Military transit

Oil and gas supplies through Georgia have become highly risky

Military actions in South Ossetia seem to have already led to problems in the transit of Russian gas through Georgia to Armenia. As the press service of Armrosgazprom, which purchases fuel in Russia, says, “since August 7, the Georgian Oil and Gas Corporation, without warning, reduced the volume of natural gas supplies to Armenia by 30%. The aggravation of the situation in the Caucasus, according to experts, is fraught with significant risks associated with the transit of oil, petroleum products and gas through the territory of Georgia. Troika Dialog experts, as written in their review, estimate a possible supply disruption at 1.6 million barrels per day. And if the armed conflict drags on, then significant volumes of oil will be at stake, because “this country is considered as one of the possible transit routes within the framework of several international projects for transporting oil and gas from Central Asia to world markets, including to the countries of the Black Sea basin,” says the investment company's review.

Armrosgazprom press secretary Shushan Sardaryan emphasized that Gazprom ensures full supplies of the required volumes of gas to the Russian-Georgian border. According to her, specialists from the Georgian corporation explain the reduction in supplies by the fact that “the necessary test work is currently being carried out on the main gas pipeline with a diameter of 700 mm, which requires increasing the gas pressure in the system.” And Armenia makes up for the lost volumes of fuel from the reserves of the Abovyan underground gas storage facility in the republic. Currently, Georgia does not purchase Russian gas, receiving 10% of the transit volume to Armenia as a transportation fee under the contract.

In turn, the Georgian Oil and Gas Corporation (GOGC) denied information that the transit of Russian gas, which is carried out through Georgia to Armenia, was reduced by 30% due to repair work on the main gas pipeline. As Interfax reports with reference to Tamara Shoshiashvili, head of the GOGC public relations service, “this information is completely untrue” and the transit of natural gas to Armenia “is carried out as before.” According to her, currently repair work is being carried out only on the gas pipeline in the Kazbegi region bordering Russia, but they do not concern the North-South transit corridor. “The only thing that can happen is small changes in the gas pumping regime, which depend on the increase or decrease in pressure in the pipe, but this is a common occurrence,” she emphasized.

Meanwhile, the BP-Georgia company, which transits Azerbaijani oil and gas through Georgia to Turkey, told Interfax yesterday that the fighting in the Georgian-Ossetian conflict zone did not disrupt transportation volumes. According to a company representative, in connection with recent events, “the risk factor has sharply increased,” however, the pumping of hydrocarbon raw materials to world markets via oil and gas export pipelines laid through Georgia continues to be carried out as usual. “Oil from Azerbaijan is currently being transshipped through the Baku-Supsa pipeline, gas through the South Caucasus pipeline Baku-Tbilisi-Erzerum,” said the agency’s interlocutor. At the same time, he noted that the security of both pipelines, as well as the currently stopped Baku-Tbilisi-Ceyhan oil pipeline, has been strengthened.

Troika Dialogue analysts suggest that Kazakhstan, concerned about the situation in Georgia, may refuse to export oil through this country (more precisely, through the port of Batumi). And almost immediately after the release of their review, such a proposal, according to Reuters information, came from the country's Prime Minister Karim Masimov. According to the head of the state-owned Kazmunaigas, Serik Burkitbaev, we are talking about volumes of “up to a million tons on average per year.” “Let's redirect these flows to domestic consumption, work out this issue with the Ministry of Energy,” Mr. Masimov said at a government conference call. At the same time, Mr. Burkitbaev stated that “no hostile actions have yet been taken against the Batumi port and oil terminal, which is owned by Kazakhstan.”

In addition, the fate of the Baku-Tbilisi-Ceyhan pipeline with a capacity of 50 million tons of oil per year, which is still under repair due to an explosion carried out by the Kurds last week on its Turkish section, remains in question. Now the oil pipeline, the fire on which was extinguished only yesterday, may again fall into the combat zone - its Georgian part is 267 kilometers long. And some companies have already become worried and are thinking about backup routes for transporting oil and petroleum products. For Azerbaijan, one of the options could be the Baku-Novorossiysk pipeline, which has been used by this country in varying quantities since 1997. Its throughput capacity is 100 thousand barrels per day (5 million tons per year), it was restored as part of the development of the Azeri-Chirag-Guneshli (ACG) fields, and the operator for its operation was the Azerbaijan International Operating Company (AIOC). True, after the new Baku-Tbilisi-Ceyhan pipeline went into operation, the construction of which Russia actively opposed, the company decided to redirect ACG supplies to it. Thus, the pipeline, designed to pump 5 million tons of oil per year, received only 4.5 million tons of Azerbaijani oil last year, while since April 2007, AIOC completely stopped supplies along this route, and the State Oil Company of Azerbaijan became the operator ( SOCAR).

SOCAR has already appealed to the Russian Transneft with a request to increase the volume of oil pumped through this pipeline, vice-president of the pipeline monopoly Mikhail Barkov said yesterday. “If previously 83 thousand tons were pumped from Azerbaijan per month, now it will be 166 thousand tons per month. That is, they asked to pump an additional 83 thousand tons per month,” he told Vremya Novostei. At the same time, Mr. Barkov noted that these are not the maximum possible pumping volumes - the pipeline is currently undergoing scheduled maintenance, but after its completion they can be increased. He found it difficult to name the maximum possible volumes of pumping. However, according to Mr. Barkov, the request of the Azerbaijani company was not dictated by the fear of problems associated with transit through Georgia. “As far as I know, such a request is related to the incomplete technical readiness of this pipeline (Baku-Tbilisi-Ceyhan. - Ed. ) due to the explosion,” said the Vice President of Transneft. By the way, the fact that Azerbaijan is ready to look for new options and routes for oil sales makes Poland nervous, which is trying to reduce its dependence on Russian energy resources. Warsaw planned to receive oil through the Odessa-Brody-Gdansk-Plock pipeline as soon as it was extended from Brody. It was assumed that supplies through this system would be carried out, in particular, by Azerbaijan. But, as reported by the newspaper Wyborcza, quoted by Interfax, the war in Georgia may force Azerbaijan to change plans and routes.

Thus, it is practically impossible to redirect oil flows from the Baku-Tbilisi-Ceyhan pipeline in full. And world markets have already appreciated this fact. Yesterday morning, the price of September futures contracts for WTI oil in the electronic system of the New York Stock Exchange amounted to $116.9 per barrel, which is $1.7 higher than the final quote on August 8. And due to market participants’ concerns about military operations in South Ossetia, the price of Brent oil futures for September on the London ICE Futures exchange on August 11 rose by $1.99, to $115.32 per barrel. However, by the time the issue was signed, prices had fallen again - they responded to reports that the fire on the oil pipeline had been extinguished. September futures for Brent in London cost $112.18 per barrel, and for WTI in New York - $114.8 per barrel.

Kirill MELNIKOV, Alexey GRIVACHS