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THE OIL & GAS CONNECTION

by Judith Robinson

Krasnodar Krai plays a critical role in the Russian energy sector, as a transit point
for a large and growing share of Russia's petroleum exports.  This traffic, and the
krai's wealth and importance, will grow substantially in the future, as crude oil
from vast oilfields under development in the Caspian Basin and Central Asia begin
to move to market.

These exports will come from huge new onshore and offshore fields in Kazakhstan,
Turkmenistan, Azerbaijan, and Russia's Astrakhan region.  For example, three
offshore fields in Azerbaijan--Chyrag, Azeri, and Guyneshli- -have as much as 550
million tons of recoverable reserves.  Exports are set to start in June 1996, and
will reach 80,000 barrels per day by the end of the year.  Kazakhstan and
Turkmenistan also have massive reserves that are almost certain to move west
through Russia to reach international markets.     

Routes

The exact routes for new pipelines from Central Asia and the Caspian basin are a
matter of fierce dispute.  Over 20 major Western oil companies; their Russian,
Azeri and Kazakh partners; and the governments of Russia, Azerbaijan,
Kazakhstan, Georgia, Turkey, Iran, Greece, and Bulgaria are variously advocating
up to 10 alternative routes.  For technical reasons, new pipelines must avoid the
rugged Caucasus mountains between the Caspian and Black seas.  The choice of
routes is complicated politically by conflicts in Chechnya to the north, and in
Azerbaijan, Armenia, and Turkey to the south.  Related, outstanding issues range
from whether or not to deal with Iran, to disputed ownership of the Tengiz-Black
Sea pipeline, to environmental restrictions on tankers transiting the Dardenelles, to
the weather in Novorossiysk.   

Because of the krai's location, some of this "new oil" will inevitably cross
Krasnodar.  Russia favors a pipeline through Krasnodar from Kazakhstan and the
Volga to the Black Sea, with a southern leg extending from Baku.  From Krasnodar
ports, oil would be shipped by tanker westward across the Black Sea and through
the Bosporus, or to Burgas on Bulgaria's  Black Sea coast, and thence by pipeline
to Alexandropoulos, Greece on the Aegean Sea.  Another alternative to the
Bosporus would be shipment to Turkey's Black Sea coast and from there by
pipeline to the Turkish port of Ceyhan.   

Works in Progress

Regardless of which route is finally chosen, it is clear that Krasnodar will be the
site of at least one new pipeline, a new port, and expanded existing facilities.   The
first phase of a new export pipeline--crossing Krasnodar to link Russia's existing
pipeline network with new port facilities north of Novorossiysk--is already under
construction.  This is the first 250-km. leg of a 1500-km. crude oil pipeline from
Kazakhstan to the Black Sea.  When complete, it will transport up to 62 million
tons of oil annually from Kazakhstan's Tengiz oilfield.  Phase I, now under
construction, will run from an existing pipeline at Tikhoretsk, via Kropotkin, to the
Taman Peninsula.  The total cost of the new pipeline is an estimated $1.9 billion,
with the Government of Oman, one of the partners in its development, paying for
construction and guaranteeing funding of Phase I (worth about $300 million). 
Phase I is due to be commissioned in January 1997. 

A new terminal under construction on the Taman Peninsula will initially handle 15
million tons of crude annually.  The greater portion of this oil, 10.5 million tons,
will come from Russia, but significant amounts will originate in Kazakhstan,
growing incrementally from 4.6 million tons in 1996 to 9.6 million tons in 1998.  A
deep water berth is planned for the Taman terminal, and Russia has commissioned
12 tankers to be built for the Novorossiysk shipping line. 

Krasnodar is also the site of an existing pipeline from Baku to Novorossiysk, which
must be modernized before it resumes operation.  Reconstruction must wait for
resolution of the hostilities in Chechnya, since this pipeline runs through Grozny. 
An alternative is to build a cut-off around Chechnya.  Russia's LUKoil owns a 10
percent interest in the Azerbaijan International Oil Consortium project which is due
to produce oil from the three offshore oilfields near Baku.  LUKoil is determined to
see that future exports from the region transit Russia, although a U.S.-based
company, Oil Capital, Ltd., recently announced plans to finance construction of a
crude oil pipeline from Baku through Armenia and Turkey to the Mediterranean Sea
port of Yumurtalik. 

Judith Robinson covers energy for BISNIS.
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