New Europe
Se pt 1 2008

Georgian conflict may jeopardise Caucasus energy corridor

The latest events in the Caucasus jeopardise many of Kazakhstan's
plans with respect to transportation of its strategic goods - oil and
gas - by the southern route. The Caucasian corridor that Kazakhstan
considered until recently, as an alternative transport route may
prove the most unreliable.

Kazakhstan has signed an agreement with Azerbaijan to transport its
crude to the world markets by the Baku-Tbilisi- Ceyhan oil pipeline
(BTC). Long before the conflict broke out, when speaking about the
transit potential of the Caucasus, Azerbaijan President Ilham Aliev
said that the future of such major oil and gas project as the BTC
would depend on stability in that region.

The first alarming news that the world media reported two weeks ago
was a fire in the BTC. The pumping of crude from Baku was stopped. The
Turkish media reported that a Kurdish terrorist organisation took
the responsibility for the explosion on the BTC.

While the Azeri leader referred to Nagorno Karabakh when he raised the
stability issue, the Georgia-A bkha - zia-Ossetia situation was no less
worrisome. Georgian Economic Development Minister Ekaterina Sharashidze
told a press-conference in Tbilisi that "We cannot disregard the
attempts of the Russian aviation to bomb the oil and gas pipelines."

Although the Kazakh crude is not yet transported by the BTC, many
Kazakh experts predict that the latest developments will make the
owners of crude think hard about using the other directions to
transport their crude.

During a teleconference in Astana, Kazakhstan Prime Minister Karim
Masimov directed the ministry of energy and mineral resources and
the national oil and gas company KazMunaiGas (KMG) to consider
re-orientation of exports of crude from the Caucasian corridor
to the internal market. According to KazMunaiGas President Serik
Burkitbaev, about one million tonnes of crude could be pulled out
from the Caucasian corridor.

Commenting on the words of the KMG leader, a Kazakh oil expert
told New Europe that "one million tonnes of crude is not big enough
volume for us to regret." However, such a situation is not good for
Azerbaijan and Georgia who are going to lose profits from transit of
crude through their territories, he said.

He also doubted that with the current high prices for crude, oil
companies would be willing to send about one million tonnes of
crude to the internal market. "If the northern direction, that is
through Russia, is fully packed (the expansion of the Caspian Pipeline
Consortium being on hold), these volumes are most likely to go either
to China, or through Iran," the expert concluded.

In spite of the distance, the Kazakh oil companies have been seriously
concerned over the events in Northern Ossetia and Georgia. As is
known, last year the national company KazMunaiGas became the 100
percent owner of the Batumi port on the Black Sea. The information
agencies have reported bombing damages to another Georgian port on
the Black Sea, Poti.

At a government meeting, Burkitbaev said that although the Batumi
port did not suffer as a result of the situation at the Caucasus,
the concerns were still there. The Batumi port did not suffer like the
Poti port did. But we have removed all the bulk carriers and tankers
that were in the loading area. However, the concerns are still there.

As New Europe wrote earlier, with the purchase of the terminal in
Batumi, Kazakhstan had plans to transport its crude through it and
through the Azeri-Georgian oil pipeline Baku-Supsa, to a refinery
in the Romanian port of Constanca. As the 75 percent owner of the
oil concern Rompetrol, the Kazakh national company nurtured ambitious
plans to enter the European market. Now, in the light of the situation
in Georgia, these plans are also under a threat of frustration.

"Kazakhstan can still deliver its crude to Romania by the Russian
oil pipeline Atyrau-Samara. However, we are not losing hope that
by the time of the big Kazakh oil, the situation in the Caucuses,
in particular, in Georgia, will normalise," the Kazakh oil expert
told New Europe.