BTC AS “SECURITY GUARANTEE” FOR NAGORNO KARABAKH: INTERVIEW WITH IVAN DANILIN

Regnum, Russia
June 7 2006

Ivan Danilin – senior researcher of the Institute of World Economy
and International Relations of the Russian Academy of Sciences

REGNUM: Mr. Danilin, during their last summit in Kiev the GUAM
member-states proposed giving up the idea to operate the Odessa-Brody
oil pipeline on a reversion basis and returning to the initial idea
to supply Caspian oil via Ukraine to Europe. How realistic is this
prospect given Azerbaijan’s position? What is the export potential
of Azerbaijan?

Azerbaijan will hardly be able to join Odessa-Brody in the mid-term
future because this project is technically and financially difficult.

To get geo-politically and economically expedient, this pipeline
should be prolonged to Plock, a Polish city having an oil refinery.

Besides, it is still unclear who will pay for the more expensive
Azeri oil: it will be more costly than the Russian oil because of
transshipments in Supsa and Odessa. It is also unclear if Azerbaijan
will find enough oil for Odessa-Brody (-Plock) – in fact, it can’t
supply enough even for BTC and will hardly be able to till 2007,
at earliest.

Today Azerbaijan is a significant but not very big fuel supplier in the
world. According to various forecasts, after 2008 Azerbaijan will be
able to supply some 35-40 mln tons a year via BTC. True, Azeri experts
say that they have found some new capacities at Azeri-Chirag-Guneshli
but they will be able to specify them only after prospecting. Speaking
of the importance of the Azeri oil, we can just say that, even at
its full capacity, BTC will ensure only 1.5% of the world oil supplies.

REGNUM: What does the launch of BTC mean for the world and the
region? What are the chances of Kazakhstan’s joining the project?

Internationally, the BTC launch has rather small consequences. The
key result of BTC is that the post-Soviet states have taken
a psychologically important step outside the Russian oil transit
monopoly in the post-Soviet area.

This is a good stimulus for the development of an alternative export
system, and Kazakhstan will certainly try to join it. For Astana, BTC
(especially when it is extended) will become not so much the “main
window” into the world (something they in Russia were afraid of)
as an additional though significant channel it can use to diversify
its oil transit routes.

One can’t say that the launch of BTC will drastically change the
situation in the South Caucasus or Central Asia.

For the region, BTC is of dual significance. On the one hand, it will
strengthen the positions of Azerbaijan and, partly, of Georgia. Baku
will get less dependent on Moscow. On the other hand, the situation
is not as clear as it seems. First, if formerly Baku was heavily
dependent on US support in the BTC project, now that the Azeri oil
has got access to the world markets, this dependence will go into the
past. It is also clear that BTC will not be able – as one might expect
before – to make, say, Georgia independent from Russia in finance and,
consequently, in energy and economy.

Meanwhile, BTC will obviously enhance stability in the region. One
can’t but agree with some Armenian representatives who have been
saying for two years already that BTC is “a security guarantee”
for Armenia and – let’s add – Nagorno Karabakh. Its closeness to the
Nagorno-Karabakh and Armenian borders reduces the possibility of a
large-scale armed conflict in the region.

REGNUM: Since recently GUAM is called energy NATO. Do you agree with
this term, if yes what can Russia counterpoise to this bloc in energy?

“Energy NATO” is not very correct term for the Organization for
Democratic Development-GAUM (ODD-GUAM). Energy NATO is generally
applied to the informal Poland-led union in Eastern and South-Eastern
Europe (initiated during the January Summit in Davos).

In fact, given the mostly political demand for the Caspian
oil in Ukraine, Moldova, Poland – GUAM may try to carry out the
Odessa-Brody-Plock project or simply supply Azeri oil to Ukraine (with
an oil refinery to be set up in Odessa). All this depends on whether
the US and the EU will lend money for the completion and operation of
the Odessa-Brody-Plock oil pipeline and on whether Ukraine, Moldova
and Poland will be able to afford the expensive Caspian oil.

This scenario is hardly possible but may well be if the world oil
prices continue to grow and if Russia continues toughening its energy
policy. Much more realistic is the project of moderate supplies of
Azeri oil to the Odessa oil refinery – but still not in the near
future.

REGNUM: How topical is the Burgas-Alexandroupolis project and why is
it being delayed?

The key problem of this project is, like in the case of Odessa-Brody,
multiple (in the case of Burgas-Alexandroupolis – triple) oil
transshipment. This makes the project more expensive and the Russian
oil less competitive as compared with the Azeri oil from BTC.

Under new conditions Russia is staking on the northern route (the
Baltic pipeline system), but is also considering alternatives – Italy
is already drafting a Samsun-Ceyhan project for Russian oil. There
are other scenarios too.

On the whole, the prospect of this project is still very vague and
like in the case of Blue Flow, Russia may prefer (at least partly)
to use the “Turkish transit” – as, in any case, Burgas-Alexandroupolis
will not be able to “cover” the whole southern transit of the Russian
oil. Meanwhile, the “Turkish scenario” is not desirable geo-politically
as it will change nothing in the price scheme. As you may understand,
the Russian authorities are wavering, but delay may cost them dear,
especially as Turkey is obviously planning to further toughen its
Bosporus and Dardanelles transit regime.