Oil pipelines fuel Balkan’s dreams of overnight riches

Nov 21, 2006 01:00 AM

by Marian Chiriac in Bucharest, Jane Dimeski in Skopje and Ekaterina Terzieva in Sofia

After years of ethnic conflicts and political instability, Balkan countries are hoping to boost their economies by becoming key links in oil pipelines connecting Europe and Asia.
At least three trans-Balkan projects are in preparation, competing to bring Caspian oil and gas to the West. All face delays, owing to shortages of investors and funds and poor decision-making, and one may never be completed.

At the end of September, representatives from Albania, Bulgaria and Macedonia agreed the text of a treaty concerning the AMBO pipeline. This aims to carry oil from the Caspian region to the Black Sea port of Burgas in Bulgaria and then through Macedonia to the Mediterranean port of Vlore in Albania.
After years of slow work, optimistic scenarios suggest the 850 km-long pipeline, with a capacity of 35 mm tpy and costing $ 1.3 bn to construct, may be ready by the end of the decade.

Officials in Macedonia say the project is crucial for their country, as it will assure its energy independence and increase the total assets of the economy.
"Macedonia should get 25 to 40 mm dollars per year only from the taxes it collects for the oil crossing its territory," said Konstantin Dimitrov, president of the Skopje-based Energetic Efficiency Association. But major problems lie ahead concerning money to complete the project. Even with the approved treaty in hand, AMBO officials still seek investors and shippers to supply the oil for the pipeline.

Until now AMBO has declined to declare the identity of potential investors but maintains at least five different companies have expressed interest. It has also refused to reveal details about the financing structure for the pipeline or about future oil suppliers.
"We have expressions of interest from shippers but now we need to convert those to commitments," the energy industry newsletter Platt's quoted AMBO's president, Ted Ferguson, as saying.

The AMBO pipeline is not only short of money but also faces the danger of competition from another trans-Balkan rival. This is the Burgas-Alexandroupolis pipeline, a joint project of Bulgaria, Greek and Russia, designed over a decade ago to bring Russian crude oil to the Mediterranean and bypass the crowded Turkish straits. This pipeline has a projected length of only 350 km and stands to cost over $ 900 mm.
The Burgas-Alexandroupolis pipeline project has a fundamentally different supply model compared to AMBO project, with Russia acting as the guarantor of supplies.

On October 31, the parties agreed Russia will own 51 % of the pipeline compared to 24.5 % each for Bulgaria and Greece. Three Russian oil companies ultimately controlled by the Kremlin will have the majority stake, with the project aiming to come on stream in 2009, initially pumping up to 200,000 bpd from Burgas to Alexandroupolis, but with the volume set to triple in three or four years. The countries along this pipeline also hope it will inject new life into their economies in the form of revenues from transit tariffs, though some officials and experts add a note of caution.
"We should not expect rivers of money to flow into Bulgaria after the pipeline is completed," Asen Gagausov, minister of regional development, told Balkan Insight. In the first instance, he expects yearly revenues of $ 60 mm. Officials say that the main problem with this projected pipeline, too, is attracting serious investment in the form of bank loans backed by governments.

Meanwhile, the AMBO and the Burgas-Alexandroupolis projects are in a race over which one will operate first. The winner will obviously be in a better position to secure oil transportation. Zoran Gligorov, of the Macedonian ministry of finance, says that despite their common interests, the Balkan countries are all competing with each other over oil.
"If Greece manages to build first the pipeline crossing its territory, the whole AMBO project will become less profitable," he noted. Gligorov said the future of the project was in Russia's hands, as Skopje has little ability to influence matters.

Opinion in Macedonia is that Greece is firmly behind the Burgas-Alexandroupolis project, and that it has Bulgaria on its side. But while some see the pipelines across Balkans as competitive projects, others say they can function side by side.
"We do not see the Burgas-Alexandroupolis project as real competition because the final destination of the oil is not the same," Gligor Taskovic, Macedonia's minister for foreign investments and former vice-president of AMBO, told Balkan Insight.

Taskovic said the oil from AMBO will be transported to Rotterdam in the Netherlands and then to the east coast of the United States and Canada while the other pipeline would transport oil only to the Mediterranean.
One oil analyst pointed out that the suppliers would be entirely different. The Burgas-Alexandroupolis pipeline would mainly ship Russian oil from Novorossiysk while AMBO was targeting Kazakhstan and the Caspian region as its suppliers. This source said it was vital that the idea of joint infrastructure for both pipelines worked, as there was only terminal for both of them in Burgas.

Countries in the northern Balkans also want to compete in the oil transportation market. Four years ago, Romania, Serbia, Croatia, Slovenia signed a memorandum of understanding to launch the construction of a pipeline from Constanta in Romania, via the Serbian oil refinery in Pancevo through Croatia to the Adriatic oil terminal of Trieste in Italy. This line also aims to transport oil from Caucasus.
The pipeline, which would be some 1,300 km long, is a different animal altogether. While the AMBO and Burgas-Alexandroupolis pipelines would mainly serve to bypass the Bosporus Straits, the Constanta-Trieste line plans to serve the refineries along its route, and also enable countries such as Kazakhstan to deliver their crude oil to Europe while bypassing Russia.

Though this project has enormous advantages over its competitors -- at least twice the capacity, partial construction is under way, and there is an existing "pipe-to-pipe" connection to a line that crosses the Alps in Trieste -- it is far less advanced than others. When asked about the future of the project, Romanian officials merely pay lip service.
Ministry representatives told Balkan Insight that Bucharest was trying to attract foreign investors and international support, stressing the advantage the pipeline would have: an energy alternative to the increased risk posed by a Russian monopoly in regional energy. They sought to present Constanta as a superior alternative to Burgas on the Black Sea.

But energy analyst Catalin Dimofte sees no future in the project.
"It never had very strong political sponsors and the economics behind the project are weak, to put it mildly," he said. "The project had at some point a window of opportunity but it never went beyond mere talk.”
"With the dice now apparently thrown on the competing Burgas-Alexandroupolisproject, continuing to talk about Constanta-Trieste is a waste of time. The project is dead for all practical purposes."

Oil experts agree that Russia will ultimately have the final say on what Balkan pipeline is completed, as it will be mainly Russia's oil that is pumped through.
"Unfortunately, the EU has never proven very adept at making this sort of major joint decisions, and the issue of the Balkan pipeline is of fringe interest to the core EU countries," noted Dimofte. "As for the US, most major American companies have huge interests in Russian oil and will accommodate any pipeline alternative."

Marian Chiriac is BIRN Romania director. Jane Dimeski is a journalist with the weekly Aktuel in Skopje. Ekaterina Terzieva is a journalist with national Sega daily in Bulgaria. Balkan Insight is BIRN's online publication.
Balkan Insight is a publication of the Balkan Investigative Reporting Network.

Source: BIRN
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