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Eurasia Daily Monitor
September 29, 2008 -- Volume 5, Issue 186
BUSINESS CONFIDENCE RETURNING TO AZERBAIJAN-GEORGIA TRANSPORT CORRIDOR
AFTER THE AUGUST WAR
by Vladimir Socor
Russia's invasion of Georgia in August caused partial and temporary
disruptions to the transport corridor for Caspian oil and other commodities
through that country. The two-pronged corridor, running from Azerbaijan to
the Georgian Black Sea coast and via Georgia to the Turkish Mediterranean
coast, is now functioning at nearly the same overall capacity as it did
prior to the conflict.
Business confidence in this transport route is rebounding fast, driven
by Kazakhstan and Azerbaijan in the region and encouraged by the U.S.
government. The return of confidence reflects both the West's strategic
stake in this route and the Caspian oil exporters' imperative need to use
this unique westbound outlet.
On September 19 the recently appointed head of Kazakhstan's oil and
gas state company KazMunayGaz, Kairgeldy Kabyldin, announced that Kazakhstan
would go ahead with the earlier plan to ship oil to Baku for pumping into
the Baku-Tbilisi-Ceyhan (BTC) pipeline. The additional oil volumes from
Kazakhstan would increase that line's throughput from the current annual
rate of 37 to 40 million tons (800,000 to 850,000 barrels per day) to 50
million tons (1 million bpd) of oil annually by 2009-2010. Moreover,
KazMunayGaz proposes to participate with Azerbaijan and Turkey in a project
to build an oil refinery and petrochemical plant at the Ceyhan terminal.
"I would not say today that the risks of [using] BTC have increased
owing to the Russia-Georgia conflict. On the contrary, the transit of Kazakh
oil in this direction will add an element of stability in the region,"
Kabyldin told Kazakh media (Panorama [Almaty], September 19).
On September 24 President Nursultan Nazarbayev, inspecting oil
infrastructure projects on Kazakhstan's Caspian littoral, confirmed the plan
to develop the Kuryk seaport as a major oil export terminal "for handling
large volumes of crude from Kashagan" (Kazakhstan TV Channel One, September
24). Kuryk is projected to serve the supergiant Kashagan offshore oilfield,
part of whose future output is intended to be shipped by sea tankers to
Baku. From there, two continuation routes are envisaged: the BTC pipeline
(boosting its throughput to ultimately 70 million tons annually or 1.4
million bpd) and Georgian Black Sea export terminals. In all of these cases
Kazakhstan's and Azerbaijan's reliance on the South Caucasus corridor will
keep growing.
On September 27 KazMunayGaz's transport subsidiary KazTransOil
confirmed its earlier plans to invest in Georgia's Batumi harbor and oil
export terminal. The investment program, which envisages capacity expansion
and equipment modernization, remains in force. KazMunayGaz and KazTransOil
intend to reach the targets previously set for 2008 and 2009 in terms of
investment and transshipment at Batumi (Interfax, September 27).
KazMunayGaz has dropped its earlier intention to build an oil refinery
in Batumi at an estimated cost of $1 billion for an annual processing
capacity of 5 to 7 million tons. This was unrelated to the Russia-Georgia
conflict or risks to the transport corridor. The Kazakh company made this
decision some months ago, citing differences with the Georgian government
over some of the proposed contract terms. Meanwhile, KazMunayGaz and
KazTransOil continue investing in the oil transport corridor to Batumi. The
Kazakhs acquired the sea port and oil terminal in February of this year from
the Danish-led Green Oak Group (Interfax, Civil Georgia, Reuters, September
24).
According to Kabyldin, the company is also interested in sharing the
Baku-Supsa oil pipeline's capacity with BP and Azerbaijan, as well as in
sharing the Supsa terminal on the Georgian Black Sea coast. The line, closed
for the last two years, was about to reopen when the Russian invasion
occurred and is undergoing tests at present. Meanwhile the Georgian coastal
terminal Kulevi, owned by Azerbaijan's State Oil Company and paralyzed
during the August conflict, has resumed operations (Turan, September 9;
Panorama [Almaty], September 19).
The one likely setback to the transport corridor is unrelated to oil.
Kazakhstan's Agriculture Minister Akylbek Kurishbayev informed parliament on
September 22 that his ministry had recommended to the government to drop the
planned construction of a grain export terminal in Georgia's harbor of Poti.
The ministry cited "international problems and the current situation in
Georgia" as reasons for its recommendations. The Kazakh government has yet
to announce its decision on the matter. The agreement with Georgia, signed
in 2007, envisaged a terminal with a capacity of 500,000 tons, equal to one
tenth of Kazakhstan's annual grain exports at present. Poti is closer to
Kazakhstan than any other possible open-sea outlet for exporting grain
(Kazinform, Reuters, September 22).
Russian forces vandalized parts of the Poti harbor in August, but the
port is rapidly recovering. The Investment Authority of Ras Al Khaimah
(United Arab Emirates, UAE) acquired a 51% stake in the seaport, along with
management rights and the free industrial zone, in April of this year. The
UAE's Saqr Port Authority (SPA) operates the port. According to the company'
s CEO Venkatesh Govinda, once the Russians withdrew, "it is business as
usual in Poti," with port services for Georgia, Armenia, Kazakhstan, and
Azerbaijan returning to normal. The UAE operator expects cargo volumes to
increase significantly, due to Western aid coming into Georgia (Gulf News,
September 12).
The South Caucasus transport corridor appeared vulnerable during the
Russian invasion of Georgia and its immediate aftermath. The Russians did
not inflict major or long-term damage to the corridor. Rather, they
demonstrated their ability to interrupt its functioning temporarily, for
example, by blowing up the Kaspi railroad bridge, which Georgia has since
restored. Moscow almost certainly does not seek to disable the existing
corridor but rather to prevent its planned expansion by discouraging major
investments.
Countries in the region and their Western partners, however, are
guided by a different logic. They realize that the greater the turnover of
goods and commodities, the higher the international stake in this strategic
corridor, thus decreasing the risk of Russian mischief in the future.
--Vladimir Socor
September 29, 2008 -- Volume 5, Issue 186
BUSINESS CONFIDENCE RETURNING TO AZERBAIJAN-GEORGIA TRANSPORT CORRIDOR
AFTER THE AUGUST WAR
by Vladimir Socor
Russia's invasion of Georgia in August caused partial and temporary
disruptions to the transport corridor for Caspian oil and other commodities
through that country. The two-pronged corridor, running from Azerbaijan to
the Georgian Black Sea coast and via Georgia to the Turkish Mediterranean
coast, is now functioning at nearly the same overall capacity as it did
prior to the conflict.
Business confidence in this transport route is rebounding fast, driven
by Kazakhstan and Azerbaijan in the region and encouraged by the U.S.
government. The return of confidence reflects both the West's strategic
stake in this route and the Caspian oil exporters' imperative need to use
this unique westbound outlet.
On September 19 the recently appointed head of Kazakhstan's oil and
gas state company KazMunayGaz, Kairgeldy Kabyldin, announced that Kazakhstan
would go ahead with the earlier plan to ship oil to Baku for pumping into
the Baku-Tbilisi-Ceyhan (BTC) pipeline. The additional oil volumes from
Kazakhstan would increase that line's throughput from the current annual
rate of 37 to 40 million tons (800,000 to 850,000 barrels per day) to 50
million tons (1 million bpd) of oil annually by 2009-2010. Moreover,
KazMunayGaz proposes to participate with Azerbaijan and Turkey in a project
to build an oil refinery and petrochemical plant at the Ceyhan terminal.
"I would not say today that the risks of [using] BTC have increased
owing to the Russia-Georgia conflict. On the contrary, the transit of Kazakh
oil in this direction will add an element of stability in the region,"
Kabyldin told Kazakh media (Panorama [Almaty], September 19).
On September 24 President Nursultan Nazarbayev, inspecting oil
infrastructure projects on Kazakhstan's Caspian littoral, confirmed the plan
to develop the Kuryk seaport as a major oil export terminal "for handling
large volumes of crude from Kashagan" (Kazakhstan TV Channel One, September
24). Kuryk is projected to serve the supergiant Kashagan offshore oilfield,
part of whose future output is intended to be shipped by sea tankers to
Baku. From there, two continuation routes are envisaged: the BTC pipeline
(boosting its throughput to ultimately 70 million tons annually or 1.4
million bpd) and Georgian Black Sea export terminals. In all of these cases
Kazakhstan's and Azerbaijan's reliance on the South Caucasus corridor will
keep growing.
On September 27 KazMunayGaz's transport subsidiary KazTransOil
confirmed its earlier plans to invest in Georgia's Batumi harbor and oil
export terminal. The investment program, which envisages capacity expansion
and equipment modernization, remains in force. KazMunayGaz and KazTransOil
intend to reach the targets previously set for 2008 and 2009 in terms of
investment and transshipment at Batumi (Interfax, September 27).
KazMunayGaz has dropped its earlier intention to build an oil refinery
in Batumi at an estimated cost of $1 billion for an annual processing
capacity of 5 to 7 million tons. This was unrelated to the Russia-Georgia
conflict or risks to the transport corridor. The Kazakh company made this
decision some months ago, citing differences with the Georgian government
over some of the proposed contract terms. Meanwhile, KazMunayGaz and
KazTransOil continue investing in the oil transport corridor to Batumi. The
Kazakhs acquired the sea port and oil terminal in February of this year from
the Danish-led Green Oak Group (Interfax, Civil Georgia, Reuters, September
24).
According to Kabyldin, the company is also interested in sharing the
Baku-Supsa oil pipeline's capacity with BP and Azerbaijan, as well as in
sharing the Supsa terminal on the Georgian Black Sea coast. The line, closed
for the last two years, was about to reopen when the Russian invasion
occurred and is undergoing tests at present. Meanwhile the Georgian coastal
terminal Kulevi, owned by Azerbaijan's State Oil Company and paralyzed
during the August conflict, has resumed operations (Turan, September 9;
Panorama [Almaty], September 19).
The one likely setback to the transport corridor is unrelated to oil.
Kazakhstan's Agriculture Minister Akylbek Kurishbayev informed parliament on
September 22 that his ministry had recommended to the government to drop the
planned construction of a grain export terminal in Georgia's harbor of Poti.
The ministry cited "international problems and the current situation in
Georgia" as reasons for its recommendations. The Kazakh government has yet
to announce its decision on the matter. The agreement with Georgia, signed
in 2007, envisaged a terminal with a capacity of 500,000 tons, equal to one
tenth of Kazakhstan's annual grain exports at present. Poti is closer to
Kazakhstan than any other possible open-sea outlet for exporting grain
(Kazinform, Reuters, September 22).
Russian forces vandalized parts of the Poti harbor in August, but the
port is rapidly recovering. The Investment Authority of Ras Al Khaimah
(United Arab Emirates, UAE) acquired a 51% stake in the seaport, along with
management rights and the free industrial zone, in April of this year. The
UAE's Saqr Port Authority (SPA) operates the port. According to the company'
s CEO Venkatesh Govinda, once the Russians withdrew, "it is business as
usual in Poti," with port services for Georgia, Armenia, Kazakhstan, and
Azerbaijan returning to normal. The UAE operator expects cargo volumes to
increase significantly, due to Western aid coming into Georgia (Gulf News,
September 12).
The South Caucasus transport corridor appeared vulnerable during the
Russian invasion of Georgia and its immediate aftermath. The Russians did
not inflict major or long-term damage to the corridor. Rather, they
demonstrated their ability to interrupt its functioning temporarily, for
example, by blowing up the Kaspi railroad bridge, which Georgia has since
restored. Moscow almost certainly does not seek to disable the existing
corridor but rather to prevent its planned expansion by discouraging major
investments.
Countries in the region and their Western partners, however, are
guided by a different logic. They realize that the greater the turnover of
goods and commodities, the higher the international stake in this strategic
corridor, thus decreasing the risk of Russian mischief in the future.
--Vladimir Socor