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Politics Tangles New Oil & Gas Pipeline Projects - ASHARQ AL-AWSAT English Archive
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LONDON (Reuters) – “Happiness is multiple pipelines”, was a car-bumper sticker distributed by Americans in oil-producer Kazakhstan in the 1990s that highlights the energy-hungry West’s desire to boost oil and gas supply routes.

But building pipelines – especially privately-backed ones — often means tackling political or environmental obstacles that can take years to resolve.

“When you have multiple ownership pipelines crossing several borders it’s quite often difficult to get a political consensus to get these projects either completed or expanded,” said David Fyfe, economist at the International Energy Agency.

Europe would like pipelines free of the grip of Russia, the world’s second biggest oil exporter and biggest gas producer.

The EU-backed Nabucco pipeline project to bring Caspian gas to Europe aims to cut reliance on Russia, but Hungary has yet to make up its mind on its involvement. Iran’s desire to join it is also politically sensitive. Russia backs its own link to Turkey.

Bankers say financing pipeline projects is usually the easiest part.

“The money is not the problem – these are attractive assets,” said Fiona Paulus, global head of energy and resources at Dutch bank ABN AMRO (AAH.AS: Quote, Profile, Research, a leading provider of financing for pipeline projects.

“It’s the politics that are the problem, the environmentalists or the local tribesmen who might be unhappy the pipeline goes across their land.”

The oil-rich Caspian region is the focus for many projects.

The $4 billion Baku-Tblisi-Ceyhan pipeline, led by BP (BP.L: Quote, Profile, Research, is the first that will carry large volumes of Caspian crude without going through Russia.

BTC, where ABN AMRO arranged the financing, had to by-pass a Georgian natural spring, deal with seismic issues in Turkey as well as the politics of host governments.

“There were numerous sponsors, international governmental and multi-lateral agencies, lawyers, host governments, consultants, insurers and international banks, so for an ‘all party’ meeting there could at times be up to 70 people around the table,” said one banker who worked on the BTC project.

BTC is now up and running.

“That was probably a victory for the Americans to get that established at all,” said Ron Smith, head of research at Alfa Bank in Moscow. “It is something completely independent of Russia that allows oil to come out of the Caspian region to a deep water port on the Mediterranean.”

But experts say BTC and the Caspian Pipeline Consortium, backed by Western oil companies and the Russian government, which goes to Russia’s Black Sea port of Novorossiisk, are unusual.

Companies prefer to have pipelines they can have a stake in like CPC and BTC. But the chances of that look less likely in the region, analysts say, citing a major pipeline from Kazakhstan to China has been built without any private Western company participation.

And plans to expand the CPC pipeline have been delayed partly because the Russians have not given approval.

Russia, for political and strategic reasons, has acted to keep control over flows of Central Asian oil and gas.

“Blue Stream, which is a pipeline under the Black Sea, for example, has held back Central Asian gas deliveries and expansion,” said Xavier Grunauer, energy analyst at Nomura.

“Now Russia wants a pipeline to by-pass Poland and go straight into Germany, giving them leverage to converge prices in Poland with the rest of the EU.”

The $6.57 billion Nord Stream project, led by Gazprom, has faced objections from Poland over energy security, from Sweden over a possible Russian military presence in the Baltic Sea and from Lithuania over environmental concerns.

Asharq Al-Awsat

Asharq Al-Awsat

Asharq Al-Awsat is the world’s premier pan-Arab daily newspaper, printed simultaneously each day on four continents in 14 cities. Launched in London in 1978, Asharq Al-Awsat has established itself as the decisive publication on pan-Arab and international affairs, offering its readers in-depth analysis and exclusive editorials, as well as the most comprehensive coverage of the entire Arab world.

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