Tough competition on East European oil transport market

Romania and five other states have signed an accord on the construction of an oil pipeline linking the Black Sea port of Constanta and the Italian Trieste. But the move is just a small step ahead on the long road this regional project has gone so far.

So much has passed since it was first discussed that the economic and political competition for the control and benefits of Caspian oil production has intensified dramatically.

The Romanian Ministry of Economy announced Monday the Interstate Committee for the Pan European Oil Pipeline (PEOP) project approved the final form of the memorandum of understanding related to the plan and the creation of a company to develop the project.

PEOP is just a name for the construction works at a future pipeline due to link the ports of Constanta and Trieste, as an interimary phase for the transportation of Kazakh oil to Central Europe.

The pipeline is hoped to recude the European dependency on Middle East oil with as little Russian influence as possible, while cooling down the speedy oil traffic through the Bosphorus.

The countries involved are Romania, Serbia, Croatia, but also Italia and Slovenia as full observers. Talks have stared as early as 1994, but the political framework and the wars of ex-Yugoslavia prevented them to advance fast.

Now a feasibility study exists and a company to manage the project is due to be formed. But problems are just starting to appear.

Mainly, the competition for the project has increased tenfold over the last 12 years and many other oil transportation options seem more logical and more viable commercially, as Ian Woollen, analyst for Wood Mackenzie, was quoted by Financial Times recently.

And there is a lack of consensus among the five states interested in the pipeline, especially when it comes to negotiating the tariffs for transportation – an issue which has yet to be discussed.

Meanwhile, the project would cost at least USD 2.4 bln., supported only in part by the European Union, while the parties have yet again to decide who brings what to the table. For Romania, the costs would vary as substantially as between USD 1.1-2.1 billion, depending on the quantity of crude due to be transported.

The gains would be substantial, though – between USD 2.27 billion for 40 million tons of oil/year and USD 4.39 billion for 90 million tons /year.

The competition is tough: the Russians seem to favor another pipeline, between the Bulgarian port of Burgas and either Greece or Albania, which would transport both Azeri and Kazakh oil, with a huge interference by Moscow.

And Vienna is already expecting the first Russian barrels through a pipeline built by OMV with Slovak firm Transpetrol. The pipeline is thought of as a supplementary alternative to the Adria-Vienna pipeline starting in Trieste.