Azerbaijan and Russia do not quarrel over BTC pipeline

Jul 27, 2006 02:00 AM

by Vasily Zubkov

To the surprise of some experts who had been predicting a chill in Russian-Azerbaijani relations because of the commissioning of the Baku-Tbilisi-Ceyhan pipeline, the two presidents sat next to each other at one of the events of the recent informal CIS summit.
Meanwhile, the first Azeri oil has already reached the Heydar Aliyev terminal in the Turkish port of Ceyhan, but over a year later than it was originally planned.

The BTC pipeline is the biggest non-Russian infrastructure project in the entire post-Soviet space all along the line -- in investment ($ 4 bn), the number of participants, and the potential geopolitical consequences. Russia's attitude to it is not unequivocal. It is happy for its CIS neighbour, but weary about the political anti-Russian fuss around its commissioning.
During the construction of the BTC, there was talk in the West about the Kremlin's destructive propaganda, and its continued attempts to avert the implementation of this “project of the century”. But in reality, it was back in the early 1990s, when the future project was only discussed in broad outline, that Moscow refused to take part in it for routine, non-political reasons.

In those remote times Baku profited much less from its oil exports than from a million-odd Azeris who were selling vegetables and fruit in Moscow. The Azeri oil industry was stagnating and investment in it required much optimism. Besides, the BTC project was not likely to recoup because of low world oil prices. All figures rested on the dubious estimates of the Caspian deposits.
The risks were too high also because the pipe was to pass through Turkish areas inhabited by Kurds and Georgian regions with a predominantly Armenian population. To sum up, Russia's reasons for refusing to join in the BTC building were clear and logical. Even BP, the BTC operator, might have not undertaken it if it had not been for the powerful pressure from the US.

Many of these apprehensions have now become reality. There is not yetenough oil for the pipe to reach its rated capacity. The Azeri-Chirag-Guneshli deposits, which were supposed to be the BGC main supplier, produce no more than 20 mm tons of oil per year. This compares with Azerbaijan's total output of 22 mm tons in 2005.
Russian-Azerbaijani bilateral economic ties are making steady headway. Under the intergovernmental bilateral agreements, more than 2 mm tons of Caspian oil are pumped into the Baku-Novorossiysk pipeline every year.

Transneft Vice President Sergey Grigoryev said that he was surprised to learn that the Azeri exports via Novorossiysk had even grown in the last few months, after the BTC was put into operation, though they are still considerably less than the 5 mm tons annually reserved by Transneft.
When asked what will happen if all Azeri oil goes into the new pipeline, Grigoryev said that such a small loss would be negligible for his company. Last year it processed almost 454 mm tons of oil, and the share of Azeri oil was no more than 0.55 %.

Bakuis seeking partners exactly because it does not have enough oil for the full operation of the first BTC extension. Not long ago Turkish Prime Minister Recep Erdogan invited Russia to take part in the BTC, but this proposal did not evoke much interest. The BTC rate of $ 21 for a ton of oil circulations cannot compete with $ 15.6 at Baku-Novorossiysk.
Eager to boost its oil exports, Kazakhstan has decided to go for the BTC and signed the agreement, which provides for the annual transportation of 7.5 mm tons. In perspective, this figure may grow to 20 mm tons, but not necessarily -- Kazakhstan cannot provide any guarantees. It is also increasing its oil exports to China, and has much interest in oil supplies to Lithuania and Latvia.

But cooperation with Kazakhstan is not problem-free. Kazakh oil is more sulphurous as compared with Azeri Light, one of the best crudes in the world, and hence the price for a barrel is different. Baku is racking the brains over how to avoid a drop in price and not lose a strategic partner. But will Astana agree to compensate for lowering the quality of Azeri brand?
US President George W. Bush, who did not take part in the BTC inauguration, called it the gates to the world oil market, and suggested their protection by the “Caspian Guards”, for which Washington intends to pay $ 150 mm.

Under this project, the US will send a ground force to the BTC countries, and will monitor them from the air and space. Needless to say, the Kremlin cannot be happy about such close wardship, and the military presence of third countries in the post-Soviet space.
This amounts to the formation of a new pro-Western block on Russia's borders. Maybe, this is another reason why Moscow is indifferent to the BTC as a pipeline for liquid hydrocarbons, and is so worried about everything around it. Russia is afraid that the BTC may turn into the Trojan horse on its frontiers.

However, Moscow and Baku are linked by mutually beneficial long-term economic contacts; there is a huge Azeri diaspora in Russia; and the Aliyevs -- father and son alike -- have traditionally pursued a multi-vector foreign policy.
These factors taken together will hopefully make bilateral relations stable and predictable, and serve as “an airbag” in case of collision.

Vasily Zubkov is RIA Novosti’s economic commentator.

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