Chevron seeks stake in Bulgaria-Greece oil pipeline

By bne IntelliNews November 13, 2007

Derek Brower in Vienna -

High-level sources at Chevron say that the US energy company wants to participate in a new oil pipeline being built between Burgas, in Bulgaria, and Alexandroupolis, in Greece.

The pipeline is one of many proposed that would skip the congested Bosphorus straits and enable Russian and Central Asian crude to be shipped across the Black Sea to be exported to the West. If it comes on stream, the new link could be key to the plans of Chevron and other oil companies in Kazakhstan that expect to bring new production on stream in the next two years.

At an energy conference in Vienna, Jan Kalicki, Chevron's counsellor for international strategy, said: "As the Caspian Pipeline Consortium's throughput increases, so does the economic case for Burgas-Alexandroupolis, in which both Chevron and Kazakhstan are interested in participating on commercial terms equal to the Russian companies."

Chevron sources later briefed bne that this could mean either participation in the ownership and operation of the pipeline, which has not yet been built, or a share of the capacity of it. But the firm is adamant that any involvement be on "the same terms as for the Russian companies."

Burgas-Alexandroupolis' proponents are three Russian companies - Transneft, the state-owned oil transit firm; Rosneft; and Gazprom Neft, the oil arm of state-controlled Gazprom. Their combined stake in the project is 51%, with the remainder owned by companies in Bulgaria and Greece. A deal to develop the $600m pipeline was signed in April. Construction is due to begin next year and the development could be on stream by 2011, transiting up to 700,000 barrels per day (b/d) in its first phase.

Like most other pipeline projects in the region, Alexandroupolis-Burgas is mired in energy geopolitics. Greece considers it to be key to its energy security, given that the pipeline would relieve the country from its dependence on imports through Turkey's Bosphorus straits. Environmental groups also say the straits have become dangerously crowded and polluted. However, Burgas-Alexandroupolis is battling other proposed pipelines that would transit crude shipped across the Black Sea to markets in the West. One of them is a mooted reversal of an existing pipeline between Odessa and Brody, in Ukraine. In October, politicians from the Baltics, Ukraine and Azerbaijan said such a link could export Kazakh and Azeri crude to Poland, breaking Russia's domination of the Baltics' oil imports market. Kazakhstan later poured cold water on those plans, however, by reiterating that Russia would remain its most important export partner.

Pipeline connections

At the heart of the issue is the multinational pipeline of the Caspian Pipeline Consortium (CPC) that exports Kazakh crude around the Caspian Sea to Russia's Black Sea port of Novorossyisk.

CPC route

Chevron's plans to increase production from the Tengiz oilfield in Kazakhstan, which it is developing through its joint venture TengizChevroil, could depend on CPC agreeing to expand capacity of its export pipeline system to Novorossyisk. At present, its capacity is 640,000 b/d, leaving no room for planned new production from the Tengiz field or Kashagan, Eni's long-delayed oil project that is now due on stream in the next two years. CPC, in which Chevron is a 14% shareholder, has discussed doubling capacity to 1.3m b/d, although no agreement has yet been reached.

However, sources among oil companies in Kazakhstan say that Transneft, the leading shareholder in of the CPC consortium, has insisted that any expansion of the system be conditional on the Kazakh companies exporting their oil through Burgas-Alexandroupolis once it has crossed the Black Sea.

This leaves development of Burgas-Alexandroupolis "symbiotically" linked to progress on the CPC expansion, says the Chevron source. It also effectively gives Russia control over the transit of incremental Kazakh crude, even once it has entered the Black Sea. That explains the ambition of producers in Kazakhstan to develop a subsea pipeline across the Caspian Sea, which would enable exports through the Baku-Tbilisi-Ceyhan pipeline, which is also to be expanded. Barging crude across the Caspian is another more expensive option.

If Burgas-Alexandroupolis goes ahead, it could also nix other similar Bosphorus bypass plans, including one long-mooted project to export crude through a pipeline between Constanza, in Romania, and Trieste, in Italy. Turkey also has a plan to develop a north-south pipeline from Samsun, on the Black Sea, to the Mediterranean port of Ceyhan.

Despite Chevron's interest in Burgas-Alexandroupolis, however, some analysts remain sceptical the development will happen at all. "It's been discussed for 20 years already," says Jonathan Stern, of Oxford's Institute for Energy Studies. "Why is it suddenly going to happen now?"

CPC shareholders

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