Pipeline chess across the Black Sea - Le Monde diplomatique - English edition

Two news items point to important developments in European oil and gas transmission. First, the long awaited expansion of the pipeline running from the Caspian to Novorossiysk (see map) has been agreed between the Caspian Pipeline Consortium (CPC) and Moscow (1). The other is an agreement to build an oil pipeline between the Black Sea to the Mediterranean across Turkey (Samsun to Ceyhan) (2). Are these two events really unrelated?

CPC carries oil from Tengiz (Kazakhstan) to the Black Sea. The nearby “supergiant” Kashagan is expected to come on-stream in 2014-15. But Moscow has never much liked Kazakh fields being operated by foreigners. They have stalled on the CPC pipeline expansion (from 28 to 68m tons per year) for the best part of five years, just as they had earlier delayed the first phase of CPC. They also tend to charge very high transit fees (3).

More recently, Moscow squeezed a promise from Chevron, the main Tengiz operator, to route oil tankers from Novorossiysk to Burgaz on the Bulgarian riviera, from where oil would flow to Alexandroupolis (Greece) on the Aegean coast. The pipeline was to be 51% Russian owned. But in 2010, the Bulgarian prime minister Boyko Borisov (elected in July 2009) baulked at the risk of polluting the pristine beaches of southern Bulgaria and losing its lucrative tourism trade, in return for a paltry €36m annual transit fee. The preceding government, former Communists, had been more pliable.

In theory, there is a simpler alternative. Tankers loading at Novorossiysk could reach the Aegean through the Turkish straits. However, tankers pass between the two halves of Istanbul, and Turkey has been limiting the size of tankers and queuing them up at the northern approaches, on grounds of safety. Annoyed Russian negotiators argue that this violates the Montreux Treaty, allowing freedom of “innocent” passage, but increased tanker traffic through the straits is not an option.

Earlier, fierce opposition to the Samsun-Ceyhan oil pipeline (75m tons pa) had come from Igor Sechin, the security minded deputy Russian prime minister. After all, Turkey had accepted on its territory the Baku-Ceyhan pipeline, exporting 50m tons of Caspian oil without a by your leave towards Moscow. Nevertheless, a bargain was struck between Putin and Erdoğan in 2009. It allowed Gazprom to bypass Ukrainian territory altogether by routing Gazprom’s South Stream natural gas pipeline over the Turkish continental shelf towards the southern Balkans. In return, Putin agreed to Samsun-Ceyhan for pumping Russian and Tengiz oil to the Mediterranean, despite Sechin’s less than discreet protestations in Ankara that the pipeline made no economic sense. Gazprom’s win appeared to register as Sechin’s loss.

Cynics see South Stream as a pipeline invented to oppose the ghost of EU-sponsored Nabucco, the pipeline with no gas! The pair of agreements between Putin and Erdoğan could have seemed like posturing towards the EU and the Ukrainians. The latter, having exchanged Yushchenko with Yanukovich, were expected to get on better with Moscow. Despite early friendly gestures, however, Kiev seems to have baulked at allowing Ukrneftegaz to form a new alliance with Gazprom. There have been several other indications that Kiev has been offending Moscow. In response, and despite assurances from Kiev that oil and gas transmission to the West will proceed unimpeded, Gazprom has continued signing supply contracts with governments and utilities in south-eastern Europe, for supplying gas through South Stream.

Moscow appears to have given up on the Burgaz-Alexandroupolis project. For with Samsun-Ceyhan receiving approval, we have the strongest indication yet that South Stream may now be looking less like a giant bluff and more like a huge project. But how this feat of engineering will be financed remains to be seen, coming as it does with an eye-popping price tag of some $20bn.