New Great Games in the Caspian will involve complex stakes
EurasiaNet, October 11, 2002

Ariel Cohen

The start of construction on the Baku-Tbilisi-Ceyhan pipeline in September marked the conclusion of the latest round in the new Great Game over Caspian Basin energy resources. Less than a month later, the major competitors in the contest for regional economic and political influence are already jockeying for position in the next stage.

At a September conference off the coast of Greece sponsored by the Hellenic Foundation for European and Foreign Policy (ELIAMEP) the consensus among participants was that the Caspian Basin could probably only support one main export pipeline beyond the one that has begun construction, and that a second pipeline could complement a major natural gas pipeline to create a stable transport system for the region’s fossil fuels. The direction of such a pipeline remains in question, and thus holds the potential for fierce competition among regional and global powers.

Many experts rule out construction of a pipeline connecting the Caspian Basin with China’s Pacific Coast. John Roberts, an editor with the Platts Global Energy information service, said such a pipeline would need to extend to 5,500 kilometers and cost upwards of $8 billion. (The proposed Baku-Tbilisi-Ceyhan route runs 1,760 kilometers.) According to Roberts, available oil in Kazakhstan could pump 400,000 barrels of oil a day through such a pipeline, but it would take a million barrels a day to make the project enticing for investors. He calculates that Russia would have to participate to deliver this volume, necessitating a three-way pact among Russia, Kazakhstan and China. Such multilateral projects, Roberts says, are difficult to negotiate and implement.

Among potential north-south routes, it remains hard to see where feasible routes will arise. Roberts says that as long as the United States opposes France’s TotalFinaElf North-South pipeline from Kazakhstan via Turkmenistan to Iran, Kazakhstani oil can flow either North, to Russia, or West, to the Black Sea and the Mediterranean. Washington is not averse to pipelines via Russia: In the past, the United States strongly supported a Tengiz-Novorossiisk major pipeline, and a smaller Baku-Novorosiisk one (about 100,000 b/d or less). Yet, although the Russian state-owned pipeline operator Transneft has invested in capacity upgrades, unrest in Chechnya and elsewhere in Northern Caucasus make this pipeline limited.

At the Greek conference, Russia’s Caspian oil envoy Viktor Kalyuzhny said Russia wants to expand its transit options around the Caspian. Kalyuzhny endorsed the idea of constructing a pipeline from Burgas, Bulgaria to Alexandroupolis, Greece. Such a route would link the Black Sea with the Mediterranean and carry Russian and Kazakhstani oil (delivered by tanker from the source) to Western Europe. However, according to senior Bulgarian diplomats at the conference, there are no discernible sources of financing for such a pipeline. Kalyuzhny also talked up eastern and southern routes for both oil and gas, such as the oft-invoked route across Afghanistan, but many experts doubt Afghanistan or South Asia could offer investors assurances of political stability.

The cases of Afghanistan and Pakistan underscore a dilemma that dominates pipeline strategy: the need for transnational security. Roy Allison, a Russia expert and Senior Research Fellow at Oxford University’s Center for International Studies at University of Oxford, calls on international bodies to lead the way in conflict resolution. He offered the optimistic view at the September conference that Georgia could become more secure and tamp down some conflicts with breakaway provinces if it gets sustained help from the United Nations, Organization for Security and Cooperation in Europe, and the North Atlantic Treaty Organization. Allison noted that many players, including the fledgling GUAM group uniting Georgia, Ukraine, Azerbaijan and Moldova, had at least endorsed regional security cooperation since the terrorist attacks on the United States.

Many experts suspect that modifications of existing routes, like the established Druzhba system, may satisfy investors and importers. Russian pipeline monopoly Transneft has announced plans to begin merging the Druzhba system, which runs from Russia to Slovakia, with a pipeline called Adria that terminates in Croatia. Russian media quotes Transneft as promising to begin this project within a year. In the meantime, Kazakhstani oil may access the Druzhba system to facilities on the Baltic Sea, unless those terminals handle only Siberian supply. Another merger in the offing might link Kazakhstan’s and Turkmenistan’s fields to the Baku-Tbilisi-Ceyhan route and a gas pipeline from Baku to Erzurum, Georgia. Experts say Kazakhstan and Turkmenistan can fill the pipelines when Azerbaijani fields begin to show declines in output early in the next decade.

The market for natural gas, while growing, may be more complex than the one for oil. Turkey reportedly stopped importing gas from Iran in autumn 2002, responding to alleged price cuts in Russian supply. [For more background, see the Eurasia Insight archives] Moscow faces tougher challenges ahead, as future pipelines could carry Turkmen, Azerbaijani and conceivably Kazakhstani gas while leaving Gazprom, Russia’s enormous gas company, out of the action.

Finally, international strategists must place new pipelines in the context of an expanded European Union. The EU is taking steps towards expansion. Once this expansion is complete, the center of Europe will lie much closer to the Black Sea. That means that it will have to learn to manage regional conflict and poverty issues in the former Eastern bloc while figuring out a way to slake the thirst of its developed members for energy. This is no game, of course. But Europe and other players will probably take full advantage of available energy from the Caspian in whatever solutions they pursue.

Editor’s Note: Ariel Cohen, Ph.D., is Research Fellow in Russian and Eurasian Studies at The Heritage Foundation and author of Russian Imperialism: Development and Crisis (Praeger, 1998).

http://www.eurasianet.org/departments/insight/articles/eav101102b.shtml