Azeri oil shifts to BTC route
13 February, 2014
Azeri oil shifts to BTC route

Starting from this spring, Azeri oil will reach export markets only through Georgia and Turkey. Azeri national energy company SOCAR recently announced its decision to change the transportation of its 1.55 million tons of oil per year from the Baku- Novorossiysk - or Northern Pipeline, completely regulated by Russia - to the Baku-Tbilisi-Ceyhan pipeline operated by BTC Co., in which SOCAR holds 25%.


The new volume of 1.55 million tons is not satisfactory to Georgia, which had expected 50 million
tons, but it can be a relief for the budget deficit of such a small country, thinks Liana Jervalidze, an energy analyst in transit issues. According to BTC projections, at present the volume was scheduled to increase from 50 to 60 million tons per year - going to 80 million tons ultimately by 2018-2020.
However, the Azeri-Chirag-Guneshli oil field supplying BTC now fell behind expectations, and has diminished production during the last four years from 37 million tons in 2010 to around 32 million and 29 million tons in 2011 and 2012 respectively.
But BTC looks forward to the touted Kazakh oil deposit Kashagan to start operation and supply 20 million tons by 2018-2010, as contracted, though at the moment the BTC pipe is half-empty.
Along with Azeri gas, it transports small amounts of Kazakh and Turkmen oil, leaving plenty of room for more SOCAR exports to shift from the Northern to the Southern direction.
“The BTC is run by SOCAR, and besides it transports oil to the Mediterranean Sea directly into the Ceyhan port that sends oil to Europe immediately – while the Novorossiysk route takes oil to the Black Sea where Azerbaijan cannot control sales,” Jervalidze said. “The Platts [an international provider of energy prices] does not operate in the Black Sea, but in the Mediterranean Sea basin it is easier for Azerbaijan to handle traders and sales.”
In fact, neither Azerbaijan nor Russia felt satisfied with the Baku-Novorossiysk route deal concluded in 1996, which envisaged transportation of 5 million tons of oil yearly from Guneshli oil field - with a tariff of USD 15.67 – to the Russian Black Sea port Novorossiysk.
As production dwindled, SOCAR has pumped less than half of the contracted volumes in the past two years, and planned to further reduce volume to 1.6 million tons this year, Azeri media reported. Russia’s state-run operator of the Northern Pipeline, Transneft, reported about USD 50 million losses per year because the pipeline was operating at half capacity.
In May 2013, Russian Prime Minister Dmitry Medvedev ordered termination of the agreement between Russia and Azerbaijan that expires this February. Azerbaijan agreed, as it also reported losses - Russia mixed Azeri high quality light oil with its heavy sour Urals brand in Novorossiysk, and then sold it at discounts as Brent crude.
Azerbaijan was unhappy that Russia held complete control over its oil export and sales in Novorossiysk. After Azerbaijan developed cheaper Southern route pipelines such as Baku-Supsa and BTC, through Georgia and Turkey - plus railroad transportation of oil from its Caspian port to Black sea ports in Georgia – AMOCO consortium, a partner of SOCAR in Caspian Sea oil exploration, and operator of the Northern Pipeline on Azerbaijani territory, rejected the Northern direction.
To make oil export more diversified, the state-controlled SOCAR decided to retain the direction for its own oil export in spite of unattractive commerciality. It fixed USD 15.67 per tons of oil transit, while Baku-Supsa offered USD 13.14. Amoco gave the pipeline operation to SOCAR in 2007.
However, the deal failed and Azeri oil will be provided to the international market through Georgia and Turkey only. SOCAR intends to control its oil export sales at Novorossiysk port, and require establishment of an oil quality bank as one of the key preconditions for a new supply contract through Russia.
Transneft required “a pump or pay” principle for a new contract that implies Azerbaijan would pay even if it does not use the designated capacity. Azerbaijan declined, saying it does not have enough oil to pump in the Russian direction while it has to fill its own pipelines.

 

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