Posted on 02/04/2004 10:44:59 PM PST by RussianConservative
For a decade Washington has been backing the Turkish and Azerbaihan governments to steer the export of Caspian region crude oil away from Russia. Russia's newest riposte has been to ally the Russian and Iranian oil industries, and open up the shortest, cheapest, and most lucrative oil route of all, southwards out of the Caspian to Iran.
The economics of the southward route are the latest blow for the Bush Administration, as it tries to redraw the geography of the Caucasus on an anti-Russian map. But for oil exporters and shippers in the Caspian, President George Bush's jawboning looks to be as futile as King Canute telling the sea to roll backwards.
Early oil from Azerbaijan's newest offshore oilfields has been piped northwestwards through the Russian pipeline system to Novorossiysk port, on the Black Sea, along with crude from the Caspian shoreline of Kazakhstan. But there have been frequent arguments with the Azeris over volumes and transit fees, and these have led to frequent oil stoppages. Azeri oil for transit across Georgia to Supsa port is a costly trickle, by comparison.
In parallel, Turkey has been steadily tightening restrictions on tanker movement out of the Black Sea, through the Bosphorus Straits. The latest rules ban lengthy and large-capacity tankers -- those which are most cost-effective for charterers and cargo-owners -- from moving through the straits at night. The delay adds to the transport charges, creating an expensive chokepoint that has multiplied the costs of routing oil through the Black Sea for US allies, and Russia, alike.
As new Caspian oilfields come onstream, and the volumes of crude lifted grow beyond the capacities of the Russian pipeline system to absorb, the American strategy has been to press hard to redirect these exports across land towards Turkey. The pipeline route chosen is known by its origin and destination as Baku-Ceyhan.
The Russian government has always understood that the this pipeline was part of the broader US strategy to cut all links with Moscow of the former Soviet states in the Caucasus, building new economic infrastructure that would dissuade the Caucasus group from ever renewing these ties. These efforts have proved to be a colossal boomerang.
A Ukrainian pipeline, designed to attract Caspian oil into Odessa port, on the Black Sea, and then pump it northwards to Brody, and thence into Poland and other central European destinations, has lain empty for almost a year. Despite US government prodding, even the major US oil companies in the Caspian cannot quite absorb the commercial disadvantages of the route. Nor can US allies in the Polish government overrule their colleagues with demands to buy this anti-Russian, but higher-priced oil.
The Russian government, together the Russian oil exporters, have countered with a proposal for the Ukrainian government to reverse the oil flow in the pipeline, and pipe Russian crude southwards to Odessa, for tankering out of the Black Sea.
The conflict in Kiev over the strategic pros and cons of these alternative oil routes has damaged another US ally in the region. Late last year, the Ukrainian parliament voted to block the Adria pipeline reversal project. This is aimed at delivering Russian crude to the deep-water port of Omishalj in Croatia, on the Adriatic Sea. The Ukrainian veto was retaliation by the anti-Russian oil lobby in Kiev for the failure of its Odessa-Brody project.
The irony of this outcome is that the Omishalj project was first proposed in 2002, and agreed by Russia, Belarus, Ukraine, Slovakia, Hungary, and Croatia as a way of despatching Russian crude in large tankers to Bush constituents who own the refineries on the Texas coast of the United States. Initial capacity, according to the Omishalj plan, was 5 million tonnes per year, rising eventually to 15 million tonnes. The Ukrainian deputies justified their no-vote because, they said, it would be the final blow to the proposed Odessa-Brody pipeline, should the Druzhba line be filled up west of Ukraine. "This is true," says Adam Landes, an oil analyst in Moscow. "but Odessa-Brody is doomed regardless. It offers no competitive advantage to potential Caspian shippers, or buyers of crude, and this is why it has been idle for two years now, since it was essentially completed. The longer Ukraine takes to face up to these rather obvious facts, the longer that this ill-fated pipeline will lie dormant."
Another US ally to be caught in the cross-fire has been Latvia. As the anti-Russian pressure has mounted against Russian oil shipments in the south, Moscow accelerated the completion of a new oil outlet on the Gulf of Finland and Baltic Sea. This is Primorsk, which opened two years ago.
Controlled by Transneft, the state pipeline agency, Primorsk receives its crude from the Baltic Pipeline System -- a network of pipelines linking Russia's new Arctic oilwells and expanding northwest Siberian fields to the sea lanes to Western Europe's markets. Once the Primorsk outlet was established, the Russian government ordered Transneft to turn off the supply of oil to Ventspils in Latvia.
At one time the Soviet Union's northern gateway for oil exports, in 1990 Ventspils almost matched Novorossiysk in capacity and throughput. But no longer. The Latvians have appealed to Washington for help, but Moscow will not listen. The opening of Primorsk was the deathknell for Ventspils.
The Americans responded in 2003 by pressing the Russian government to end Transneft's monopoly over pipelines, and allow the Russian oil majors to build a pipeline of their own to Murmansk. That, Washington energy officials claimed, would open a new, commercially effective route for crude deliveries to US East Coast refineries. Transneft has responded by accelerating the expansion of the Baltic Pipeline System, while the Kremlin has started prosecutions of Yukos, the oil company which was closest to Washington. The speed of this pipeline expansion effort will overtake the growth of Russian export volumes by 2005, Transneft officials have told me. The Murmansk project will wither, they believe, for lack of oil to ship.
Until Vladimir Putin became president in 2000, Russian oil policy was dictated by a corrupt alliance of the Russian oil producers and the US government. Putin's campaign against Yukos has put a stop to that. Even during the Yeltsin period, however, Russian public policy was not to attack the Baku-Ceyhan pipeline on strategic grounds. Rather, Russian tactics were to play for time, and wait for the economics of oil transportation to tell against the US plan. So long as crude oil prices remained low, time encouraged delay in starting Baku-Ceyhan. The US war against Iraq threatened the pipeline plan too, by raising the prospect of a gusher of Iraqi crude on the market, cutting prices.
But now that Bush is proving that he cannot lift Iraqi oil, and prices remain firm for the foreseeable future, a new counter to Baku-Ceyhan has been needed by Moscow to retain the upper hand.
Russian exporters have responded with a new export route -- southwards through the Caspian to Iran. Russian oil producers and shippers say they are expecting the volume of crude oil and petroleum products shipped from the Russian Caspian port of Astrakhan to Iran to more than double this year. A spokesman for Volgotanker, the leading tanker operator in the Caspian, said it is expecting growth of its oil volume to jump 150 percent over the 2003 level of 800,000 tonnes.
Russian industry sources claim the expansion of the Iranian port of Neka, and the construction of a 120,000-barrels/day pipeline from Neka to Rey, is one of the new options for oil movement southwards. The Russian shipments of Caspian oil are paid for by swap arrangements with Iranian oil shipped out of Persian Gulf ports. Enzeli, the only Iranian Caspian port able to receive deep-draught vessels, is also being considered for receiving oil aboard railcars shipped by ferry from Astrakhan. LUKoil's new oil terminal at Ilyinka, on the Astrakhan shore, will reach transshipment capacity of 3 million tonnes annual capacity (60,000 barrels per day) next year; this year capacity is 1 million tonnes (20,000 bd).
By Tim Vickery
The Associated Press
For MT
Ukraine will use its Brody-Odessa pipeline to move oil from Central Asia to Europe.
KIEV -- Defying high-level Russian lobbying, the Ukrainian Cabinet on Wednesday refused to reverse the flow of the Odessa-Brody oil pipeline, settling a long-standing duel in favor of Washington. Ukraine's government approved the use of its prized $500 million pipeline to move oil from Kazakhstan and Azerbaijan to West European markets instead of running Russian crude in the opposite direction, Energy Minister Serhiy Yermilov told reporters after the Cabinet meeting. The decision was taken "for economic rather than political reasons," Yermilov said.
The government will hold a tender to decide which companies will win rights to use the pipeline. Some 5 million tons of oil could start flowing as early as this year. The decision is a victory for Washington which staunchly opposed reversing the flow, warning it would increase Ukraine's dependence on Moscow and the chances of a major oil spill in Turkey's already clogged Bosporus strait. It also benefits Caspian Sea suppliers, such as the U.S. oil behemoth ChevronTexaco which controls one of the world's largest oil deposits in Kazakhstan.
Ukraine built the 667-kilometer pipeline linking the Black Sea port of Odessa with Brody in western Ukraine in 2001 to boost transit revenues for Europe-bound oil, but the pipeline remained idle amid a high-stakes competition between Russia and the West over whether it should carry Russian or Caspian crude. Some Russian companies, including TNK-BP, had pressed Kiev to let them ship their low-grade Urals oil from Brody to Odessa -- instead of by rail as is done today. But diplomats and analysts say the TNK-BP proposal contained no guarantees, thus potentially leaving Ukraine without revenue while closing out Caspian suppliers.
ChevronTexaco and other Western oil companies have negotiated for months to pump higher-grade oil the other way as was originally intended. A Chevron-Texaco bid was passed to a senior Ukrainian official last week during his visit to Washington.
Construction is expected to start after June.
n The Ukrainian parliament on Wednesday ratified a deal to integrate the Druzhba and Adria oil pipelines in a vital step to help implement an international project to connect Russian oil fields to the Mediterranean, Reuters reported. The plan, signed in 2002 by Russia, Belarus, Ukraine, Slovakia, Hungary and Croatia, was backed by 293 deputies in the country's 450-seat parliament.
Analysts said the Druzhba-Adria ratification would ease the blow for Russian companies of the government's refusal to reverse the Odessa-Brody pipeline. The Druzhba-Adria pipeline project would enable Russia to boost oil exports to the Mediterranean and other markets through the Croatian port of Omisalj.
Oil is fungible: its value is at the marketplace.
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