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29th Mar 2024

Opinion

Near death experience and the Burgas-Alexandroupolis pipeline

On the morning of 11 June 2010, Bulgarian Prime Minister Boyko Borisov shocked policy-makers, bankers and project-developers around Europe by stating, in a breakfast meeting with the ambassadors of EU member states, that Bulgaria has decided to drop its participation in the Burgas-Alexandroupolis oil pipeline.

Bulgaria's state-owned Sofia News Agency quoted the prime minister as saying: "Bulgaria gives up the Burgas-Alexandroupolis oil pipeline project [BAPLine]. The pipeline passes through protected areas from the European environmental protected area network Natura 2000, to top it all off there are no guarantees for us to see returns in the short term."

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The statement created such a stir that it even took some senior members of Mr Borisov's own government by surprise.

A few hours after the initial shock, by 6 PM local time, Mr Borisov effectively reversed his position by stating that his earlier comments were summarising the critique levelled against the project and were in reply to a question by Greece's ambassador to Bulgaria, Danai Koumanakoy.

Mr Borisov then said: "The Bulgarian government hasn't made a final decision regarding the construction of the Burgas-Alexandroupolis oil pipeline. We are going to make a final decision on the project as soon as the assessment of the impact of the Burgas-Alexandroupolis project on the environment is ready.

This clarification should have settled the matter, but Mr Borisov later the same evening said:

"The decision to cancel Bulgaria's participation in the project can come only from the Cabinet but it will have to be made after the assessment because otherwise we might suffer sanctions (...) I am awaiting the international environmental assessment of the Burgas-Alexandroupolis pipeline but I fail to see which expert is going to sign the decision for its construction."

The following day, in an attempt to resolve the bewilderment of the previous 24 hours, Mr Borisov reiterated that the final decision on the cancellation of the project rests with the cabinet while emphasizing that "the oil line is unprofitable. Do you want to go to Burgas now and ask local people if they want a tanker entering their sea every day during the beach season?"

What can one make of the position of the Bulgarian government? Is the BAPLine project effectively dead? How much of a surprise was Mr Borisov's statement? If the BAPLine is not dead, no one can deny that it has had a very near death experience. For several hours the project was flat-lined and its resuscitation may prove to be short-lived if the Bulgarian government rejects the Environmental Impact Assessment Study to be submitted to Sofia this September by the international consortium that wants to build the pipeline.

The Bulgarian government may have been concerned about the environmental impact of the pipeline project but it should be said that Burgas has always been the major oil import terminal of Bulgaria. Burgas is also the location of the country's largest refinery, owned by Russia's LUKoil.

Mr Borisov was nowhere near as apprehensive over the potential environmental damage caused by the expansion of Lukoil's refinery. To the contrary, he has openly supported the extension of the Burgas refinery whose facilities are protected by IPON-1, a private security company established by Mr Borisov back in 1991.

On 9 April Sergey Andronov, the head of Lukoil's Burgas refinery, announced that the Russian oil major will invest in the construction of two new extra-low sulphur diesel refinery units in the company's largest Southeast European plant located in the port city of Burgas. The expansion of the Burgas refinery which is Bulgaria's largest port is estimated to cost around €500,000 and will increase the refinery's personnel by 300 workers, to a total staff of 2,500.

If environmental reasons do not constitute the main driving force behind Bulgaria's opposition to the realization of the BAPLine project, and if Bulgaria does not have the financial capability to honour its commitment, both the Greek and Bulgarian governments should re-examine the existing structure of the consortium in order to make it more attractive to the oil majors, starting with Chevron, Total, ExxonMobil and ENI, that are developing Kazakhstan's oil deposits.

Kazakhstan will in any case account for half of the Burgas-Alexandroupolis oil transit capacity, namely 350,000 bpd. Such a strategic recalibration could also make the project more attractive in the EU and the US while placating Bulgarian fears over a potential oil spill in the area of Burgas, since the pipeline will be constructed by the most experienced companies in the world according to the strictest environmental regulations with the direct supervision of EU authorities.

What is also important to note is that the transfer of Russian support from BAPLine to Samsun-Ceyhan is neither secured nor automatic. There are still some good reasons why Russia would have to rethink a decision to disengage from the Greek-Bulgarian project. TAPCO is still four times longer and up to 50% more expensive than BAP even though it would carry 30%-50% more oil than BAP's export capacity of 700.000-1.000.000 bpd. Its net export capacity does not guarantee its ultimate cost unless the bulk of the Bosporus crude oil tanker transit is diverted in its support.

Moreover it could prove tricky for Russia to buy more than 50% of the ENI-Calik Enerji consortium, so as to be able to secure the controlling share in the management the pipeline as it currently does with BAP. Transneft's apparent enthusiasm is not necessarily shared by Russian prime minister Vladimir Putin who demanded specific guarantees from the Turkish government on the commercial viability of Samsun-Ceyhan during his recent visit to Ankara on 8 June 2010.

Maybe the game is not entirely over after all…

The writer is an Energy Expert and Researcher at the US-Greece Task Force 'Transforming the Balkans', a joint project of the Hellenic Centre for European Studies and the Center for Strategic and International Studies. The Task Force's website can be accessed here: http://www.ekemprogram.org/csis/

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

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