Caspian energy security
by
MARIA BEAT*

As the polemics and heated debate go on, Caspian oil and natural gas seem to be forgotten, as well as the fact that Georgia is a middle point on the path these resources take to the Western consumer. The economic side of the ongoing confrontation in the Caucasus looks set to become an issue of secondary importance. In the meantime, it is likely to deliver a crushing blow to the long-cherished US and EU plans to establish a secure southern oil and gas export corridor as an alternative to Russia’s energy deliveries from the Caspian region to the international markets. The ongoing confrontation greatly damages Georgia’s image as a safe transit channel for commodities and energy resources.

For a decade, having set itself up as a staunch US ally on the Black Sea, Georgia enjoyed an international reputation as an emerging regional democracy capable of ensuring stable development and security for foreign investments. As such, it has received billions of dollars in foreign investment and today hosts modern infrastructure facilities, including oil and cargo sea terminals, although these facilities were put on standby after the military hostilities began on Aug. 8.

The crown asset of Georgia’s achievements was its success in convincing the US administration that it could provide safe passage through the Georgian territory for pet US energy projects: the Baku-Tbilisi-Ceyhan (BTC) and Baku-Tbilisi-Erzurum (BTE) pipelines. In this way, impoverished Georgia, possessing no oil or gas deposits, has turned into a principal player in the regional energy market. Today two export oil and gas pipelines, planned as the backbone of a newly created southern energy corridor, go through Georgian territory carrying oil and gas produced in Azerbaijan to Turkey and further on to the West. Nevertheless, their much-appreciated potential could be grossly diminished if the ongoing Caucasus crisis continues. It is enough to recall that the BTC pipeline was damaged by an explosion along its Turkish section days before the military hostilities began in Georgia and that it was only put back into operation in the last days of August. It could be shut down again if military hostilities resume or the security of its operation becomes questionable. In the meantime, the BTE line remains closed due to security concerns, while gas production at the Shah Deniz off-shore deposit in Azerbaijan is suspended. Needless to say, these unfortunate developments deprive international consumers of badly needed oil and gas deliveries from the Caspian and undermine their trust in the southern export corridor’s safety.

It’s interesting that the safety of oil and gas transit through Georgia has never been questioned before, though security measures were specifically discussed during the BTC line’s construction. Still, it was the Azeri and Turkish sections of the mega pipeline that generated certain security concerns, not the Georgian one. Military hostilities in Georgia were not on anybody’s agenda at that time.

Regarded as the main success of US energy policy in the Caspian, the BTC alone -- when operational -- pumps up to 1 million barrels of oil per day, accounting for a meaningful share of the world’s daily production. With a construction cost nearing $4 billion, this 1,770-kilometer pipeline -- said to be the second longest in the world after Russia’s Drujba pipeline -- runs through Georgia from Baku to the Ceyhan oil terminal on the eastern Mediterranean coast of Turkey. Developed by an international consortium of 11 partners and inaugurated in July 2006, the BTC has ended the long-existing Russian monopoly over Caspian crude transportation to the world markets and was considered an absolute success story until Aug. 8.

The BTE pipeline, another US pet project, was commissioned in 2007 to challenge Russia’s gas exports to European clients by bringing gas from Shah Deniz to Erzurum in northern Turkey through Georgia. This $900 million, 690-kilometer-long pipeline came into being as a major channel for natural gas deliveries from Azerbaijan to Georgia, Turkey and, later on, Europe. Its construction and commissioning were expected to change the balance of forces in the global gas markets. Correct as it may have been initially, this assumption is now in limbo, with the BTE line closed and gas production at Shah Deniz on stand-by.

The Baku-Supsa pipeline, a modest precursor to the BTC and BTE lines that was strongly supported by the EU and the US, became the first Azeri export pipeline to bypass Russia’s oil transportation system in delivering its crude. With a capacity of 100,000 barrels per day, it could deliver oil from Baku to Supsa on the Black Sea cost of Georgia to be collected by tankers. Put on standby for maintenance some time ago, it is unlikely to resume operations due to the mounting military tension in the Black Sea.

The Georgian Black Sea ports of Batumi, Poti and Kulevi, which have cost the EU and the US around $5 billion in modernization and construction efforts during the past decade, are also likely to stay closed for as long as the Russian and NATO Black Sea military presence continues. The situation is worsened by disruption in rail transportation from Azerbaijan to Georgia caused by a bridge blast to the west of Tbilisi, making delivery of Azeri crude and refined products to Batumi and Poti impossible.

As such, Georgia’s export security potential has suffered a crushing blow, not to mention its image as a safe energy route for oil and gas deliveries from the Caspian. The suspensions of all these operations have not only left Georgia’s national budget short of its handsome transit fee, but also resulted in a loss of 1.5 million barrels in daily oil deliveries for the world market. In turn, the BTE’s continuing closure has halted badly needed natural gas deliveries from Azerbaijan to Georgia and Turkey. Commissioned one year ago, the pipeline had brought Turkey alone, as of June this year, 2.5 billion cubic meters of gas to counterbalance 12.3 billion cubic meters of Russian gas.

As such, the situation is triggering the redirection of energy flows from the southern export corridor back to the Russian transportation system. Ironically, it reaffirms Russia’s controlled northern export route as a safer corridor in comparison to the newly established southern alternative designed and built to ensure the security of energy transportation through delivery diversification and provide a remedy to Russia’s gas monopoly. Since the mid-1990s the US has been promoting the construction of oil and gas pipelines bypassing Russia, calling them “an insurance policy for the entire world” in terms of energy security. Today certain analysts sadly assume, in reference to the ongoing Caucasian crisis, that “the biggest casualty of the showdown has been the West’s naive belief that Georgia provides a secure alternative energy corridor that avoids either Russia or charter ‘axis of evil’ member Iran.”

Nevertheless, hypothetically Azeri export crude deliveries still have the potential to be redirected through the Russia-controlled Baku-Novorossiysk pipeline system and to be dispatched by barges up the Volga -- if worse comes worse. Another case is the BTE: Its closure doesn't have an alternative solution. With winter approaching, Turkey may start experiencing gas shortages due to the lack of its deliveries from Azerbaijan if tension doesn't ease. Georgia will be hurt the worst: Though partially dependent on Russian gas deliveries until very recently, it largely receives its badly needed gas from Azerbaijan and, with production at Shah Deniz suspended, could find itself in a dire situation during the coming winter.

Azerbaijan could be hurt badly as well, if the ongoing crisis deteriorates. Azerbaijani President Ilham Aliyev has voiced his concern by admitting that "Azerbaijan's export potential was damaged." Having stopped using Russia's oil transportation system in the spring of 2007, the country may now find itself short of means for oil and gas deliveries to international consumers. If the tension continues, Azerbaijan is likely to resume oil deliveries through the Russia-controlled pipelines and accept Russia's offer to buy out Azerbaijani gas.

Turkey won't be left unaffected, either. It's cherished plans of making Ceyhan, along with Yumurtalık, a mega oil-refining center in the eastern Mediterranean that will exceed by capacity Rotterdam, the world's largest such center, could experience a setback as well. Plans for the construction of sophisticated refinery complexes tied up with Azeri crude deliveries through the BTC line may require modification.

*Maria Beat is an international journalist and writer who specializes in CIS countries.