BP suspends Azeri oil shipments via rail to Georgia

Eric Watkins
Senior Correspondent

LOS ANGELES, Aug. 18 -- BP PLC has been forced to suspend shipments of 50,000-70,000 b/d of oil from Azerbaijan to Georgia following the destruction of a key railroad bridge, severing the main east-west train link between the two countries.

"Rail exports have stopped from Azerbaijan to Georgia," said BP spokesman Robert Wine, adding, "There's been some damage along the line in Georgia."

Destruction of the rail link, regardless of the cause, reduced BP's three possible oil export routes to just one route: via the Russian-dominated 100,000 b/d line extending from Baku to Russia's Black Sea port of Novorossiisk.

Georgian officials accused Russian troops of blowing up the railway bridge, but Russian officials denied any involvement in the explosion, which collapsed a 45-m section of the 220-m bridge.

The railway line extends from Tbilisi, through the Georgian town of Gori, before splitting into three offshoots that extend to the Black Sea ports of Poti and Batumi and southwest to a point just short of the Turkish border.

Repairs should be swift
Destruction of the line, which BP said can carry 50,000-70,000 b/d of Azeri oil to the port of Batumi, means at least a temporary disruption of supplies sent to Georgia's Black Sea terminals.

But a shipping agent in the port of Batumi said exports of Azeri oil from the port are unlikely to be delayed by damage to the railway line, saying there was just one tanker in port which could be loaded with oil already on hand.

By the time a new tanker arrives to be loaded, he said, the railway bridge will be repaired and the railway line will receive railcars with additional cargo from Azerbaijan.

A spokesperson for Georgian Railways estimated that the key rail bridge would be rebuilt within a week or sooner. She said engineers, workers, and materials have arrived from Armenia and Azerbaijan and works on the bridge are already under way.

The spokesperson said reconstruction of the bridge is the only viable option for restoring railway traffic, as a nearby alternative bridge, which has been out of use for about 20 years, cannot be reopened.

The stoppage further limits BP's options in taking oil from the Caspian after a fire caused the shutdown of its 1 million b/d capacity Baku-Tbilisi-Ceyhan (BTC) link to Turkey and hostilities in Georgia forced closure of the British firm's 150,000 b/d Western Route Export Pipeline (WREP) for security reasons.

BP's only other export alternative currently, the Baku-Novorossiisk line, leaves the British company with an "unattractive option," according to analysts, as it requires the mixing of Azeri oil with lower-quality Russian Urals crude.

Due to the hostilities in Georgia, however, it remains to be seen how soon BP will be able to lift its shutdown of the WREP, while no definite date has been given for the completion of repairs on the BTC line.

BTC line repairs slow
Repairs to the BTC line in Turkey began over the weekend, but a spokesman for Botas International Ltd., which operates the Turkish sector of the line, said, "It's a step-by-step process…. We don't know just yet how long it will take."

Turkey's energy minister Hilmi Guler said Aug. 18 that oil transport along the BTC might resume "in a few days" as repairs on the line were under way, but that view was not shared by BP spokesman Murat Lecompte, who said it is too early to say when the pipeline could be operational again.

Because of the disruption to its export routes, the BP-led Azeri-Chirag-Gunashli oil fields in the Caspian have cut production to about 250,000 b/d from about 800,000 b/d.

Of more concern, however, closure of the export routes has raised worries of Russia attempting to reassert its control over the region, as took place in the Soviet era. In Georgia, that would mean Russian control of the existing pipelines, rail routes, and ports.

The Republican presidential candidate, US Senator John McCain underlined those worries over the weekend, saying that if the BTC line "were destroyed or controlled by Russia, European energy supplies would be even more vulnerable to Russian influence."

That view is partially supported by independent analysts. According to Simon Wardell of analyst Global Insight, Russia is not likely to close or destroy the existing oil export routes across the Caucasus. To the contrary, Wardell said, control of the existing export routes would give Russia more power in the negotiation of prices.

With Russian troops showing no haste to withdraw from Georgia, despite both sides signing a ceasefire agreement, it is too soon to tell precisely what sorts of control, if any, Russia will attempt to impose on the region's oil and gas export flows and revenues.

Contact Eric Watkins at hippalus@yahoo.com.

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