In The Pipeline

Economic News

22 Jul 2010
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Last week, Bulgaria's parliament ratified two international agreements for trans-Balkan oil pipelines. One was with Macedonia and Albania, for the construction of a 895km line from Burgas on Bulgaria's Black Sea coast to the Albanian port of Vlore on the Adriatic-the Albanian Macedonian Oil Pipeline (AMBO). The other, with Russia and Greece, concerned a 280km pipeline from Burgas to the Greek town of Alexandropolis on the northern coast of the Aegean.

Both have a planned capacity of 35m tonnes per year - though Burgas-Alexandroupolis could eventually be expanded to 50 million. Both are designed to carry mainly Caspian oil from the Black Sea on to the wider world, avoiding the need to transship it through the crowded Bosphorus. And both have been on the drawing board for well over a decade, but it is only in the last few years that they have been made feasible and become urgent by a combination of higher oil prices, increased production in the Caspian, mounting congestion and expensive delays in the Bosphorus.

Burgas-Alexandropolis, which is expected to cost around Euro900m, is due to be completed by the end of 2009. Equity in the project was divided up among the three states involved - Russia (51%), Bulgaria (24.5%) and Greece (24.5%) - with each assigning its shares to particular companies. Russia's went to state-owned enterprises, including oil producers Gazprom Neft and Rosneft and pipeline operator Transneft. Greece brought in oil companies Hellenic Petroleum and Thraki, while the state is to retain a 1% stake. Bulgaria's stake was assigned to state-owned national gas firm Bulgargaz and construction company Techoexportstroy.

However, it is widely expected that part or all the Bulgarian stake - and possibly part of the Greek stake-will be sold to foreign companies. Outsiders reportedly interested include the state of Oman, Kazakhstan's state energy company KazMunaiGaz and US's Chevron.

The AMBO pipeline is expected to cost over Euro1.2bn - considerably higher than initial estimates, mainly because the price of steel has gone up sharply since the project was first thought of. The completion date is set for 2011. The concept of the project is also rather different, with state involvement amounting to political backing for the project rather than national stakes. The existence of a third "Bosphorus bypass" project, the planned Turkish Samsun-Ceyhan pipeline, also means competition. Nevertheless, business is brisk in the Caspian and Black Sea regions, so there is good reason for optimism.

Implementation of these long-mulled projects will go some way to fulfilling Bulgaria's aspiration to be the "energy hub" of the Balkans. It has been the region's leading electricity exporter for some years and, though its position has been called into question by the closure of units 3 and 4 at its Kozlodui nuclear power plant, new capacity should restore it within a few years. Meanwhile, a mild winter and a wet spring have made the National Electricity Company more optimistic about the prospects of export this year, which could be as high as 3TWh. Bulgaria also plays an important part in transporting Russian natural gas to Turkey, Greece and Macedonia, with over 15bn cubic metres transited last year.

That final total is set to rise to almost 18bn cubic metres in 2015 under an agreement signed with Russia's Gazprom late 2006. And there may be more. Talks in Moscow last month seem to have involved a scheme for an underwater gas link between Novorossiysk and Burgas, from which Gazprom's gas could be transported westwards to the energy-hungry European market. The Greeks have also asked Gazprom to consider a plan for a gas pipeline to run parallel with the Burgas-Alexandroupolis oil pipeline, improving gas supplies to Greece and cutting construction costs by around a third.

Besides, there is the proposed Nabucco pipeline, which would run from Turkey, via Bulgaria amongst other countries, to Austria. True, certain questions as to Nabucco's prospective sources of supply must still be answered. The crucial Shah Deniz field in Azerbaijan is not developing as quickly as it might, Iran is politically sensitive, Turkmenistan may not have the will to break away from exclusive reliance on Gazprom's pipelines, the extensive pipeline infrastructure needed for a link-up with Egypt will take some years to create and competition from Gazprom's pipeline efforts in southern Europe might prove too strong. But there is political will in Europe to reduce reliance on Gazprom, so the project stands a good chance.

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