As the Bosporus straits become ever more clogged with oil tankers, a bypass pipeline to provide expanding Caspian crude output with a link to world markets becomes ever more likely.

One day there will be a pipeline bypassing the Bosporus. Or two. Or more. But which will be the first to be built, just who will build it, who will operate it and - most important of all - who will supply oil for it, remain among the most contentious issues in contemporary pipeline politics.

The problem is that while there are extremely strong environmental arguments for finding ways to avoid using the Bosporus as a transit route for oil from Black Sea ports to the world market, there are few compelling commercial arguments - unless the insurance companies start worrying about the cost of a major tanker accident in the heart of Istanbul.

This means that resolving the conundrum of how to get a Bosporus pipeline built, and how to secure the crude oil throughput that would justify its existence, remains as much a matter of politics as of energy economics.

The picture continues to shift month by month. At various stages there have been at least eight serious proposals for Bosporus bypass pipelines, some predicated on using essentially the same right-of-way.

Even as various contenders appear to have fallen by the wayside, their advocates continue to state that they are still very much in the game.

As recently as May, a consensus seemed to be emerging that the possibilities had been whittled down to two - a route from Burgos in Bulgaria to Alexandropoulos in northern Greece, now known as the Bapline project, and a rival proposal for a trans-Turkish route from Samsun to Ceyhan.

However, in recent weeks the promoters of other serious options - notably the AMBO project that seeks to build a line from Bulgaria through Macedonia to Vlore in Albania, and the project for a line across the northern Balkans from Constanza in Romania to Omisalj in Croatia and Trieste in Italy - have shown fresh signs of life.

A variant of a fifth route intended to serve the refining industry in Turkey, has also just emerged.

Two key factors are shaping the current debate. The first is pure commerciality: the understanding that if any of these projects are to succeed they must have direct participation by oil shippers.

In practice, this means the companies producing the oil that is to be shipped through the proposed line. The second concerns the planned expansion of the Caspian Pipeline Consortium's 1,510-kilometer pipeline from Atyrau in Kazakhstan to Novorossiysk on Russia's Black Sea coast.

Shipper participation

The proponents of at least three of the major current proposals - AMBO, Bourgas-Alexandropoulos and Samsun-Ceyhan - have all told Platts in recent months that they want to have direct equity participation by shippers.

The most forthcoming is Turkey's Calik Enerji, which in May became the first company to secure a Turkish government license to develop a Bosporus bypass project, in this case, a 554 km line from Samsun to Ceyhan, that would make use for much of its route of the right-of-way acquired by Turkey's Botas for the Turkish section of the recently completed 1,768 km Baku-Tbilisi-Ceyhan oil pipeline.

Calik began by enlisting the assistance of France's Total, which has a stake in Kazakhstan's giant Kashagan field, and which was also the biggest financial contributor to the most detailed Samsun-Ceyhan study to date, the 2005-2006 report prepared by Germany's Technip.

But in November 2005, Calik then signed an agreement with Eni, which is both a shareholder and operator at Kashagan, as well as a significant player in Russian energy markets, for joint development of the Samsun-Ceyhan project. This led to a bitter feud with Total, which lasted until mid-2006.

Although both sides now say the dispute is settled, it is not clear what role Total will play in further development of the project.

In June, Calik Chairman and CEO Ahmet Çalik said: "We are in contact with Lukoil, Chevron, Shell and others. Total is also interested."

Earlier, the company's project coordinator, Erdal Celik told Platts: "We're cooperating with additional investors, notably the oil companies which have production in Kazakhstan and Russia that is likely to wind up in the Black Sea." Shareholders, Celik added, would have priority shipping rights.

As for Bourgas-Alexandropoulos, Christos Dimas, a director of the Bapline project, told Platts that several Russian companies, notably TNK-BP, Rosneft, Tatneft and Surgutneftegas, "are interested in the project and have already started considering crude oil quantities commitments." He added: "Other oil companies are expected to join."

TNK-BP has already been designated as project coordinator, which should yield Bapline considerable advantages, since much of TNK-BP's output finds its way to export markets via the Black Sea.

AMBO, too, sees shippers as key investors, but declines to name prospective partners until the conclusion of a formal treaty between the three countries through which its line would pass: Bulgaria, Macedonia and Albania.

"We understand that shippers would want a piece of the pipeline through which they ship crude. While not the only source of investment, certainly shippers would be the prime source of investment, perhaps the major source of investment," AMBO vice-president Gligor Tashkovich told Platts.

AMBO has previously said that several international oil companies were interested in the pipeline, including Chevron, ExxonMobil, BP and Eni.

The CPC issue

CPC is important because it carries so much oil to the Black Sea, particularly from Kazakhstan. The line's current capacity is around 30 million tons a year (equivalent to 653,000 b/d based on Tengiz crude) - slightly above its original nameplate capacity of 28 mt/yr.

For the last two years the consortium of state owners and private companies holding equity in the project have argued over how to implement a long-expected expansion to 67 mt/yr.

In recent months, Russian firms, who play an increasingly important role in CPC's management, have argued that an expansion of the CPC system cannot be expected to take place unless an agreement is also reached on a way of ferrying that crude out of the Black Sea, specifically through the Bourgas-Alexandropoulos pipeline.

On several occasions, most recently on 26 July, Transneft, Russia's state-owned oil pipeline monopoly, has said that CPC should not be expanded unless alternative routes out of the Black Sea were developed in parallel.

In particular, Transneft Vice President Sergei Grigoriev declared in April that Transneft expects to finalize plans for Bourgas-Alexandropoulos before it agrees to expand the flow of additional crude oil from the Caspian region to Novorossiysk.

Transneft is a key player because it already has a monopoly over all Russia's Soviet-era oil export network and because in July 2006 Russian Industry and Energy Minister Viktor Khristenko formally announced that Transneft would take over the Russian government's 24.5% share in CPC.

This, together with the appointment in April of a senior Russian energy official, Vladimir Razdukhov, to head CPC - a condition of prospective Russian approval for the line's expansion - has contributed to an atmosphere in which CPC's expansion appears to be entirely conditional on Russian strictures.

This is a high risk strategy. Russia is using its leverage on CPC to secure throughput for Bourgas-Alexandropoulos. But whilst this might be thought to give the pipeline a head start over its competitors in terms of securing the all-important throughput guarantees, it can also be argued that it makes Bourgas-Alexandropoulos a hostage to CPC expansion.

In this context the role of Chevron is crucial. Chevron was always expected to be CPC's main user. It is the largest corporate shareholder and provided its first managing director Ian MacDonald.

But MacDonald, frustrated by two years of bitter arguments over what was supposed to be an automatic expansion of capacity once initial limits were reached, has now moved on.

While the dispute has raged. Chevron has started to develop a package of alternative export options for production from its giant Tengiz field in Kazakhstan.

These include an agreement to utilize capacity on the newly opened Baku-Tbilisi-Ceyhan pipeline and the securing of maximum railcar capacity on the former Soviet rail network to cover a large proportion of its export requirements for the next year or so. Should Chevron reach the conclusion that Russian terms for CPC's expansion are too onerous, then, by default, a large proportion of Tengiz crude will have to find long-term alternative routes to market.

Whist BTC is an obvious prospect - indeed, Chevron, through its acquisition of Unocal, is a BTC stakeholder - it is also likely to try to ship considerable quantities of crude directly across the Caucasus to the Black Sea.

In this context, the availability of the Baku-Supsa line, developed by most of the BTC partners as a partial solution for early oil exports from Azerbaijan, could well prove highly significant.

Baku-Supsa, with a current capacity of around 150,000 b/d, is capable of considerable expansion should further pumping stations be added. It offers Chevron an alternative way of getting oil into the Black Sea. And the AMBO project, which has been courting Chevron for years, offers the US company an alternative to Bourgas-Alexandropoulos as a way of getting oil out of the

Black Sea.

Updated: September 1, 2006

Next Page: Bosporus projects - rising costs

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