11-04-07

Plans for a southern European oil pipeline to take Caspian oil from the Black Sea to the Adriatic have taken a step forward, but observers say the project could be a risky venture because there is no guaranteed source of oil for it.
On April 4, the governments of Romania, Serbia, Slovenia, Croatia and Italy signed a formal declaration on the Pan-European Pipeline, which would link Romania's Black Sea port of Constanta with the Italian city of Trieste on the Adriatic. According to the blueprints, the pipeline will costs between $ 2 and $ 3.4 bn and will supply Europe with up to 90 mm tons of oil from Azerbaijan, Kazakhstan and Turkmenistan, bypassing the crowded Bosporus Straits in Turkey.

Constructing a pipeline in the Balkans was previously deemed too risky, but Romania and Bulgaria's accession to the European Union this year has given investors greater confidence in the plan, according to Kazakhstan-based analyst Eduard Poletaev. The overland route between Costanta and Trieste is fairly short, and the pipeline will provide access to Western Europe and also help improve oil supplies to the Balkan states, which are poorly served by the existing network, Poletaev explained.
An energy analyst based in Ashgabat said there could be enough oil around to fill the proposed pipeline, considering that there is now increased capacity in the pipelines that take Caspian oil as far as the eastern end of the Black Sea. He thinks that as long as Russia -- which theoretically favours any project bypassing the Bosporus -- supports the Constanta-Trieste project, it could materialise fairly quickly.

However, Maxim Kaznacheev, another Kazakhstan-based analyst, says Moscow is unlikely to agree to the plan.
"It's more to Russia's advantage to use oil from Kazakhstan to fill up the Baltic pipeline, and then send the bulk of [Kazak] oil from the Caspian Pipeline Consortium through the Burgas-Alexandroupolis line,” he said, referring to a rival to the Constanta-Trieste scheme which would go from Bulgaria toGreece.

Kaznacheev also has reservations about the pipeline's profit potential. The potential risks include excessive bureaucracy given that there are numerous players, all of which have to coordinate with one another, and as a result it is uncertain how much oil will be carried. The fact that the pipeline is overland will also make transit costs higher.
Rovshan Ibrahimov, head of the international relations department at Baku's Qafqaz University, says alternative routes already exist for taking Caspian oil to Europe, so the future of the Pan-European Pipeline is contingent on clear-cut agreements with Azerbaijan, Kazakhstan and Turkmenistan to ensure a guaranteed supply.

"The main risk is the lack of guaranteed oil supplies for this pipeline. The Baku-Tbilisi-Ceyhan pipeline, which also bypasses the straits, is already in place, and there are plans to construct the Burgas-Alexandroupolis pipeline," said Ibrahimov.
He added that Azerbaijan, a significant producer, is trying to become less dependent on crude oil exports by shifting focus to selling refined petroleum products.