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Oil: Bulgaria Talks Transit, Greece and Macedonia Make Up

October 14, 2004

(Balkanalysis.com Research Service)- Owing to its geography, Bulgaria is a natural choice for all future Black Sea oil export routes from the Caspian to the Balkans. As has by now become a usual event, Bulgarian President Georgi Parvanov continued to point this out, this time in talks held last week with Azerbaijani counterpart Ilham Aliyev.

Parvanov concentrated specifically on the proposed AMBO (Albania-Macedonia-Bulgaria) pipeline and the Burgas-Alexandropolis (Greece) pipeline – twin priorities for Bulgaria and other Balkan states with an interest in the future of oil transit through the region.

Stating that “Europe is interested” in Azeri oil and gas, Parvanov characterized Bulgaria as “…a country through which these products can be supplied, and all parties involved are interested in working in this direction.” Aliyev responded by saying that such cooperation “…could be very useful.” The same subjects were broached during this week’s visit to Sofia of Greek President Kostis Stephanopoulos.

On 1 October, Novinite.com reported that Russia, Bulgaria and Greece will sign an agreement on Burgas-Alexandropolis within a month, after meetings were held between the head of the Russian government staff, Sergey Naryshkin and Bulgaria’s Regional Development Minister, Valentin Tserovski.

The three parties have equal shares in the project, the major advantage of which would be to decrease dangerous Bosporus freighter traffic. However, while the risk of an environmental disaster due to an oil spill would therefore be reduced, the problem would not be eliminated entirely: tanker traffic will still have to resume from Alexandropolis westward, through Greece’s island-cluttered Aegean Sea.

In contrast, the proposed AMBO route bisects the Balkans, starting also in Burgas but ending up in Vlore, Albania – thereby sparing the Aegean of any possible spills. It would thus seem eminently preferable on environmental grounds.

The difficulty with establishing such pipelines has long been due, backers contend, to unresolved problems on the part of the Caspian producers. But even pipelines that have made it past the planning stages – such as the controversial, $3.6 billion Baku-Tbilisi-Ceyhan project – tend to get mired down in political and other protests.

Environmental concerns over the Borjomi Nature Reserve have vexed project leaders BP and slowed construction in the Georgian section of the pipeline. This week, in a bid to placate the Georgians, the British company announced an additional investment of $10 million in providing pipeline security. In general, two more credit lines will have to be opened by early 2005 to finance the expected $2.6 billion in loans to international financial bodies backing the project.

Environmental concerns have also slowed work on a Balkan pipeline under expansion, the Druzhba-Adria pipeline project meant to integrate oil flow from Russia to the Adriatic. The two pipelines are to meet in Hungary, and represent a joint effort by the governments of Russia, Belarus, Ukraine, Slovakia, Hungary and Croatia. Plans made in December 2002 to have the pipeline completed one year later look to have been over optimistic.

In Croatia, public outcry over possible damage to the country’s vital Adriatic coast led to the creation of an environmental impact study. While the report was finished in June, it awaits official confirmation on the ministerial level. Croatia’s spokeswoman in the Ministry of the Environment Ministry, Kata Gojevic, told Reuters on Monday that the ministry must form an assessment commission to consider the study, and that “…it is not easy to set up an independent commission. Croatia is a relatively small country and does not have too many experts, and most of them have already participated in preparing the study.” Gojevic declined to give any timeline for completion of the whole exercise.

This tiring talk of exploiting new transit routes comes at a time when the big international oil companies are seeing exploration costs outweigh value.  The Financial Times this week quoted research by energy consultant Wood Mackenzie which “…shows the commercial value of oil and gas discovered over the past three years by the 10 largest listed energy groups is running well below the amount they have spent on exploration.” The “record levels” companies are budgeting for exploration worldwide can guarantee production growth for only about another five years.

Similar bad news was announced last week in Bulgaria, when the British gas drilling company Melrose announced abandonment of an offshore, 1,032 meters-deep exploration well near Varna. According to the Sofia News Agency, the company remains undeterred, and hopes to strike it rich in other locations in the vicinity by “…extending the 3-D seismic survey, currently being acquired in the area immediately to the south of Varna West, to cover the Varna East prospect in order to give a direct comparison with the Galata structure,” where an exploration well may be dug.

Preliminary testing has left company officials optimistic. Despite the “disappointment” of the Varna West failure, Melrose Chairman Robert Adair stated that “…we are delighted by the excellent early results from the 3-D survey and we remain on schedule to drill an exploration well on a channel system prospect by late second quarter 2005.”

In other Balkan oil news, the Athens News Agency reported that Hellenic Petroleum and the Macedonian government have agreed on a new management scheme for the existing Thessaloniki-Skopje pipeline.

According to Economy Minister Stevco Jakimovski, a new joint company will commence operations from 1 November, with Hellenic retaining an 80 percent share and the Macedonian government, 20 percent. While no solution was announced regarding longstanding revisions to the OKTA refinery privatization, and Hellenic’s request for international arbitration, the ANA argues that “…a suspension of legal action could allow both sides’ experts to work out a compromise deal.”

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