public-relations voice regarding oil
supplies to Lithuania. According to Rosprirodnadzor First Deputy Director,
Oleg Mitvol, the damaged section of the branch-off line to Lithuania can
no longer be patched up, but must be replaced entirely. That section,
running for 70 kilometers from Russian into Belarusian territory, has been
shut down. That section actually consists of two parallel pipelines, thus
making possible small-scale deliveries if Moscow decides to replace those
two lines one with one. Transneft would need one year and nine months to
replace that entire section, according to Mitvol.
For its part, Transneft has
instructed Russian oil-exporting companies to divert their planned
deliveries from Lithuania toward Black Sea ports during the month of
August.
These tactics are reminiscent of
Lukoils and Transnefts hostile-takeover attempts in 1999-2002 against
the Mazeikiai refinery and Latvias Ventspils oil-export terminal,
respectively. In both cases, those Russian companies reduced and
ultimately discontinued altogether the oil deliveries, so as to drive
Mazeikiai and Ventspils into bankruptcy, sink their market value and buy
them on the cheap. The supply cutoffs were imposed gradually over a period
of many months -- a procedure designed to maintain uncertainty and
confusion in the West about Moscows ultimate goals there. In the event,
Mazeikiai survived and indeed prospered thanks to a friendly takeover by
Yukos in 2002, before the Kremlin moved to destroy Yukos. Ventspils
continues to operate thanks to oil deliveries by railroad, a mode of
delivery outside Transnefts jurisdiction.
Following the destruction of Yukos in
Russia, the Mazeikiai refinery operates at half capacity or less, on
small-scale deliveries by pipeline mainly from Rosneft and Lukoil (former
claimants to the Yukos stake in Mazeikiai) as well as from TNK BP.
The refinery processed 500,000 tons of oil in July, and has not confirmed
any supply contracts for August by pipeline. TNK BP delivered 100,000 tons
of oil by tanker to the Butinge maritime terminal -- which is part of the
Mazeikiai holding -- at the end of July and is expected to deliver three
such shipments in August.
PKN Orlen, along with Polish and
Lithuanian government representatives, is seeking talks with the Russian
government and companies toward resumption of deliveries in August and
beyond. This situation casts additional doubt on the Kremlins assurances
-- most recently reiterated during the G-8 summit -- that Russia is a
fully reliable energy supplier to European Union countries.
By the same token, the situation
would seem to require the EU to uphold its own credibility and make clear
that it would not tolerate manipulation of energy deliveries to a EU
member country, whether for political purposes or for hostile takeovers of
assets. It was in Lithuanias capital Vilnius that U.S. Vice-President
Richard Cheney warned against Moscows manipulation of energy supplies.
Thus, U.S. credibility will be at stake as well, should Moscow persist
with the cutoff to Lithuania.
(BNS, Interfax, July 30-August 2; see
EDM, April 26, June 1)
--Vladimir
Socor
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