Russia will not target oil, gas routes in Georgia conflict

Eric Watkins
Senior Correspondent

LOS ANGELES, Aug. 11 -- Russia has no intention of targeting oil and gas export routes through the Caucasus region despite the outbreak of hostilities in Georgia, according to a senior official.

"We know that the important export routes are spanning in the region adjacent to the combat operational zone. We understand its significance for Azerbaijan, and Russia has no intention to block this route," said Vasiliy Istratov, Russia's ambassador to Azerbaijan.

The statement followed reports by Georgian officials on Aug. 9 that Russian warplanes, operating well outside the zone of conflict in South Ossetia, had bombed an area 200-400 m from the route of the Baku-Tbilisi-Ceyhan (BTC) oil pipeline.

The ambassador's statement also came amid growing concerns in the US and Europe over Russian intentions concerning the Caucasus as an oil and gas transport corridor.

Those concerns were especially heightened following Russia's military incursion into the region last week just as the BTC line was shut down after an explosion and fire (OGJ Online, Aug. 8, 2008).

Azeri oil exports
In early August, exports of Azeri, Kazakh, and Turkmen crude and products from and through Azerbaijan stood at about 1.3 million b/d, but fell to 350,000 b/d at the end of last week, according to data from traders and government officials.

As of Aug. 11, Azerbaijan continues to export oil through Georgia, despite the armed conflict. A spokesman for State Oil Co. of Azerbaijan Republic, Socar, said the firm continues to ship oil through Georgia via the Baku-Supsa pipeline and by rail to the Batumi oil terminal.

In the preceding 24 hr, he said Azerbaijan had shipped a total of 26,000 tonnes of oil through Georgia, but was seeking to increase oil exports via alternative routes. In the last 24 hr, 11,300 tonnes of Azeri oil has flowed through the Baku-Novorossiisk pipeline.

Still, according to analyst Global Insight: "The overall Russian-Georgian conflict is in danger of escalating and Azeri oil exports are set to be severely disrupted."

More to the point, GI said, "These recent events have also stressed that the entire route of the BTC…should now be treated as high risk," while Turkey's viability as an energy bridge to Europe "has been thrown into question."

Leaving aside the question of damage to the regions oil and gas supply line infrastructure, GI noted that the convergence of the two conflicts on the BTC pipeline—last week's explosion and the Russian incursion—"demonstrate its vulnerability" and could render further foreign investment in oil and gas transport links that bypass Russia "too risky."

Oil price fallout
While the analyst's concerns raised questions for the medium- to long-term future of the Caucasian energy bridge, more immediate concerns about its viability and effect on oil prices were raised by officials of the Organization of Petroleum Exporting Countries.

According to one OPEC official, the safety of oil that passes through the BTC pipeline is a matter of concern to the organization, which is closely monitoring the military crisis between Georgia and Russia in South Ossetia.

Without commenting on the long-term prospects of the region's future as an oil transport corridor, the OPEC official noted that oil prices are "surely" going to be impacted by the ongoing fighting.

Apparently in confirmation of his point, world oil prices were higher Aug 11 on supply worries over the escalating fighting between Georgia and Russia. September contracts for oil rose $1.06 to $116.26/bbl on the New York Mercantile Exchange, while Brent gained $1.07 to $114.40/bbl (OGJ Online, Aug. 11, 2008).

In an effort to calm international markets, officials of several governments and corporations attempted to give assurances of continued supply despite the problems in the region and especially along the BTC pipeline.

BP PLC said Aug. 11 that the fire on the Turkish section of the BTC pipeline had been extinguished and that the alternative routes it uses to replace BTC continue to operate despite the conflict in Georgia.

The BP spokesperson, who gave no timeline for resumption of exports through the BTC line, said the oil railroad to the Georgian port of Batumi is still operating as is the Baku-Supsa pipeline.

Georgia's ports on the Black Sea normally are a main shipping point of Caspian crude from Azerbaijan, Turkmenistan, and Kazakhstan, with more than 500,000 b/d normally leaving them.

According to shipping agents, however, the port of Supsa is operating only partially, while tankers remain outside the port of Batumi altogether. Due to the conflict, Kazakh Prime Minister Karim Masimov Aug. 11 ordered Kazakh oil exports through Batumi to be stopped.

Agents said that the port of Poti was not operating at all due to the fears of workers following bombing attacks by Russian warplanes. Indeed, on Aug. 9, Georgia declared a "state of war," saying a Russian air raid had "completely devastated" Poti.

Contact Eric Watkins at [email protected].