Russia’s energy chief, Deputy Prime Minister Igor Sechin, has disclosed that the Black Sea oil export plan he launched in Milan last October, with much applause from Turkish and Italian interests, is going nowhere fast – err, I mean, slow.
He was speaking on the sidelines of President Dmitry Medvedev’s visit to Turkey on Wednesday. Without allowing direct questions from, or quotation by Russian reporters, Sechin reportedly said that a start on the new crude oil delivery route, including the cross-Turkey pipeline from Samsun, on the Black Sea, to Ceyhan, on the Aegean, will be delayed until 2015. In the oil business, five years into the future is a number equivalent to eternity — and for practical purposes, oblivion.
When he unveiled the project on October 19, Sechin was reported in Kommersant as saying: “Turkey has agreed to the implementation of the South Stream [gas pipeline] in exchange for participation of Russia in construction of the pipeline Samsun-Ceyhan;” that Russia had agreed to the ” participation of Turkey in South Stream instead of Bulgaria…bypassing Bulgaria”; and that Russia and Turkey have agreed to consider construction of an oil refinery at Ceyhan, and are “close to an understanding of [their] participation in joint marketing of the oil in the pipeline”.
An October 19, 2009, statement by Eni, the Italian partner in the project, announced that “representatives of Eni, Calik Holding, JSC Transneft and Rosneft, the energy companies involved, signed a Memorandum of Understanding which envisages the commitment to discuss the definition of the economic and contractual conditions for Russian companies to participate in the Samsun-Ceyhan Project in order to ensure the volume of crude that would guarantee the economic sustainability of the project. Eni has been heavily involved in the oil pipeline project since 2005 and will play a leading role in its realisation. In 2006, Eni bought 50% of Trans Anadolu Pipeline Company (TAPCO), the company designed for the realisation and management of the Samsun Ceyhan pipeline.”
As Eni pointed out, the Samsun-Ceyhan project was not new when Sechin signed on to it. It had been unveiled by Çalik Energy, which made it the subject of a press conference on June 22, 2006, at the Istanbul Hilton Hotel. The company presentation said the “Samsun-Ceyhan Petroleum Pipeline Project was introduced…as having great importance in changing Turkey’s geo-strategic position to a strategic advantage and strengthening its position in the international energy sector. At the meeting organised jointly by the business partners realising the project, Çalık Energy and the Italy based giant petroleum company, Eni , the importance of the project and the benefits it would provide from the viewpoint of the international energy sector were presented.” The estimated capital cost at the time of building the 550-km pipeline was $1.5 billion.
But the Russian oil companies refused to fill the pipeline with their oil. Until last October’s statement by Sechin, that is. Then a spokesman for Rosneft, the state oil company chaired by Sechin, said it was joining the Samsun-Ceyhan pipeline plan, along with the Russian pipeline company Transneft.
The project momentum gathered force in January of this year, when Prime Minister Vladimir Putin met his Turkish counterpart, Recep Tayyip Erdogan, in Moscow, and announced they had “agreed to step up work on the Samsun-Ceyhan pipeline.” Calik Energy and the Italian company Eni were also involved; according to Putin, “we will start to study this with the Italian partners.” An expert group, under Sechin’s supervision, is reported to be analysing both pipeline projects, and considering whether there is oil supply, money, and strategic justification for building both of them in parallel.
A month later, when the Greek Prime Minister, George Papandreou came calling, Putin said of the Burgas-Alexandroupolis pipeline – already a decade in the planning – was affordable. “There’s enough money for this type of projects. There would be absolutely no problems with funding them,” Putin said. But he didn’t say that he and Sechin had decided to provide Russian funds for two pipelines on either side of the Turkish straits. That has been left for the backroom committee of ministry, Transneft and Rosneft experts to figure out. Nikolai Tokarev, Transneft’s boss, has signaled that, so far as he knows, the backroom exercise isn’t over. “We … see real prospect of association [of the two projects], ” Tokarev said in a published statement on January 19.
What Sechin disclosed this week signals that a decision has been taken not to do anything for the foreseeable future. According to Sechin, the Samsun-Ceyhan pipeline will not be ready until mid-2015. The estimated cost of the pipeline will be $3 billion, Sechin also says, doubling Çalik’s estimate.
According to Sechin, Russia is guaranteeing minimum throughput of between 60 to 70 million tonnes per annum (1.2-1.4 million barrels daily). This is 20% below earlier projections of pipeline throughput of 1.5 mbd. The crude will be shipped by tanker from Novorossiysk port, and the route will substitute for the present tanker route through the Bosphorus Strait. The Samsun project is substantially cheaper by the kilometre than the alternative route from Burgas, Bulgaria, to Alexandroupolis, Greece, but the latter route is half the distance and about half the total cost.
Why the change of Sechin’s mind, casting both of the new Black Sea pipelines into doubt? Alexei Bezborodov, a leading Moscow maritime analyst, believes that Rosneft is calculating that it can fetch more profit for its crude if it ships it eastwards, to Russia’s new oil terminal on the Sea of Japan at Kozmino. From there the crude is sold to China and other Asian markets. According to Bezborodov, “there will not be enough oil for Samsun-Ceyhan. That’s because quotations for the Far East oil are better, so most companies want to work with the Far-East project.”