WAR CASTS CLOUD OVER PIPELINE ROUTE

The Moscow Times
14 August 2008
Russia

Any plans to use Georgia as a bridge for more energy supplies to Europe
are likely set to gather dust now that the tiny country’s fierce
armed conflict with Russia has exposed the insecurity of the route,
analysts said.

Georgia has been a key conduit of oil and gas from Central Asia to
the West that bypasses Russia, and Europe has been hoping to build
another pipeline to bring more gas from the area.

That pipeline project, called Nabucco, has long been on the drawing
board, but potential investors had trouble contracting enough gas
for it from Azerbaijan or Turkmenistan.

Shipping the gas from Turkmenistan would require building a separate
pipeline across the Caspian Sea bed, which has yet to be divided
by the sea’s five littoral states, Russia, Azerbaijan, Kazakhstan,
Turkmenistan and Iran.

Now, Georgia’s vulnerability may have dealt a lethal blow to Nabucco
and plans for a trans-Caspian pipeline.

"A trans-Caspian gas pipeline can be considered a forever buried
chimera," said Pavel Baev, an energy expert at the International Peace
Research Institute in Oslo. "It became clear for all the participants
of these energy games that nothing will go through the Caspian Sea."

Europe was "shocked" by the instability and realized that "hardly
anyone would invest money in new projects" associated with Georgia,
said Konstantin Simonov, director of the Fund for National Energy
Security.

When asked about the impact of the war on Nabucco prospects, European
Commission energy spokesman, Martin Selmayr, said none of the pipelines
going through Georgia was affected. The commission was in regular
contact with energy companies in the region, he said.

Russian air strikes did not hit any of the three international oil and
gas pipelines crossing the country or any oil ports, but they forced
BP, which is an operator of Azerbaijan’s two biggest energy projects,
to stop oil and gas shipments through Georgia as a precautionary
measure Tuesday.

The BP-operated Baku-Tbilisi-Ceyhan pipeline, which carries oil from
Azerbaijan to the Turkish Mediterranean, was already out of commission
because of an explosion in Turkey last week that Kurdish separatists
claimed responsibility for.

Kazakh Prime Minister Karim Masimov on Monday ordered KazMunaiGaz, the
national energy company, to study whether it could absorb domestically
the exports envisaged for transit via Georgia.

Russia’s Black Sea Fleet patrolled Georgia’s coast, potentially making
it harder to transport the crude from ports to international markets.

Azerbaijan’s state oil company, SOCAR, said business was as usual
at its Georgian port terminal of Kulevi, with the latest tanker
leaving Tuesday.

In potential or existing new oil-related projects, Kazakhstan is
looking to invest in Georgian railways that serve the Black Sea port
of Batumi that it already controls. Azerbaijan is putting money into
the construction of a railway running through Georgia to the Turkish
border as an additional oil export route.

The war with Georgia could backfire on Russia by creating difficulties
for its own project to supply Europe with gas, South Stream. The
project’s partners, Gazprom and Italy’s Eni, have enlisted the support
of Bulgaria, Serbia and Greece as transit countries for their route.

The initial stretch of the pipeline would cross the Black Sea,
leaving Russia the task of winning approval from NATO member Turkey
or Western-leaning Ukraine.

These countries could deny permission for the pipeline to cross their
territory in an attempt to punish Russia for its military campaign in
Georgia, Baev said. "One could expect movements in that direction,"
he said.

Simonov warned that there was another potential source of instability
in the region in addition to Georgia’s separatist regions. Azerbaijan,
he pointed out, has a dormant conflict with Armenia that controls
the disputed Nagorno-Karabakh enclave.

"I think it will flare up," he said.