Europe

Energy Related Developments in Southeastern Europe

Ioannis Michaletos
Athens, Greece
May 11, 2007

Bulgarian Prime Minister Sergei Stanishev (left), Greek Prime Minister Costas Karamanlis (center), and Russian President Vladimir Putin chat opposite the Acropolis prior to having dinner at a restaurant in Athens on March 14. (Photo: Louisa Gouliamaki / AFP-Getty Images)

One of the foremost concerns for the international community nowadays is energy security and the creation of suitable energy routes that facilitate integration of the interdependent and globalized world. During the past few months, the region of Southeastern Europe has been brought to the limelight due to some important developments that will significantly alter the energy field and create a new geopolitical environment. It has to be noted that the there is a state of flux as to how these investments will assist in the progress of the region or constitute a motivation for a resurgence of power politics and confrontation relating to the United States-Russian rivalry that has unfolded recently.

The Burgas-Alexandroupoli pipeline agreement was signed on March 15 in Athens by the Greek prime minister, the Russian president and the prime minister of Bulgaria. The agreement entails the construction of a pipeline transferring oil from the Black Sea Bulgarian port of Burgas to the Aegean Greek port of Alexandroupoli. The pipeline was conceived in 1991 by Greek oil executive Nikos Gregoriades and since 1993 it was on the daily agenda of the Greek, Bulgarian, and Russian authorities. The main reason it took almost 15 years for an agreement to be reached was the multitude of interests involved that prohibited a unanimous accord from being signed. The hesitation of the United States to allow Russian oil to be exported to the Mediterranean Sea, the various tripartite negotiations in relation to stakeholder percentages, and the low oil prices up to 2003 all contributed in stalling the process.

The first phase of construction of the pipeline will commence in early 2008 and is projected to be finished by late 2011. It will have a total length of 288 kilometers and an initial transfer capacity of 35 million tons per annum. After the second stage of construction—to be completed by 2015—output will increase to 50 million tons. Moreover, a 500,000-cubic-meter reservoir will be built in Burgas and 700,000 one in Alexandroupoli. Along with modernization of oil installations and tanker facilities, both ports will become significant in the world's oil trade system. Greece and Bulgaria will charge transfer fees for $1 per ton; therefore, their income will be around $35 to $50 million per year.

The pipeline will be owned by numerous companies and state interests, more specifically the Russian companies Rosneft, Transneft, and Gaspromneft will acquire 51 percent. The Greek corporations will get 24.5 percent, while the Bulgarian ones will hold the other 24.5 percent. The company formed by this tripartite agreement will be named "Transbalkan Pipeline" and will be based in a European Union state, most probably in Luxembourg. The total cost for the project is estimated at around 1 billion Euros. Twenty percent of it will be financed by the partners and the rest will be sought from the international banking system. According to various sources, the American companies Exxon Mobil and Chevron are interested in gaining stakes as well, presumably by acquiring the percentages of the Bulgarian and Greek companies. It has to be noted that in essence the pipeline will be Russian controlled. What is interesting is that the American Chevron company, which has invested heavily in the Tengiz oil reservoir in Kazakhstan, will have to collaborate with the aforementioned Russian companies, since a large part of its oil production will have to be transferred via the new pipeline. It seems that despite the American-Russian rivalry, common economic interests will bring both states closer in the future, unless political antithesis overcomes economic cooperation.

Moscow is interested in securing a multitude of paths for oil export in order to check monopolies that could endanger its export basis. Apart from that, it is the first time since the end of the cold war and the breakup of Soviet Union that Russia is advancing in a geo-economic level in the Balkans and striving to play the role of a significant player in one of the most sensitive regions in Eurasia. It is noteworthy to mention the proposed veto by Russia in relation to the resolution around the Kosovo issue. Today, Moscow is far more capable of assisting Serbia and gaining a stable role in a country that still dominates Central Southeastern Europe and the axis from South to North and West to East.

The creation of the pipeline also has ramifications for the other states involved. First of all, Greece becomes for the first time in its history, a part of the wider energy system and the Aegean Sea will become a transit maritime route for supertankers up to 300,000 tons. Many Greek scientists and public figures are worried about issues relating to ecological considerations in case of a major oil spill. Nevertheless, the advantages of the pipeline include an investment project worth over a billion Euros and the creation of necessary facilities that will lift the economic prospects of Alexandroupoli and the surrounding area in Northern Greece. There are plans for securing the ecosystem where the pipeline will trespass, but as in all cases, there is a considerable risk that cannot be excluded.

Moreover, the Greek ship owners that currently control almost 30 percent of the world's oil transfer are already preparing to acquire the biggest part of the oil transfer between Novorossiysk-Burgas and from Alexandroupoli to Western Europe and Asia. The Bulgarian side aims to develop Burgas as the country's economic gateway with a plethora of industries (tourism, energy, commerce, etc.) and attract much needed foreign investments.

Over the past decade, a great part of political upheaval in the area from the Balkans to Central Asia was related to energy ambitions and aspirations for dominance over the proposed routes for oil and natural gas. It is fair to assume that when the whole of the situation settles, stability will prevail, owing to the vast economic interests that would be concerned with securing safe zones for the transport of oil, instead of creating zones of instability and conflict. In that respect the Burgas-Alexandroupoli pipeline could be a great opportunity for the Balkans to enter an era of less ethnic and state animosity. Furthermore, the two other proposed pipelines—AMBO from Burgas to Durres in Albania and the Costanja-Trieste pipeline—could greatly help the Balkans in becoming a region of energy importance for Europe, thus drawing its attention toward preventing crises of any kind.

The creation of the pipeline is not just a solemn energy development. It also relates to the ambitions of Russia—perhaps the "New Russia" under the forceful governance of President Vladimir V. Putin is heading toward the "hot waters" of the Mediterranean once more in a play that has been seen over and over again during the past millennium. The Greek press, during the visit by the Russian delegation, widely circulated comments that portrayed the image of a strong Russia with a robust energy sector and with as much as $300 billion to invest in foreign markets in the near future. The Greek economy would be to a great extent aided by an influx of Russian investments in the stock market or that of a tourist mass from the North. The same applies for every Balkan state, especially those lacking proper attention by the West such as Serbia. Moreover, Russian enterprises have already proceeded in making large-scale real estate investments in Bulgaria's Black Sea coast and in the Adriatic coast of Montenegro. Greece is also a prime destination for Russian officials. Apart from capital gains, they are interested in supplying the country with state-of-the-art weaponry. Already, numerous weapons—mostly anti-aircraft—serve in the Greek army in a balancing act between Western and Eastern procurements.

The AMBO Pipeline

A second project that will further accelerate energy related developments in Southeastern Europe is the proposed AMBO pipeline. It was first conceived in 1995 by the American Halliburton Company and will run from the port of Burgas through the Former Yugoslav Republic of Macedonia to the port of Vlore in Albania. In short, it connects for the first time the Black Sea with the Adriatic and to a wider extent, Central Asia with the Italian peninsula and beyond. The size of this pipeline is 912 kilometers—sufficient to transfer around 40 million tons of oil, roughly the same amount as the Burgas-Alexandroupoli pipeline. The completion of this venture is scheduled for 2012 and will create the necessary conditions for a balance in the prices of oil in the world market in relation to the other pipelines being created. At a political level, this particular project is United States-led, meaning that in reality this pipeline in relation with the Burgas-Alexandroupoli one, would be of competitive nature between the United States and Russia, but they would all have as a starting point the Burgas port, therefore upgrading the importance of Bulgaria.

On a wider scale, the emergence of an empowered Russia due to its oil and natural wealth, and more specifically the control of energy corridors that correlate to the power over the nation's economic viability, has created strategic antagonism between Moscow and Washington. In this respect, the Balkans area has gained considerable attention over the past few years since it is a geographical region sufficiently close enough to Russia, the Middle East, and Western Europe to play an integral role in the new energy architecture that is being shaped for the 21st century. Along with the two pipelines mentioned, a third one is being planned that will connect Kostanja in the Romanian Black Sea to Trieste, an Italian port in the Adriatic Sea. It will pass through Serbia and of course the negotiations affecting Kosovo's status will surely relate to this project and its viability.

President George W. Bush will pay a visit to Albania and Bulgaria on June 10 and energy affairs will be on the top of the political agenda, along with the rest of the perennial issues affecting the Balkans. The Russian minister of defense has visited Greece twice in the past few months and President Putin has visited Athens three times while in office. Putin has also made numerous trips to Romania and Bulgaria. Analysts across Southeastern Europe have noted the increased attention of the two superpowers in the local political situation and it would be safe to assume that energy is playing a decisive role in yet another corner of the planet. A well-informed source in the region has stated the probability of border alterations in the region due to the overwhelming importance of energy and the various interests that will try to take advantage of the changing geo-economic structure of the Balkans.

On a purely economic level, one can in all probability expect an era of stability across the region and a fruitful investment environment. On the other hand, Power politics between Russia and the United States could force various antithetical political units into conflict, with disastrous results. The only two certainties for the time being related to these developments: Firstly, the Balkans is again on track to garner worldwide attention, hopefully for positive reasons. Secondly, the real estate sector in the cities involved in the pipeline construction will skyrocket in the next few years, bringing much needed capital to the local populations.




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