A Different But Valuable Perspective

new_york_times:http://www.nytimes.com/2008/08/14/world/europe/14oil.html

By JAD MOUAWAD
Published: August 13, 2008
When the main pipeline that carries oil through Georgia was completed in 2005, it was hailed as a major success in the United States policy to diversify its energy supply. Not only did the pipeline transport oil produced in Central Asia, helping move the West away from its dependence on the Middle East, but it also accomplished another American goal: it bypassed Russia.
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Times Topics: Oil (Petroleum) and Gasoline
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The BTC pipeline was designed to avoid Russian interference.
American policy makers hoped that diverting oil around Russia would keep the country from reasserting control over Central Asia and its enormous oil and gas wealth and would provide a safer alternative to Moscow’s control over export routes that it had inherited from Soviet days. The tug-of-war with Moscow was the latest version of the Great Game, the 19th-century contest for dominance in the region.
A bumper sticker that American diplomats distributed around Central Asia in the 1990s as the United States was working hard to make friends there summed up Washington’s strategic thinking: “Happiness is multiple pipelines.”
Now energy experts say that the hostilities between Russia and Georgia could threaten American plans to gain access to more of Central Asia’s energy resources at a time when booming demand in Asia and tight supplies helped push the price of oil to record highs.
“It is hard to see through the fog of this war another pipeline through Georgia,” said Cliff Kupchan, a political risk analyst at Eurasia Group and a State Department official during the Clinton administration. “Moving forward, multinationals and Central Asian and Caspian governments may think twice about building new lines through this corridor. It may even call into question the reliability of moving existing volumes through that corridor.”
At the very least, the analysts warn, a newly emboldened Russia may figure even more prominently in shaping the region’s energy future.
The latest struggle over Caspian oil started in earnest in the 1990s under Bill Clinton, after the breakup of the Soviet Union. The building of the pipeline that passes through Georgia, the Baku-Tbilisi-Ceyhan line, or BTC, remains one of the signature successes of the American strategy to put a wedge between Russia and the Central Asian countries that had been Soviet republics.
Attempts to get oil out of Kazakhstan through a non-Russia route failed. Most of the oil production from the giant field of Tengiz, for example, in which Chevron is the largest investor, now travels through a pipeline known as the Caspian Pipeline Consortium, which runs along the northern Caspian coastline to the Russian Black Sea port of Novorossiysk. And proposals for new oil and natural gas pipelines in the region have stalled, in part, because of Moscow’s opposition.
Some analysts believe the armed conflict between Russia and Georgia not only is rooted in historical enmity, but it is an outgrowth of Russia’s fears that Georgia, with its pro-Western bent, could prove to be a lasting competitor for energy exports.
“Russians treasured the fact they had a monopoly on oil and gas pipelines from Central Asia, as it gave them considerable clout,” said Marshall I. Goldman, a senior scholar for Russian studies at Harvard and the recent author of “Petrostate: Putin, Power, and the New Russia.” “By agreeing to having an oil pipeline, Georgia made itself more vulnerable.”
A big concern for the future is what will happen to oil from Kashagan, the giant oil field in the Caspian Sea that holds over 10 billion barrels of reserves. Located off Kazakhstan, Kashagan is the most ambitious attempt to date by Western companies to develop new supplies in the Caspian. It will be at least five years before oil starts flowing from there, but the operating consortium, which includes Exxon Mobil and ConocoPhillips, plans to transport some of Kashagan’s oil through the BTC pipeline.
That would involve building a new pipeline under the Caspian to connect to BTC. Russia has opposed similar plans in the past.
The Baku-Tbilisi-Ceyhan pipeline, 1,100 miles long, transports 850,000 barrels a day of oil, or one percent of global supplies, from Azerbaijan through Georgia and Turkey, ending at the port of Ceyhan on the Mediterranean. Much of the oil is bound for Europe and the United States.
The oil comes from several fields in Azerbaijan, offshore in the Caspian. The line, which cost $4 billion to build, also carries some oil from Tengiz that is barged across the Caspian.
Before the BTC pipeline was built, the West struggled to find routes that would avoid what Western leaders considered to be potential trouble spots, but it was difficult. The United States did not want the line to pass through Iran, for instance. In the end, the United States government, BP, which operates the pipeline, and other private investors decided the line should proceed on its current route. That gave a boost to newly independent counties and to Turkey, an ally, but it also sent the line through three nations struggling with separatists.
Even before the outbreak of hostilities between Russia and Georgia, analysts were reminded of how precarious even the favored route could be.
Last Wednesday, the pipeline was shut down after it was hit by an explosion in Eastern Turkey. Kurdish separatists claimed responsibility, although it remains unclear what caused the blast.
. There have also been unconfirmed reports in recent days that Russian planes had targeted the pipeline, although BP has said the line was not hit.
BP said on Wednesday that it would take a week to determine how long the pipeline will remain shut. Other investors in the pipeline are Socar, the state-owned oil company of Azerbaijan; Chevron; ConocoPhillips; StatoilHydro, from Norway; ENI, from Italy; and Total, from France.
Russia, which is flush with petrodollars because of the rise in the price of oil, has not been afraid to flex its muscle in recent years to bring its neighbors in line. Two years ago, Gazprom, the national oil company then run by Dmitri A. Medvedev, now the Russian president, cut off natural gas supplies to Ukraine in the winter because of a price dispute.
That had a knock-on effect in Europe, where many policy makers began questioning their reliance on Russian natural gas, although there was no consensus on what to do. One proposal, favored by the United States, has been to build a natural gas pipeline parallel to the BTC line.
“For the Europeans, the Ukraine gas crisis was like a snooze alarm,” said Frank A. Verrastro, the director of the energy and national security program at the Center for International and Strategic Studies in Washington.
But Mr. Verrastro, a former senior executive with Pennzoil, said it would be very hard now to build a new Western pipeline.
“We got BTC because there was a confluence of commercial and diplomatic interests,” he said. “But the United States didn’t learn the right lessons. They thought that all you had to do was lean on these countries and a new pipeline would happen. But that was an abject failure.”
He added: “There is a shift happening in the marketplace. We need a Plan B. But we don’t have a Plan B.”