It was by no means an accident that Russia was bypassed in the construction of the BTC oil pipeline through Georgia upon its completion in 2005, in what was hailed as a major success for the US in diversifying 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 completely cut out Russia.
But, this tenuous balance re-shifted this month with the sparking of conflict between Georgian and Russian forces, in South Ossetia causing closure of both the Baku-Tbilisi-Ceyhan (BTC) pipeline.
The Russia-Georgia conflict brings uncomfortably to the surface the question of energy security and the supply of oil to Western Europe via lines that cross, and avoid, Russia. Like much of the rest of the world, America is addicted to oil, most of it now imported. And, despite recent figures showering lowering demand for oil in the US, this does not appear to be a sustainable trend by any stretch of the imagination.
The (BTC) pipeline, which is 1,100 miles long, transports 850,000 barrels per day (bpd) of oil, 1% of global supplies, bound for Europe and the US from Azerbaijan through Georgia and Turkey.
The oil comes from several offshore oil fields owned by Azerbaijan, in the Caspian Sea. The line, which cost $4 billion to build, also carries some oil from Tengiz that is barged across the Caspian.
Now energy experts are predicting 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, have helped push the price of oil up to the recent record high of $147 per barrel.
“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.
“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,” he added. This comes at a time when a newly emboldened Russia appears set on figuring more prominently in shaping the region’s energy future.
Even before the outbreak of hostilities in South Ossetia, analysts were reminded of how precarious even the favoured route could be. Two weeks ago the pipeline was shut down after an explosion near the line in Eastern Turkey that subsequently caused a fire. The pipeline is set to reopen in the next few weeks.
The predominant topic of discussion for the future of oil in the region has now turned its attentions to 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 Sea. It will be at least another five years before oil starts flowing, but the operating consortium, which includes Exxon Mobil and ConocoPhillips, plans to transport some of Kashagan’s oil through the BTC pipeline.
Such plans would involve building a new pipeline under the Caspian to connect to BTC. Russia has opposed similar plans in the past and will undoubtedly continue to do so.
