Bloomberg News

Russia, Greece, Bulgaria Sign Oil Pipeline Agreement

March 15, 2007

Russia, Bulgaria and Greece agreed to build a pipeline that bypasses Turkey's congested Bosporus strait, saving the oil industry as much as $1 billion a year in shipping costs.

Russian companies, including state-run OAO Gazprom Neft, will have a controlling stake in the 285-kilometer (177-mile) pipeline that will run from the Bulgarian Black Sea port of Bourgas to the Greek port of Alexandroupolis on the Aegean Sea, according to the accord signed today in Athens by officials of the three countries.

``This pipeline allows us to consider how to increase the supply of oil from the Caspian Sea, which is important for groups such as the American and Kazakh companies who work there,'' Russian President Vladimir Putin told reporters in Athens. ``It will not supplant other pipelines in the region; it will just provide new quantities of oil from Russia.''

The agreement was signed after 14 years of delays. Companies will now begin commercial talks to set up an operating company for the near 1 billion-euro project, aiming to start construction in 2008 and operation by 2011. The pipeline's capacity is estimated at 35 million tons of crude oil a year initially, which can be increased to 50 million tons later.

``The three governments and participating companies will continue to work at the same fast pace of the last six months to construct the pipeline and have it operating as soon as possible,'' Greek Prime Minister Kostas Karamanlis said.

Narrow Straits

Rising trade in oil and restrictions on tanker traffic have clogged the Bosporus, a narrow seaway in Turkey that links the Black Sea with the Mediterranean and flows through Istanbul, the country's biggest city.

A total 140 million tons of oil products were shipped through the Bosporus last year. Turkey has barred tankers longer than 200 meters from sailing through the strait at night and during fog. Fewer daylight hours in winter limit the number of ships that can use the waterways, and bad weather can clog them further.

``The pipeline wouldn't be built if congestion on the Bosporus had not become unbearable,'' said Christos Dimas, the general manager of Elpe-Thraki, a Greek joint venture that will own 24.5 percent of the planned pipeline company, in a telephone interview yesterday.

Delays of up to a month lost the oil industry as much as $1 billion when congestion peaked in 2004, Dimas said.

Pipeline Priority

The European Commission, the European Union's executive arm, welcomed the agreement as a means to reduce the ``increasing pressure of maritime oil transport'' through the Bosporus and Dardanelle straits.

``Given the increasing density of maritime traffic in the enclosed Black Sea and additional quantities of oil exported from the region, it is of utmost importance to give a higher priority to the alternative of transporting oil by pipelines,'' EU Energy Commissioner Andris Piebalgs said in a statement in Brussels today.

Russia's OAO Gazprom Neft formed a group with the state- run oil company, OAO Rosneft, and the state pipeline operator, OAO Transneft, to hold Russia's 51 percent stake in the International Project Co., the planned owner of the pipeline.

Elpe-Thraki group comprises state-controlled Hellenic Petroleum SA (ELPE), the country's biggest refiner; the Copelouzos Group; and the Latsis Group.

Bulgaria's 24.5 percent stake in the joint company will be held by Bourgas-Alexandroupolis Oil Pipeline Project Co. Bulgaria, through which 155 kilometers of the pipeline pass, said it may sell its stake in the project. Russia has suggested Kazakhstan, the second-largest oil producer in the former Soviet Union after Russia, could join.

Energy Security

The pipeline will enhance energy security since a 650,000- cubic-meter oil-storage facility at Alexandroupolis will enable management ``of any possible complications in the global market,'' Putin said. ``We believe safe access to energy is a guarantee for growth.''

Talks on the project started in 1993. On Feb. 1, Putin urged Bulgaria and Greece to speed up negotiation or lose their chance to transport Russian crude. His warning came a day after Bulgaria, the Former Yugoslav Republic of Macedonia and Albania signed an agreement to build an alternative pipeline.

To contact the reporters on this story: Paul Tugwell in Athens at ptugwell@bloomberg.net; Harry Papachristou in Athens at hpapachristo@bloomberg.net.

To contact the editors responsible for this story: Justin Carrigan on jcarrigan@bloomberg.net; Riad Hamade at rhamade@bloomberg.net.


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