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. Last Updated: 07/27/2016

14 Years On, Balkan Pipe Goes Ahead

ReutersKhristenko, left, Sioufas and Gagauzov shaking hands Thursday in Athens, as a long-awaited oil deal was sealed.
President Vladimir Putin on Thursday oversaw the signing of a long-awaited Balkan pipeline deal that will enable Russian and Caspian oil firms to export more crude to Mediterranean markets and bypass Turkey's crowded Bosporus Straits.

Putin joined prime ministers Costas Karamanlis of Greece and Sergei Stanishev of Bulgaria for a signing ceremony in Athens, which put an end to 14 years of delays and haggling over the project, estimated to cost about $1 billion.

A Russian-led consortium plans to begin construction of the 285-kilometer pipeline from Burgas on Bulgaria's Black Sea coast to Alexandroupolis on the Greek Aegean within one year.

If construction starts on time, the pipeline could be ready by 2011, Greek officials have said.

"The 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 which work there," Putin told reporters in Athens.

Karamanlis said: "It will also help international markets with improved access to oil at a time when energy is a fundamental global concern."

State companies Transneft, Rosneft and Gazprom Neft will together hold 51 percent of shares in The International Project, the company that will own the pipeline. Bulgaria and Greece will each hold 24.5 percent. The Bulgarian stake will be held by Burgas-Alexandroupolis Oil Pipeline Project, while Hellenic Petroleum (23.5 percent) and the Greek government (1 percent) will hold Greece's stake.

The deal has also garnered widespread support from Western oil companies and U.S. government officials.

Companies engaged in oil projects in Kazakhstan, such as Chevron and KazMunaiGaz, as well as TNK-BP, are interested in joining the project, Interfax reported Thursday.

A spokeswoman for Chevron in Moscow said Thursday that the company welcomed the signing of the pipeline deal and confirmed that it was interested in joining the project.

Valery Nesterov, oil and gas analyst at Troika Dialog, said there were some doubts about whether Rosneft and Gazprom Neft would be able to fill the pipeline. In this case, extra oil, most likely from Kazakhstan, would be needed, he said.

Clifford Kupchan, a Washington-based analyst for risk consultancy the Eurasia Group, agreed that other oil producers could get the chance to join the project.

"Whether Russia will allow other companies to use the pipeline depends on two factors: if it feels foreign volumes are useful, and if the Russian state is interested in developing deeper relations with these companies," Kupchan said.

During a visit to Athens earlier this week, U.S. Deputy Assistant Secretary of State for European and Eurasian Affairs Matthew Bryza expressed support for the pipeline.

Transneft vice president Sergei Grigoryev said Thursday by telephone that the three countries would now have to ratify the agreement. After this, the company that will own the pipeline will be established and the building schedule and tariff policy will be decided, he said.

Last month, Greek Development Minister Dimitris Sioufas said construction could start as early as 2008 and be completed by 2011.

The pipeline's annual capacity will be 35 million tons, with an option to expand it to 50 million tons.

The Burgas-Alexandroupolis pipeline will be the second major Bosporus bypass. The first, a $4 billion pipeline from Azerbaijan to the Turkish Mediterranean, began operations last summer -- after a similar long lead-up time of more than a decade.

Construction of this Bosporus bypass "is a very important project for Russia," said Roman Elagin, oil and gas analyst at Renaissance Capital, as it will increase the export possibilities for Russian crude.

The narrow and curving Bosporus Straits that connect the Black Sea with the Mediterranean are in some places only 700 meters wide. With more than 150 ships and nearly 3 million barrels of oil passing through the straits every day, Turkish authorities have grown increasingly concerned about the possibility of an environmental catastrophe.

In the most recent incident, a Russian freighter carrying wheat on Monday hit and sank a yacht moored on the Bosporus in an upscale Istanbul neighborhood.

Ships longer than 200 meters and those carrying dangerous cargo have been barred from passing through the straits at night and in foggy conditions, a restriction that has created severe bottlenecks and left ships waiting in line for days to enter the straits.

The wait is longer when the weather turns bad in winter months.

This bottleneck is what makes construction of the Burgas-Alexandroupolis pipeline so important, Elagin said.

While the Burgas-Alexandroupolis pipeline will increase supplies of crude to Mediterranean and European markets, some critics of the project have claimed that Alexandroupolis, a sleepy town of 75,000, is not deep enough to accommodate the large oil tankers used to transport crude to the United States.

This could potentially hamper export possibilities, limiting them to Europe and the Mediterranean.

Putin on Thursday, however, insisted that Alexandroupolis was a deepwater port and would be able to handle the biggest tankers.

"Considering the fact that Alexandroupolis is a deepwater port entered by 300,000-ton tankers, this is a global solution from the world market point of view," Putin said.

Meanwhile, town authorities hope the decision to build the pipeline will lead to investments and turn the harbor into one that can serve up to 30 of the world's largest oil tankers at a time, the Greek English-language weekly Athens News reported last month.

The Financial Times reported Thursday that Putin, after signing the oil pipeline deal, was expected to renew pressure on the Greeks to let Gazprom participate in a cross-border natural gas pipeline from Turkey. This Greek-Turkish joint venture, which is to carry an annual 11 billion cubic meters of gas, is due to start operating in June.