South Eastern European energy security briefing

Posted in Europe , Russia , United States , Energy Security , Other | 26-Mar-07 | Author: Ioannis Michaletos

Russian President Vladimir Putin, left, Greek Prime Minister Costas Karamanlis, center, and Bulgarian Prime Minister Sergei Stanishev in Athens Thursday, March 15, 2007.

On the 15th of March, Greece, Bulgaria signed the agreement of constructing the Burgas-Alexandroupoli pipeline, thus providing access for the Russian and Central Asian oil to the Eastern Mediterranean Sea. The Russian President Vladimir Putin is on the verge of expanding the channels by which Russia would export its natural wealth across the world and the newest agreement is one of the many energy projects that will form the scenery of the 21st century global politics, based amongst other on the control of the vital energy routes.

Moscow is interested in securing multitude paths for oil export, in order to check monopolies that could endanger its export basis. Apart from that, it is the first time since the end of the Cold War and the break-up of Soviet Union that Russia is advancing in a geo-economic level in the Balkans and strives to play the role of a significant player in one of the most sensitive regions in Eurasia. It is noteworthy to mention the proposed veto by Russia in relation to the resolution around the Kosovo issue. In contrast with 1999, Moscow has far more capabilities of assisting Serbia and gain a stable role in a country that still dominates Central South Eastern Europe and the axis from South to North and West to East.

The creation of the pipeline has also its ramifications for the other states involved. First of all, Greece becomes for the first time in its history, a part of the wider energy system and the Aegean Sea will become a transit maritime route for super tankers up to 300,000 tons. A lot of Greek scientists and public figures are worried about issues relating to ecological considerations in case of a major oil spill. Nevertheless the advantages of the pipeline include an investment project worth over a billion USD and the creation of necessary facilities that will lift up the economic prospects of Alexandroupoli and the surrounding area in Northern Greece. There already plans of securing the eco-system from where the pipeline will trespass, but as in all cases there is a considerable risk that cannot be excluded.

Moreover the Greek Ship owners that currently control almost 30% of world’s oil transfer are already preparing for acquiring the biggest part of the oil transfer between Novorossiysk –Burgas and from Alexandroupoli to the Western Europe and Asia. The Bulgarian side aims to develop Burgas as the country’s economic gateway with a plethora of industries (Tourism, energy, commerce) and attract much needed foreign investments.

Russia entered the agreement by its large energy companies that are inexorably related to the ruling Kremlin class. Transneft, Gazpromneft and Rosneft will own 51% of the pipeline’s management. In essence the pipeline is Russian controlled. What is interesting is that the American Chevron corporation which has invested heavily in the Tengiz oil reservoir in Kazakhstan; will have to collaborate with the aforementioned Russian companies, since a large part of its oil production will have to be transferred via the new pipeline. It seems that despite USA-Russian rivalry, common economic interests will bring both states closer.

Over the past decade, a great part of political upheaval in the area from Balkans to Central Asia was related to energy ambitions and aspirations for dominance over the proposed routes for oil and natural gas. It is fair to assume that when the whole of the situation settles, then stability could prevail, owing to the vast economic interests that would be interest in securing safe zones for the transport of oil, instead of zones of instabilities and conflicts. In that respect the Burgas-Alexandroupoli pipeline could be a great opportunity for the Balkans to enter into an era of less ethnic and state animosities. Furthermore, the two other proposed pipelines –AMBO From Burgas to Durres in Albania and the Costanja-Trieste one- could greatly help the Balkans in becoming a region of energy importance for Europe, thus drawing its attention towards preventing crises of any kind.

The creation of the pipeline is not just a solemn energy development. It also relates to the ambitions of Russia –Perhaps the “New Russia” that under the forceful President Putin’s governance is heading towards the “Hot Waters” of the Mediterranean , once more in a play that has been seen over and over the past millennium. The Greek press during the visit by the Russian delegation, widely circulated the comments made that portrayed the image of a strong Russia with a robust energy sector and with as much as 300 billion USD to invest in foreign markets in the near future. The Greek economy would be to a great extent aided by an influx of Russian investments in the stock market or that of a tourist mass from the North. The same applies for every Balkan state, especially those lacking proper attention by the West such as Serbia. Moreover Russian enterprises have already proceeded in large scale real estate investments in Bulgaria’s Black Sea coast and in the Adriatic one of Montenegro. Greece is also a prime destination for Russian officials that apart from capital gains, they are also interested in supplying the country with state-of-the-art weaponry. Already numerous –Mostly anti-aircraft - weapons serve in the Greek Army in a balancing act between Western and Eastern procurements.

In general, should the construction of the pipeline remain in a purely economic level then it is probable to expect an era of stability across the region and a fruitful investment environment. On the other hand, an energy project that will be used as a wider plan for power-politics between Russia and the United States, then all scenarios are open and various antithetical political units might come into conflict, with disastrous results for one of the most war inflicted territories in post war Europe. One thing is certain though; real estate in Burgas and Alexandroupoli is really going to skyrocket in the next few years!

Important parts of the agreement

  • The pipeline would have an initial capacity of 35 million tones, reaching on a second level 50 millions maximum.
  • The multilateral company that will construct and administer the pipeline would be based in Luxembourg
  • The pipeline will be created with the use of project finance from the international banking system
  • The whole budget for the pipeline is estimated to 1 billion Euros
  • Storage facilities of oil would be built in Burgas for some 500,000 tones and for 700, 00 tones in Alexandroupoli.
  • The shares of the whole pipeline project are: Russian companies, 51%, Bulgarian companies, 24.5%, Greek companies, 23.5% and Greek state, 1%.

NOTE: There are rumors that the Bulgarian share and possibly the Greek one are to be sold to the large oil corporations with a special interest from Chevron and Shell for the time being.

Ioannis Michaletos is WSN Editor South East Europe.