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Caspian: Russia Finding Way To Take Part In U.S.-Backed Pipeline

In a sign of change for Caspian policy, Russia has announced it will build a connection to the Baku-Ceyhan oil route. The line will give Russia access to a warm-water port for exports that will bypass the Bosporus and many of the benefits that the United States has promoted for years.

Boston, 11 June 2002 (RFE/RL) -- After years of consideration, the Russian government has found a way to take part in a U.S.-backed oil pipeline from the Caspian Sea, or at least a way to take advantage of it.

Late last month, Russian and Georgian officials announced a joint venture to build a line connecting the Black Sea port of Novorossiisk to the Baku-Ceyhan pipeline from Azerbaijan.

The link may represent a merger between U.S. and Russian goals, which have at times seemed at odds. The Baku-Ceyhan line, running east to west, will give Azerbaijan its first export route outside the CIS. Russia's line running north to south promises it access to a warm-weather port. Georgia appears poised to benefit from both plans.

The new venture includes the state-owned Russian construction company Rosneftegazstroi and the Georgian International Oil Corporation, GIOC President Georgy Chanturia said. Chanturia told Interfax that the agreement for the company known as Gruzrosneftegazstroi "is in the interest of all the sides." The north-south line will be built as part of the Baku-Ceyhan project, he said.

Chanturia may have overstated the case from the Russian point of view, given Moscow's past opposition to Baku-Ceyhan. Russia has argued that Caspian oil should flow over its territory to Novorossiisk rather than the rival 1,730-kilometer route through Georgia to Turkey's Mediterranean port.

But Moscow now seems to believe in the inevitability of Baku-Ceyhan, which is expected to win final approval from investors later this month. Construction of the $2.9 billion line is set to start early next year.

If all goes according to plan, the construction of the Novorossiisk branch to the Georgian port of Supsa would take 2 1/2 years, so that it could be completed soon after the scheduled opening of Baku-Ceyhan in late 2004. The Novorossiisk line would cost $450 million, the industry newsletter "Petroleum Argus" said. Its capacity would be 30 million or 40 million tons a year, according to varying reports.

Chanturia claims that the link will bring Russia an "additional annual profit of at least $500 million to $600 million." Although the benefits seem clear, Chanturia may again have overstated the case for effect.

Three Russian routes now feed Novorossiisk, which is frequently closed due to winter storms. One key source is the recently opened Caspian Pipeline Consortium route from Kazakhstan's Tengiz oil field, so that the plan would provide a Mediterranean outlet for Kazakh oil. One advantage is that the oil would bypass the crowded Bosporus, easing one of Turkey's big worries about Kazakhstan's rising oil flows.

Russia's exact plan for the oil is unclear, since Supsa on the Black Sea coast is far from the southern turning of the Baku-Ceyhan route. Russia may be counting on the reversal of flow through an early oil line from Tbilisi to Supsa, once Baku-Ceyhan supersedes that route.

The progress of Baku-Ceyhan appears to have played a big role in Russia's decision, in light of the fact that the north-south route has been floated as an option for years. Caspian developments have moved slowly up until the deadline for a final Baku-Ceyhan decision. Now that the time has come, changes in strategic calculations are coming quickly.

Although the Russian government recently seemed to bar LUKoil's participation in the Baku-Ceyhan project, that decision may again be coming into play. On Friday, LUKoil President Vagit Alekperov said the company was awaiting verification of reserves in the southern Caspian, where it is believed to be negotiating an interest with Azerbaijan in an oil field that has also been claimed by Iran.

At the very least, Russia's investment in the line to Supsa may end Moscow's debate over whether Baku-Ceyhan will be commercially viable and whether it will have enough oil. How the pipeline's capacity will be shared in the future is less clear.

A tougher question may be what the Russian route will do for Abkhazia, since it runs through Georgia's separatist territory. The decision is likely to revive the old debate over whether peace will bring pipelines or whether pipelines bring peace.

Russia's project may not settle that question, but it may raise the stakes for all of the parties involved.